<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 2000.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DRUGABUSE SCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
------------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 2836 94-3222724
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1430 O'BRIEN DRIVE
MENLO PARK, CA 94025
(650) 462-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
PHILIPPE POULETTY, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DRUGABUSE SCIENCES, INC.
1430 O'BRIEN DRIVE
MENLO PARK, CA 94025
(650) 462-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Jeffrey P. Higgins, Esq. Paul Hilton, Esq.
Gunderson Dettmer Stough Lexi Methvin, Esq.
Villeneuve Franklin & Hachigian, LLP Brobeck, Phleger & Harrison, LLP
155 Constitution Drive 370 Interlocken Blvd., Suite 500
Menlo Park, California 94025 Broomfield, Colorado 80021
(650) 321-2400 (303) 410-2000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE (1) REGISTRATION FEE
Common Stock,
$0.001 par value.......................................... $69,000,000.00 $18,216.00
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS Subject to completion , 2000
- --------------------------------------------------------------------------------
Shares
[LOGO]
Common Stock
- ------------------------------------------------------------
This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the public offering
price to be between $ and $ per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "DASI."
BEFORE BUYING ANY SHARES OF OUR COMMON STOCK YOU SHOULD READ THE DISCUSSION OF
MATERIAL RISKS OF INVESTING IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON
PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
- ----------------------------------------------------------------------------------
Public offering price $ $
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Underwriting discounts and commissions $ $
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Proceeds, before expenses, to DrugAbuse Sciences $ $
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</TABLE>
The underwriters may also purchase up to shares of common stock from us
at the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. This option may be exercised
only to cover over-allotments, if any. If the option is exercised in full, the
total underwriting discounts and commissions will be $ , and the total
proceeds, before expenses, to us will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares of common stock is expected to be made on
or about , 2000.
WARBURG DILLON READ LLC
ROBERTSON STEPHENS
<PAGE>
OUTSIDE GATEFOLD
Addiction is a disease of the brain. Evaluation of brain activity by SPECT
(Single Photon Emission Computerized Tomography) depicts four views of the human
brain to show markedly decreased brain activity in alcohol and drug abusers with
potential recovery following abstinence.
Upper left image: View of a normal brain
Text: "Normal view"
"top down surface view"
"full, symmetrical activity"
Upper right image: View of the brain of a 39 year old heroin addict, that shows
markedly decreased brain activity
Text: "39 year old patient with 25 years of frequent heroin use"
"top down surface view"
"marked overall decreased brain activity"
Lower left image: View of the brain of an alcohol abuser, that shows markedly
decreased brain activity
Text: "38 year old patient with 17 years of alcohol abuse"
"top down surface view"
"marked overall decreased brain activity"
"underside surface view"
Lower right image: View of the brain of an alcohol and drug abuser that has been
treated and abstinent for one year, that shows significant recovery of brain
activity
"treated alcohol and drug abuser who has been drug and alcohol free for one
year"
Text: "top down surface view"
These images reproduced with permission from Dr. Daniel G. Amen, M.D., of the
Brian Imaging Division of The Amen Clinic for Behavioral Medicine.
INSIDE FRONT COVER
Three pictures of neurological pathways.
First Picture: Picture of how normal neurological pathways function without the
presence of alcohol or drugs of abuse.
Text: "Normal brain function: neurons transmit signals via neurotransmitters.
Endorphins stimulate opiate receptors, and dopamine stimulates dopamine
receptors, inducing euphoria."
Second picture: Picture of the effect that heroin, alcohol and cocaine have on
neurological pathways.
Text: "Effect of heroin, alcohol and cocaine on neuron transmission. Heroin
over-stimulates opiate receptors. Alcohol triggers endorphin release.
Endorphins stimulate opiate receptors. Stimulation of opiate receptors
triggers neuron activation. Activated neuron releases dopamine. Cocaine
prevents the normal reabsorption of dopamine. Prolonged excess of dopamine
leads to abnormal euphoria."
Third picture: Picture of the effect of our product candidates on neurological
pathways.
Text: "Effect of DrugAbuse Sciences product candidates on neuron transmission.
NALTREL blocks opiate receptors, and the effects of alcohol and heroin,
COC-AB and ITAC block cocaine entry into the brain."
<PAGE>
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers selling shares of our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This delivery requirement is
in addition to the dealer's obligation to deliver a prospectus when acting as an
underwriter and with respect to their unsold allotments or subscriptions.
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this document.
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Prospectus summary..................... 3
The offering........................... 4
Summary consolidated financial data.... 5
Risk factors........................... 6
Forward-looking information............ 18
Use of proceeds........................ 19
Dividend policy........................ 19
Capitalization......................... 20
Dilution............................... 22
Selected consolidated financial data... 24
Management's discussion and analysis of
financial condition and results of
operations........................... 26
Business............................... 31
Management............................. 51
Related party transactions............. 63
Principal shareholders................. 66
Description of securities.............. 68
Shares eligible for future sale........ 71
Underwriting........................... 73
Legal matters.......................... 75
Experts................................ 75
Change in accountants.................. 75
Where you can find more information.... 76
Index to consolidated financial
statements........................... F-1
</TABLE>
AlcoholMD-TM-, BUPREL-TM-, COC-AB-TM-, DAS-TM-, DrugAbuse Sciences-TM-,
ITAC-TM-, Lactiz-TM-, MAP-AB-TM-, METHALiz-TM- and NALTREL-TM- are our
trademarks. Trade names, service marks or trademarks of other companies
appearing in this prospectus are the property of their respective holders.
- --------------------------------------------------------------------------------
2
<PAGE>
Prospectus summary
THIS SUMMARY HIGHLIGHTS SOME OF THE INFORMATION CONTAINED IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." OUR PRINCIPAL
EXECUTIVE OFFICES ARE LOCATED AT 1430 O'BRIEN DRIVE, MENLO PARK, CA 94025. OUR
TELEPHONE NUMBER IS (650) 462-1000.
OUR BUSINESS
We are the first biotechnology company dedicated to developing and marketing
novel therapies for alcohol and drug abusers. Alcohol and drug abuse is the
number one healthcare problem in the United States and Europe, with more than
30 million patients in need of long-term therapy. It consumes approximately 3.7%
of the Gross National Product in the United States alone. This market is
under-served with few medications available or in development. We intend to
become the leading biopharmaceutical company in addiction care by offering a
broad portfolio of medications to serve the addiction care community. Our
strategy is to develop low risk, high value added products in the near term and
expand our product portfolio through internal discovery research and the
acquisition of marketed products and technologies. We intend to build a sales
force to market our products, taking advantage of the concentrated addiction
care market.
THE PROBLEM
Addiction is a chronic disease of the brain. Current therapy depends heavily on
psychosocial therapy and the few available medications. However, psychosocial
therapy alone is insufficient as it does not address the biological basis of
addiction. Furthermore, because of their underlying neurological disease,
addicts typically have great difficulty taking pills every day and therefore
current medications usually fail. Consequently, only a minority of patients
receiving treatment remain alcohol or drug free after one year.
The molecular biology of addiction has recently been uncovered. Alcohol, heroin,
cocaine and methamphetamine all affect a common neurological pathway, which
involves the neurotransmitter dopamine. Medications that affect the dopamine
pathway are available to treat alcohol and heroin dependence. However, to be
effective in maintaining abstinence, these medications need to be taken every
day on a long-term basis. There are no medications for treating addiction to
other drugs of abuse, such as cocaine and methamphetamine. There is a great need
for novel therapies which can improve compliance with existing medications and
offer new means to promote abstinence, prevent relapse, and treat overdose for
alcohol, heroin, cocaine and methamphetamine abusers.
OUR SOLUTION
We are developing and intend to market a broad portfolio of biopharmaceutical
products that address key medical needs of alcohol and drug abusers. Our product
candidates for the treatment of alcohol abuse and heroin addiction, NALTREL-TM-,
BUPREL-TM- and METHALiz-TM-, are being developed to improve existing
medications. Our products are designed to be administered only once a month by a
physician or a nurse, as opposed to once a day by the patient. By putting the
medical practitioner in control, we believe our products will promote continuous
therapy and help overcome patient non-compliance. Our other product candidates,
COC-AB-TM-, MAP-AB-TM- and ITAC-TM-, are intended to provide novel means to
treat patients suffering from cocaine and methamphetamine overdose and
addiction.
In 2000, to support prospective market approval in the United States and Europe,
we expect to conduct pivotal clinical trials with NALTREL for the treatment of
alcohol and heroin dependence. In parallel, in the next 18 months we expect to
conduct several human trials with BUPREL and METHALiz for the treatment of
severe heroin dependence and with COC-AB and ITAC for the treatment of cocaine
overdose and addiction.
OUR STRATEGY
We intend to:
- - Focus on the large but under-served alcohol and drug addiction care market;
- - Develop low risk, high value added products in the near term;
- - Build a broad product portfolio through internal discovery research and
development, and the licensing or acquisition of commercial products and
product candidates; and
- - Market our products in the United States and Europe using our own dedicated
sales force.
3
<PAGE>
The offering
The following information assumes that the underwriters do not exercise the
over-allotment option granted by us to purchase additional shares in the
offering.
<TABLE>
<S> <C>
Common stock offered by us................... shares
Common stock to be outstanding after the shares
offering...................................
Proposed Nasdaq National Market symbol....... DASI
Use of proceeds.............................. Working capital and general corporate
purposes. See "Use of proceeds."
</TABLE>
Except as otherwise indicated, information in this prospectus is based on the
following assumptions:
- - the sale of 2,236,563 shares of Series D preferred stock on October 6, 1999,
for an aggregate of $2.3 million, $3.0 million of which consisted of the
conversion of outstanding debt;
- - the exchange of 1,849 shares of common stock in DrugAbuse Sciences, SAS, our
French subsidiary, for 2,445,131 shares of our common stock on February 1,
2000;
- - the automatic conversion of all outstanding shares of preferred stock into
7,305,763 shares of our common stock upon the closing of this offering;
- - net exercise of outstanding warrants to purchase 1,800,013 shares of our
common stock at an assumed public offering price $ per share;
- - 6-for-1 reverse split of the common stock to be effected prior to the
closing of this offering; and
- - no exercise of the underwriters' over-allotment option.
We are obligated to issue shares of common stock upon exercise of options
outstanding at January 20, 2000, in addition to the shares of common stock to be
outstanding after this offering. These shares, when and if issued will include:
- - shares issuable upon exercise of the underwriters' over-allotment
option;
- - 374,519 that may be shares that may be issuable upon the exercise of
warrants outstanding as of January 20, 2000;
- - 1,042,729 shares issuable upon the exercise of options outstanding as of
January 20, 2000, at a weighted average exercise price of $0.074 per share;
and
- - 1,656,417 shares made available for future grants and awards under our stock
plans to be effective at the close of this offering. For a description of
our stock option and stock purchase plans, please see "Management--Stock
plans."
The number of shares of common stock outstanding after the offering is based on
shares outstanding as of September 30, 1999, based on the assumptions above.
Please see "Capitalization."
4
<PAGE>
Summary consolidated financial data
THE FOLLOWING TABLE SUMMARIZES THE FINANCIAL DATA FOR OUR BUSINESS DURING THE
PERIODS INDICATED. THE DATA SET FORTH BELOW SHOULD BE READ IN CONJUNCTION WITH
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
Also, with respect to information relating to the number of shares used in per
share calculations and information relating to pro forma calculations, please
note the following:
- - See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing basic and
diluted loss per share and pro forma net loss per share.
- - The pro forma information for the consolidated balance sheet data at
September 30, 1999 represents the automatic conversion of all outstanding
preferred stock into 2,624,075 shares of common stock and adjusted to give
effect to the sale of shares of common stock offered by us at the
initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. See "Use of proceeds" and "Capitalization." Subsequent to
September 30, 1999, we sold 2,236,563 shares of Series D preferred stock on
October 6, 1999, for an aggregate of $22.3 million, $3.0 million of which
consisted of the conversion of outstanding debt, and 1,849 shares of common
stock. DrugAbuse Sciences, SAS, our French subsidiary, which converted into
2,445,131 shares of our Series D preferred stock on February 1, 2000.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA: 1997 1998 1998 1999
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Grant revenues............................................. $-- $810,607 $630,635 $921,288
Loss from operations....................................... (1,382,412) (1,077,029) (644,210) (2,857,260)
Net loss................................................... (1,300,163) (996,426) (606,715) (2,864,752)
----------- ----------- ----------- -----------
Net loss per share, basic and diluted...................... $(0.61) $(0.47) $(0.29) $(1.35)
=========== =========== =========== ===========
Shares used in computing net loss per share, basic and
diluted.................................................. 2,114,506 2,116,728 2,116,728 2,119,886
Pro forma net loss per share............................... $(0.26) $(0.64)
=========== ===========
Shares used in computing pro forma net loss per share...... 3,808,353 4,493,712
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
AS OF DECEMBER 31, -------------------------
------------------------- PRO FORMA
CONSOLIDATED BALANCE SHEET DATA: 1997 1998 ACTUAL AS ADJUSTED
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents................................... $2,305,882 $1,039,315 $3,609,974 $
Total assets................................................ 2,693,408 1,997,048 4,959,161
Long-term obligations and capital lease obligations......... 478,684 543,090 3,408,545
Total shareholders' equity.................................. 1,707,699 862,490 714,712
</TABLE>
5
<PAGE>
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Risk factors
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR BUSINESS AND RESULTS OF
OPERATIONS COULD BE SERIOUSLY HARMED IF ANY OF THE FOLLOWING RISKS OCCUR. IN
THIS CASE THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF
THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE ARE AT AN EARLY STAGE OF DEVELOPMENT, WE HAVE NOT GENERATED ANY REVENUES AND
WE MAY NEVER SELL OUR PRODUCTS OR BECOME PROFITABLE
We commenced operations in late 1994 and are still a development stage company.
We have not commercialized any products and we have incurred significant losses
to date. If we are ever to obtain revenue from the sales of our products, we
must successfully develop, test, obtain regulatory approval for, manufacture,
market and sell our products. To date, our revenues have been solely from
government grants. Our expenses have consisted principally of costs incurred in
research and development and from general and administrative costs associated
with our operations. Operating losses were approximately $1.4 million for the
fiscal year ended December 31, 1997 and approximately $1.1 million for the
fiscal year ended December 31, 1998. We had an accumulated deficit of
approximately $6.0 million at September 30, 1999. We expect our expenses to
increase and to continue to incur operating losses for at least the next several
years as we continue our research and development efforts and develop and market
our products. The time frame to achieve market success for any one of our
products is long and uncertain and may not occur at all. As a result, we may
never become profitable. In addition, even if our research and development
efforts are successfully completed, our products may not perform in the manner
we anticipate, they may not be safe or effective, they may not be accepted for
use by patients or for administration by the medical community and we may not be
able to manufacture our products to the necessary standard or in a
cost-effective manner or rapidly enough to meet market demand.
IF WE ARE UNABLE TO SUCCESSFULLY COMPLETE PRE-CLINICAL TESTING AND CLINICAL
TRIALS, WE MAY NEVER OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS
We are still developing our products. The FDA must approve our new products
before they can be marketed in the United States. Before we can obtain FDA
approval for the sale of any of our products in the United States, we must
demonstrate, through pre-clinical testing and clinical trials, that our product
candidates are safe and effective. In addition, we will need to obtain approvals
from the appropriate regulatory authorities to market our products in Europe and
internationally. Foreign regulations can vary among countries and foreign
regulatory authorities may require different or additional clinical trials than
we conduct to obtain FDA approval.
NALTREL-TM- is the only product candidate for which we have initiated clinical
trials involving human testing. Our other product candidates, BUPREL-TM-,
METHALiz, COC-AB-TM-, MAP-AB-TM- and ITAC-TM-, are still in the pre-clinical
testing phase. Conducting clinical trials is a lengthy, time-consuming,
uncertain and expensive process. We will incur substantial expenses for, and
devote significant time and resources to, pre-clinical testing and clinical
trials of our product candidates, which may take up to a minimum of two to three
years to complete for our first product. Clinical trials are subject to various
interpretations. Regulatory authorities may not agree with us regarding our
trial design, methods of analysis and our interpretations of clinical results.
If we do not obtain regulatory approval for our product candidates, we will not
be able to sell them.
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6
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
In addition, it is possible that we could encounter problems in a clinical trial
that would significantly delay the completion of the trial, require us to repeat
the study or cause us to abandon the trial or our product candidates altogether.
The commencement and completion of clinical trials may be delayed or affected by
several factors, including:
- - lack of effectiveness of the product;
- - unforeseen safety issues;
- - uncertain dosing issues;
- - inability to manufacture or develop the product candidates and the placebo
to be used in the clinical trials;
- - inability to obtain the controlled substances to be used in the study;
- - patient enrollment, including the size of the patient population, the nature
of the protocol, the proximity of patients to clinical sites, the
eligibility criteria for the study and the potential for patient drop out,
particularly due to the nature of the study;
- - availability of third parties to conduct the trials;
- - inability to adequately follow patients after initial participation in the
clinical trial; and
- - changes in government policy and government or regulatory delays.
If any of our product candidates fail to demonstrate safety and efficacy at any
stage, then the development of other product candidates may be delayed and our
ability to conduct related pre-clinical testing and clinical trials would be
hindered. In addition, even if a product from our research and development
program is successfully developed according to our design, we cannot be assured
that it will be approved by the FDA, European regulatory agencies or any other
foreign regulatory agency, on a timely basis or at all.
WE WILL NOT BE ABLE TO SELL OUR PRODUCTS IF WE DO NOT OBTAIN THE NECESSARY
DOMESTIC AND FOREIGN REGULATORY APPROVALS
The production and marketing of our products and our ongoing research and
development activities are subject to regulation by numerous governmental
authorities in the United States and Europe.
The length of the regulatory review period varies considerably, as does the
amount of pre-clinical and clinical data required to demonstrate the safety and
effectiveness of a specific product. In some cases, the testing process may be
even longer if we replace a compound because we have been unable to obtain the
original compound or another compound has been introduced that is better than
the compound we were initially going to use. In addition, if the FDA or any
other foreign regulatory agency, changes its policy position during the period
of product development, we could encounter additional delays or rejections.
In some cases, even if regulatory approval of a product is granted, approval may
be conditioned upon limiting the indicated uses for which our product may be
marketed. Further, regulatory agencies will require post-marketing reporting and
may require surveillance programs to monitor the usage or side effects of each
of our approved product. Our approved products, their manufacturer and their
manufacturing facilities will be subject to continual review and periodic
inspections. If unknown problems with one of our products, its manufacturer or
facilities are discovered after regulatory approval, regulatory agencies may
place restrictions on the product or manufacturer, or may require withdrawal of
the product from the market.
Government regulation in the United States or Europe may delay marketing of our
potential products for years, may impose costly procedures upon our business and
may furnish a competitive advantage to larger companies that may compete with
us. A delay in obtaining or a failure to obtain these approvals would
- --------------------------------------------------------------------------------
7
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
inhibit our ability to market any potential products we develop and could
adversely affect our liquidity and capital resources. In addition, our failure
to comply with applicable regulatory requirements, could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant market clearance or market approval, withdrawal of approvals
and criminal prosecution.
We have relied upon scientific, technical, clinical, commercial and other data
supplied and disclosed by outside collaborators and will rely in part on such
data in support of our initial drug applications and subsequent clinical trials
for our products. If the FDA or any other foreign regulatory agency does not
permit us to rely upon such data to support our applications or subsequent
clinical trials or if the information contains errors or omissions of fact or is
otherwise inadequate, our research and development efforts will be harmed and it
is unlikely that we will obtain the necessary regulatory approval for our
products.
THE MARKET FOR MEDICATIONS TO TREAT ADDICTIONS IS LIMITED AND MAY NOT DEVELOP
Psychosocialtherapy is currently the primary treatment for addiction care.
Because scientists have only recently uncovered the molecular basis of
addiction, many medical professionals have not accepted medications as a form of
addiction treatment. If this market does not develop and our products are not
widely accepted by the addiction care community we will not be successful. In
addition, addicts must be willing to begin and maintain this type of medical
treatment for their addiction, or we will not be successful. Currently, even
those addicts who begin therapy with the limited medications available to treat
addiction fail to take their medication on a long term basis and often relapse
to their addiction. We cannot be assured that our products will achieve patient
compliance.
In addition, many other factors influence the market acceptance of new
pharmaceuticals, including:
- - safety and efficacy of the product;
- - marketing and distribution restrictions;
- - adverse publicity; and
- - product pricing and reimbursement by third-party payors.
WE WILL RELY ON REIMBURSEMENT OF THIRD-PARTY PAYORS FOR PAYMENT FOR OUR PRODUCTS
Our profitability will depend on reimbursement for the cost of our products by
government health organizations, such as Medicaid, private health insurance
providers and other organizations. Most patients who buy commercial drug
products rely on reimbursement from their insurance provider or the government
to cover the cost of the product. Historically in the United States, many state
Medicaid programs and various private health insurance providers have been
reluctant to provide reimbursement for addiction care medications such as
methadone. We cannot be assured that the cost of our products will be reimbursed
by these third-party payors. Several other factors may affect the possibility
that the cost of our products will be reimbursed, including:
- - the trend in the United States of third party payors toward cost-reduction;
- - patients' access to medical insurance and medication reimbursement; and
- - third-party payors often limiting reimbursement for newly approved
healthcare products.
In addition, we could experience pricing pressure on our products due to the
trend toward managed health care, the increasing influence of health maintenance
organizations, and legislative proposals. We may not be able to sell our
products profitably if reimbursement is unavailable or limited in scope.
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
FOREIGN GOVERNMENTAL REGULATIONS AND PRICE CONTROLS COULD LIMIT OUR REVENUES AND
PROFITS
In the European Union, or EU, the Member States generally have the option to
restrict the range of products covered by their national health insurance
systems. They are also allowed to control the prices of medications for human
use. A Member State may approve a specific price for our products or it may,
instead, adopt a system of direct or indirect controls on our profitability. We
cannot be assured that any Member State with price controls or reimbursement or
coverage limitations for medications will allow favorable coverage and pricing
arrangements for our products.
SOME OF OUR PRODUCTS CONTAIN CONTROLLED SUBSTANCES
Some of the components of our current product candidates are regulated as
controlled substances by the United States Drug Enforcement Administration, or
DEA and internationally by the International Narcotics Control Board and
national agencies. The active ingredient in METHALiz is currently classified as
Schedule II (signifying, among other things, a high potential for abuse) and the
active ingredient in BUPREL is currently classified as Schedule V (signifying,
among other things, a lower but still significant potential for abuse). In
addition, the active ingredient in ITAC is derived from a substance classified
as Schedule II and may itself be regulated as a Schedule II substance.
As controlled substances, the handling of these ingredients, and the
manufacture, shipment, storage, sale, and use of finished products containing
these ingredients, are subject to the highest degree of regulation and
accountability by DEA. The amount of controlled substances we can obtain for
clinical trials and for commercial distribution is limited by the DEA and may
not be sufficient to complete clinical trials or meet commercial demand. We
cannot be sure that the DEA will not, in the future, seek to regulate other
ingredients in our product candidates as controlled substances. DEA restrictions
on the controlled substance ingredients used in our products, or on the
marketing of our products containing those ingredients, could significantly
limit the sales of our products, resulting in a material adverse impact on our
financial performance.
OUR BUSINESS DEPENDS ON THE EXISTENCE OF COLLABORATIVE RELATIONSHIPS TO BE
SUCCESSFUL
We rely heavily upon other parties for many important stages of our discovery,
research and product development, including:
- - manufacturing of our product candidates;
- - conducting of pre-clinical trials and clinical studies; and
- - development of new products and technologies under the license of existing
patented and proprietary information.
We will also rely upon other parties to manufacture our commercial products. In
addition, we license most of our technology from strategic partners. We license
the sustained-release polymer technology, called Lactiz, which is used in
NALTREL, BUPREL and METHALiz from Southern Research Institute and we license our
ITAC technology from The Scripps Institute. The successful completion of our
clinical trials and the sale of our products depends upon the continued
relationship with these partners. In the event that any of these partners were
to terminate the licensing arrangement, or if the licensor failed to perform its
obligations under the agreements, we would be unable to continue with our
product testing and would not be successful in bringing our product to the
market.
In addition, some of the technology licensed by us relating to ITAC may rely on
patented inventions developed using US government resources. The US government
may retain certain rights to these inventions and may choose to exercise such
rights.
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RISK FACTORS
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OUR BUSINESS DEPENDS ON THE EXISTENCE OF GOVERNMENTAL FUNDING TO BE SUCCESSFUL
We conduct research and development activities for some of our product
candidates with various French universities. Some of these research and
development activities are paid for, in part, by grants from the French
government. One grant is in the amount of approximately $0.5 million and is
repayable without regard to circumstances. In June 1999 under the terms of this
grant we began repayment and will continue to make repayments annually until
September 30, 2002. The other grant is in the amount of approximately $2.8
million and is repayable in the form of royalties upon commercial sale of the
product. In addition we have agreed to use our best efforts to manufacture some
of our products in France. If we are not successful in securing additional
funding from governmental sources or we are required to reimburse any amounts
received to date, we would be required to scale back our research and
development efforts.
COMPETITORS HAVE DEVELOPED OR COULD DEVELOP PRODUCTS OR TECHNOLOGIES THAT
COMPETE WITH OUR PRODUCTS AND THAT COULD RENDER OUR PRODUCTS OBSOLETE
We expect the intensity of competition to increase. Currently, we compete with
biotechnology, pharmaceutical, chemical and other companies, academic and
scientific institutions, governmental agencies and public and private research
organizations.
Several companies are currently making or developing products that compete with
or will compete with our products. The current products that will compete with
ours are:
- - Acamprosate, for treatment of alcoholics, marketed by Lipha;
- - Buprenorphine, for treatment of heroin addiction, marketed by Schering
Plough;
- - Disulfiram, for treatment of alcoholics, marketed by Wyeth Ayerst and
others;
- - LAAM, a derivative of methadone, for treatment of heroin addiction, marketed
by Roxane;
- - Methadone, for treatment of heroin addiction, marketed by Roxane and
Mallinckrodt; and
- - Naltrexone oral tablets, for treatment of heroin addicts and alcoholics,
marketed by Barr Laboratories and Dupont Merck.
Technological advances, new treatments and new products could make our products
obsolete or unsuccessful in the market. In particular, the patents for
naltrexone, methadone and buprenorphine have expired and several competitors may
be developing products similar to ours based on the same basic compounds.
Many of our competitors have greater financial, operational, sales and marketing
resources, and more experience in research and development than we have.
Products developed by these competitors could have advantages significantly
outweighing those of the products that we are seeking to develop and even render
our products obsolete.
WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS
RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS
We currently hold one US patent relating to COC-AB and we expect that a second
patent will be issued in the near future. In addition, we have patent
applications pending for our proprietary naltrexone formulation, NALTREL and our
buprenorphine formulation, BUPREL. Additionally, we have an exclusive license
from Southern Research Institute for patents and patent applications for our
sustained-release technology, Lactiz-TM-, which is used in NALTREL, BUPREL and
METHALiz and an exclusive license from the Scripps Research Institute for
patents and patent applications relating to ITAC. If the use of any of these
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RISK FACTORS
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patents were to be challenged, resulting in the initiation of any litigation, we
would incur substantial costs and our ability to compete would be limited.
Patent positions in the pharmaceutical field are often uncertain and may involve
complex legal, scientific and factual questions. There has been increasing
litigation in the pharmaceutical industry with respect to the manufacture, use
and sale of new therapeutic products that are the subject of conflicting patent
rights. The validity and breadth of claims in pharmaceutical patents may involve
complex factual and legal issues for which no consistent policy has emerged, and
therefore, are highly uncertain. Moreover, the patent laws of foreign countries
differ from those of the United States, and therefore the degree of protection
afforded by foreign patents may be different. It is possible that patent
applications relating to products and technologies developed by us may not
result in patents being issued or that, even if the patents are issued, it does
not mean that we will have a competitive advantage or will gain protection
against competitors with similar technology, or that the patents will not be
challenged successfully or circumvented by competitors. In addition, there is a
substantial backlog of biotechnology patent applications at the US Patent and
Trademark Office, and the approval or rejection of patent applications may take
several years.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING ON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS
Our products may conflict with patents that have been or may be granted to
competitors, universities or others. In addition, our products compete with
products that have been developed by other companies using alternative
technologies. These products may differ only because of the active ingredient,
formulation, mechanism of action, dosage form, frequency of administration or
target indication. As the pharmaceutical industry expands and more patents are
issued, the risk increases that our products may give rise to patent
infringement claims. In the event a claim is brought, we could face legal
actions seeking damages and seeking to enjoin clinical testing, manufacturing
and marketing of the affected product. This type of litigation could consume a
substantial portion of our resources, and if there was an adverse outcome to of
any such litigation, our business would be severely harmed. In the event that
any claims of third-party patents are upheld as valid and enforceable with
respect to a product or process made, used or sold by us, we could be prevented
from practicing the subject matter claimed in such patents or could be required
to obtain licenses or redesign our products or processes to avoid infringement.
As a result, we would be liable to pay damages that may exceed our resources. We
cannot be assured that such licenses would be available or, if available, would
be on commercially reasonable terms, or that we would be successful in any
attempt to redesign our products to avoid infringement.
THE RIGHTS WE RELY UPON TO PROTECT OUR TRADE SECRETS MAY NOT BE ADEQUATE,
ENABLING THIRD PARTIES TO USE OUR TECHNOLOGY
We require our employees, consultants and advisors to execute confidentiality
agreements. However, we cannot guarantee that these agreements will provide us
with adequate protection against improper use or disclosure of confidential
information. In addition, in some situations, these agreements may conflict
with, or be subject to, the rights of third parties with whom our employees,
consultants or advisors have prior employment or consulting relationships.
Further, others may independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets.
WE DEPEND SOLELY ON THIRD PARTY MANUFACTURERS
We have no manufacturing facilities for clinical production of our products and
we rely on third parties for the manufacture of drug product. Aventis Pasteur
manufactures COC-AB for use in our clinical trials and
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for commercial sale. SP Pharmaceuticals manufactures Naltrel for use in our
clinical trials. The strategy of using third party manufactures carries with it
certain risks, including:
- - reduced control over quality, timing and scale of production;
- - inability to manufacture products on reasonable terms;
- - inability to produce commercial quantities of our products;
- - loss of FDA approval or approval from other foreign regulatory agencies; and
- - in the case of products containing controlled substances, loss of DEA
approval.
If any of these risks were to materialize, our pre-clinical testing and clinical
trials could be delayed, the results from these trials could be invalidated and
we could be unable to meet commercial manufacturing quantity and quality
requirements.
We currently do not have any agreements for the manufacture of BUPREL, METHALiz,
or ITAC for clinical trials. We have entered into an agreement with Aventis
Pasteur for the commercial manufacture of COC-AB but we currently do not have
any other agreements for the commercial manufacture of our other product
candidates. We cannot be assured that we will be able to enter into such
agreements on commercially reasonable terms or at all.
If we are unable to enter into agreements with our manufacturers for our
clinical trials or commercial manufacture of such products, or if our
manufactures breach the terms of their agreements with us, we will need to
obtain FDA approval for any alternate manufacturer which may delay the
commercialization of our products and we run the risk that our clinical trials
will be invalidated.
WE DEPEND UPON THIRD-PARTIES TO SUPPLY RAW MATERIALS
While we expect to have access to several suppliers for most of the raw
materials used in our product candidates, each supplier must be qualified and
approved according to the FDA, DEA and other foreign regulatory agencies'
policies. If any of our suppliers were unable to supply us with the necessary
materials in a timely fashion, or at all, we would need to obtain a substitute
vendor, which would not only delay the timing of our pre-clinical testing and
clinical trials, but would require the submission of additional regulatory
applications, which could take several months to process. The delay of our
testing will inhibit our ability to obtain regulatory approval and therefore, we
will not be able to sell our products for an indeterminate amount of time, or at
all.
WE WILL NEED TO ESTABLISH SALES AND MARKETING CAPABILITIES TO SELL OUR PRODUCTS
We have no sales and marketing experience. If our products are approved for sale
and we have not established the sales and marketing capabilities necessary to
commercialize our product, we will never be successful. Establishing sufficient
sales and marketing capability will require the expenditure of significant
amounts of capital. We will need to recruit and retain skilled sales management,
direct salespersons or distributors. If we enter into distribution arrangements
with third parties for the sale of our products, we will be dependent on them.
If we are unable to attract and retain a skilled sales and marketing team, or if
third party distributors do not perform as expected, we will not become
profitable.
OUR BUSINESS COULD BE AFFECTED AS A RESULT OF FUTURE ACQUISITIONS
Part of our strategy is to acquire additional businesses, products or
technologies. If we are unable to successfully complete these types of
transactions, the overall timing of our business strategy could be affected. In
addition, even if we identify an appropriate acquisition candidate, we may not
be able to negotiate the terms of the acquisition successfully, finance the
acquisition, or integrate the acquired
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business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we were
to proceed with one or more significant acquisitions in which the consideration
included cash, we could be required to use a substantial portion of our
available cash, including the proceeds of this offering, to consummate any
acquisition. On the other hand, if we consummate one or more significant
acquisitions in which the consideration consists of stock or other securities,
your equity interest could be significantly diluted. In addition, we may be
required to amortize significant amounts of goodwill and other intangible assets
in connection with future acquisitions, which would seriously harm our business.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS, WE MAY NOT BE ABLE TO SUPPORT OUR
OPERATIONS
Based on our current plans, we believe our cash, cash equivalents and short-term
investments, together with the net proceeds of this offering will be sufficient
to fund our operating expenses and capital requirements through at least the
next 18 months. However, the actual amount of funds that we will need during or
after the next 18 months will be determined by many factors, some of which are
beyond our control, and we may need funds sooner than currently anticipated.
These factors include:
- - our progress with research and development;
- - the success of our pre-clinical testing and clinical trials;
- - costs and timing of obtaining regulatory approval for our products;
- - our ability to license and/or acquire innovative technologies and products;
- - our ability to protect our intellectual property rights;
- - our ability to manufacture our products;
- - our ability to introduce and sell our products;
- - our ability to hire competent personnel;
- - the level of our sales and marketing expenses;
- - pricing and policies of reimbursement; and
- - the costs and timing of obtaining new patent rights, changes in regulation,
competition, and medical and technological developments in the market.
If additional funds are required and we are unable to obtain them on terms
favorable to us, we may be required to delay, scale back or eliminate some or
all of our research and development programs or to license third parties to
market products or technologies that we would otherwise seek to develop or
market ourselves. If we raise additional funds by selling additional shares of
our capital stock, the ownership interest of our shareholders will be diluted.
IF OUR PRODUCTS ARE ALLEGED TO BE HARMFUL, OUR BUSINESS MAY BE ADVERSELY
AFFECTED
In the event that any of our products is alleged to be harmful, we may
experience reduced consumer demand for our products and our products may be
recalled from the market. In addition, we may be forced to defend a lawsuit and,
if unsuccessful, to pay a substantial amount in damages. We currently have
insurance against liability risks associated with pre-clinical testing and
clinical trials, and intend to obtain coverage to insure against liability risks
associated with manufacturing and marketing of our products. If our insurance
coverage limits are not adequate to protect us from the liabilities we might
incur in connection with the clinical testing or sales of our products, our
business will be severely harmed. Insurance is expensive and, in
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RISK FACTORS
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the future, may not be available on acceptable terms, if at all. A successful
product liability claim or series of claims brought against us in excess of our
insurance coverage, or a recall of our products, could have a detrimental effect
on our business, financial condition and results of operations.
INTERNATIONAL EVENTS CAN AFFECT THE AVAILABILITY AND PRICE OF THE MATERIALS WE
USE, THE TIMING OF OUR PRE-CLINICAL TESTS AND CLINICAL TRIALS AND THE SALE OF
OUR PRODUCTS
We expect that a significant portion of our sales will be made outside of the
United States. International operations involve a number of risks not typically
present in solely domestic operations, including:
- - additional and varied regulatory approval processes;
- - government controls;
- - changes in regulatory policies;
- - export license requirements;
- - political instability;
- - price controls and reimbursement policies;
- - trade restrictions;
- - changes in tariffs or duty rates;
- - changes in currency exchange rates; or
- - difficulties in staffing and managing international operations.
WE COULD HAVE ACCIDENTS RELATING TO HAZARDOUS MATERIALS
Our research, development and manufacturing activities involve the controlled
use of hazardous materials, chemicals, and waste products and, as such, we are
subject to federal, state and local laws and foreign regulations governing the
use, manufacture, storage, handling and disposal of these materials, chemicals
and waste products. Although we believe that our safety procedures for the
handling and disposal of these materials comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, we could be held liable for any damages that result, and any such
liability could exceed our resources. We may be required to incur significant
costs to comply with environmental laws and regulations in the future. The
compliance with or breach of current or future environmental laws or regulations
may be costly and time consuming and may severely harm our business.
OUR EFFORTS WOULD BE HINDERED IF WE WERE TO LOSE THE SERVICES OF ANY OF THE
PRINCIPAL MEMBERS OF OUR MANAGEMENT AND SCIENTIFIC TEAM
Our success will depend on our ability to attract and retain key employees and
scientific advisors. Competition among biotechnology and biopharmaceutical
companies for highly skilled scientific and management personnel, particularly
in our geographic region, is intense. There is no guarantee that we will be
successful in retaining our existing personnel or advisors, or in attracting
additional qualified employees. Our anticipated expansion of existing functions
and entry into new areas and activities requiring additional expertise, such as
clinical testing, regulatory compliance, marketing and distribution, are
expected to place increased demands on our resources. These activities are
expected to require the addition of new personnel with expertise in these areas
and the development of additional expertise by existing personnel. If we fail to
acquire such personnel, lose existing personnel, specifically current members of
our management team, such as our Chief Executive Officer, or fail to develop
this expertise, our success would be hindered. We maintain
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a key-man life insurance policy on the life of our founder and Chief Executive
Officer, Philippe Pouletty, in the amount of $5.0 million.
We also depend on the continued availability of outside scientific collaborators
who perform research, which we may fund, in certain areas relevant to our
research, and on consultants and scientific advisors. Our scientific
collaborators, consultants and advisors are not our employees and generally may
terminate their relationship with us at any time. As a result, we have limited
control over their activities and can expect that only limited amounts of their
time will be dedicated to our research. Although certain of our scientific
collaborators have agreed not to engage in activities that would involve a
conflict of interest with our business, it is possible that this could occur in
the future.
WE HAVE EXPERIENCED RECENT GROWTH AND IF WE DO NOT MANAGE THIS GROWTH
EFFECTIVELY, IT COULD AFFECT OUR ABILITY TO PURSUE BUSINESS OPPORTUNITIES AND
EXPAND OUR BUSINESS
We have recently expanded our management team, adding a Vice President of
Clinical Development in October 1999, a Senior Vice President of Marketing and
Sales, a Vice President of Regulatory Affairs and a Senior Vice President of
European Development in January of this year. Philippe Pouletty, the founder and
Chairman of our company, replaced our former Chief Executive Officer in December
of 1999 and our Chief Financial Officer, a director since 1998, joined our
management team in April of 1999. Since these officers have so recently been
elected, it may take some time before the management team is able to effectively
work together and manage our business or operations. In addition, our management
team will need to expand, train and manage our workforce and continue to improve
our operational and financial systems and managerial controls. If we fail to
effectively manage our growth and address the above concerns, it could affect
our ability to pursue business opportunities and expand our business.
WE NEED TO DEVELOP OUR INFRASTRUCTURE
We have only recently implemented financial and accounting processes, controls,
reporting systems and procedures. We currently utilize commercial accounting
software that is licensed to our outside accounting consultants. We have limited
internal financial and accounting personnel. We believe that we need to hire
additional financial and accounting personnel to manage future growth.
Additionally, due to our international operations and the difference in
accounting conventions between the United States and Europe, there is added
complexity in our financial reporting and controls.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND CALIFORNIA LAW COULD MAKE
A THIRD-PARTY ACQUISITION OF US DIFFICULT. THIS COULD LIMIT THE PRICE INVESTORS
MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK
The anti-takeover provisions in our articles of incorporation, our bylaws and
California law could make it more difficult for a third party to acquire us
without approval of our board of directors. As a result of these provisions we
could delay, deter or prevent a takeover attempt or third party acquisition that
our shareholders consider to be in their best interests, including a takeover
attempt that results in a premium over the market price for the shares held by
our shareholders.
RISKS RELATED TO THIS OFFERING
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING EXECUTIVE
OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS MAY PREVENT NEW INVESTORS FROM
INFLUENCING SIGNIFICANT CORPORATE DECISIONS
Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately % of our
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outstanding common stock or % if the underwriters' over-allotment option
is exercised in full. As a result, these persons, acting together, will have the
ability to determine the outcome of all matters submitted to our shareholders
for approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
such persons, acting together, will have the ability to control the management
and affairs of our company. Accordingly, this concentration of ownership may
harm the market price of our common stock by:
- - delaying, deferring or preventing a change in control of our company;
- - impeding a merger, consolidation, takeover or other business combination
involving our company; or
- - discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
Please see "Principal shareholders" for additional information on concentration
of ownership of our common stock.
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE, WHICH IN TURN COULD AFFECT OUR ABILITY TO RAISE ADDITIONAL CAPITAL TO
FUND THE COMMERCIALIZATION OF OUR PRODUCTS
The trading price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations in price in response to various factors, many of
which are beyond our control, including:
- - actual or anticipated variations in quarterly operating results;
- - announcements of technological innovations or breakthroughs in research by
us or our competitors;
- - the meeting or failure to meet milestones;
- - delay or failure in initiating, conducting, completing or analyzing clinical
trials or unsatisfactory design or results of these trials;
- - achievement of regulatory approvals;
- - new products or services introduced or announced by us or our competitors;
- - changes in financial estimates by securities analysts;
- - conditions or trends in the biotechnology, pharmaceutical and addiction care
industries;
- - changes in the market valuations of other similar companies;
- - announcements or departures of key personnel; and
- - sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market and the
market for pharmaceutical companies in particular, has experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of those companies. Further, there has been particular
volatility in the market prices of securities of biotechnology and life sciences
companies. These broad market and industry factors may seriously harm the market
price of our common stock, regardless of our operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted against that
company. If this type of litigation was instituted against us, we would be faced
with substantial costs and management's attention and resources would be
diverted, which could in turn seriously harm our business, financial condition
and results of operations.
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THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE
Sales of substantial amounts of our common stock in the public market after this
offering could seriously harm prevailing market prices for our common stock.
These sales might make it difficult or impossible for us to sell additional
securities when we need to raise capital. The number of additional shares
available for sale in the public market will be affected by restrictions imposed
by:
- - the Securities Act and related rules, including the volume and other
restrictions of Rule 144; and
- - lock-up agreements between us and selected shareholders or between
shareholders and the underwriters.
Please see "Shares eligible for future sale" for a description of the number of
shares which may be sold by existing shareholders in the future.
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Forward-looking information
This prospectus may contain forward-looking statements. When used in this
prospectus, the words "anticipate," "believe," "estimate," "will," "intend," and
"expect" and similar expressions identify forward-looking statements. Although
we believe that our plans, intentions and expectations reflected in any such
forward-looking statements are reasonable, we can give no assurance that these
plans, intentions or expectations will be achieved. Actual results, performance
or achievements could differ materially from those contemplated, expressed or
implied, by any such forward-looking statements contained in this prospectus.
Important factors that could cause actual results to differ materially from our
forward-looking statements are set forth in this prospectus, including under the
heading "Risk factors." All forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements set forth in this prospectus. We are under no obligation
to update any forward-looking statement, whether as a result of new information,
future events or otherwise.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell and seeking offers to buy
shares of our 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.
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Use of proceeds
We estimate that our net proceeds from the sale of the shares of
common stock that we are offering will be approximately $ million, assuming
an initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $ million. We expect to use the net
proceeds for general corporate purposes, including working capital. A portion of
the net proceeds may also be used for the acquisition of businesses, products
and technologies that are complementary to ours. We have no current agreements
or commitments for acquisitions of complementary businesses, products or
technologies. Pending these uses, we will invest the net proceeds of this
offering in short-term, investment grade and interest-bearing securities.
Dividend policy
We have never declared or paid any cash dividends since inception and do not
currently anticipate paying any cash dividends in the foreseeable future. Any
future determination relating to dividend policy will be made at the discretion
of our board of directors and will depend on a number of factors, including
future earnings, capital requirements, financial condition and future prospects
and other factors the board of directors may deem relevant.
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Capitalization
The following table shows our capitalization as of September 30, 1999;
- - On an actual basis; and
- - On a pro forma basis to give effect to:
- the sale of 2,236,563 shares of Series D preferred stock on October 6,
1999, for an aggregate of $22.3 million, $3.0 of which consisted of the
conversion of outstanding debt;
- the exchange of 1,849 shares of common stock in DrugAbuse Sciences, SAS,
our French subsidiary, for 2,445,131 shares of our common stock on
February 1, 2000;
- the automatic conversion of all outstanding shares of preferred stock into
7,305,763 shares of our common stock upon the closing of this offering;
- net exercise of outstanding warrants to purchase 1,800,013 shares of our
common stock at an assumed public offering price of $ per share;
- 6-for-1 reverse split of the common stock to be effected prior to the
closing of this offering; and
- no exercise of the underwriters' over-allotment option.
- - On a pro forma as adjusted basis:
- our receipt of the estimated net proceeds from our sale of
shares of common stock in this offering at an assumed initial
offering price of $ and, after deducting the underwriting discounts and
commissions and estimated offering expenses; and
- the filing of new articles of incorporation upon the closing of this
offering.
<TABLE>
<CAPTION>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total long-term obligations and capital lease
obligations....................................... $3,408,545 $3,408,545 $3,408,545
Shareholders' equity:
Convertible preferred stock: $0.001 par value;
shares authorized: 16,512,222; shares issued and
outstanding, actual 2,624,081; no shares
outstanding, pro forma or pro forma as
adjusted........................................ 2,624 -- --
Common stock: $0.001 par value; shares authorized:
120,000,000; shares issued and outstanding,
actual: 2,169,908 shares issued and outstanding,
pro forma ; shares issued and outstanding,
pro forma as adjusted; ................... 1,511
Additional paid-in capital.......................... 7,978,658
Deferred compensation............................... (1,193,926)
Accumulated other comprehensive loss................ (33,287)
Accumulated deficit................................. (6,040,868)
----------- ----------- -----------
Total shareholders' equity.......................... 714,712
-----------
Total capitalization............................ $4,123,257
===========
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
This table excludes:
- - 1,042,729 shares of common stock issuable upon exercise of stock options
outstanding as of January 20, 2000 at a weighted average exercise price of
$0.074 per share;
- - 1,081,000 shares of common stock available for issuance under our 2000 Stock
Incentive Plan;
- - 375,000 shares of common stock available for issuance under our 2000
Employee Stock Purchase Plan;
- - 200,000 shares of common stock available for issuance under our 2000
Directors' Option Plan; and
- - 374,519 shares of common stock that may be issuable upon exercise of
outstanding warrants at an exercise price of $0.06 per share;
To the extent that these options are exercised, there will be further dilution
to new investors. Please see "Management--stock plans," and Notes and of
"Notes to Consolidated Financial Statements" for further information regarding
our stock option plans.
- --------------------------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
Dilution
Our pro forma net tangible book value as of September 30, 1999 was
$ million, or approximately $ per share, based on the pro forma number
of common shares outstanding as of September 30, 1999, calculated giving effect
to:
- - the sale of 2,236,563 shares of Series D preferred stock on October 6, 1999,
for an aggregate of $22.3 million, $3.0 of which consisted of the conversion
of outstanding debt;
- - The exchange of 1,849 shares of common stock in DrugAbuse Sciences, SAS, our
French subsidiary, for 2,445,131 shares of our common stock on February 1,
2000;
- - the automatic conversion of all outstanding shares of preferred stock into
7,305,763 shares of our common stock upon the closing of this offering;
- - net exercise of outstanding warrants to purchase 1,800,013 shares of our
common stock at an assumed public offering price of $ per share;
- - 6-for-1 reverse stock split of the common stock to be effected prior to the
closing of this offering; and
- - no exercise of underwriters' over-allotment option.
Net tangible book value per share is equal to the amount of shareholders'
equity, less intangible assets, divided by the shares of common stock
outstanding.
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to our sale
of shares of common stock in this offering at an assumed initial
public offering price of $ per share and after deducting the underwriting
discounts and commissions and estimated offering expenses, our net tangible book
value as of , would have been $ million or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing shareholders and an immediate dilution in net
tangible book value of $ per share to purchasers of common stock in the
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of September
30, 1999.................................................. $
Increase per share attributable to new investors............
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table presents on a pro forma basis as of September 30, 1999 after
giving effect to the conversion of all outstanding shares of preferred stock
into common stock upon completion of this offering,
- --------------------------------------------------------------------------------
22
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
the differences between the existing shareholders and the purchasers of shares
in the offering with respect to the number of shares purchased from us, the
total consideration paid and the average price paid per share:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... $ $
New shareholders.......................... $
------- ----- ------- ----- ----------
Totals.................................. 100% $ 100%
======= ===== ======= ===== ==========
</TABLE>
The table above assumes the net exercise of warrants to purchase 1,800,013
shares of common stock and excludes:
- - 1,042,729 shares issuable upon exercise of options outstanding at
January 20, 2000 at a weighted average exercise price of $0.074 per share;
- - 374,519 shares that may be issuable upon exercise of warrants outstanding at
January 20, 2000 at an exercise price of $0.06 per share;
- - 1,656,417 shares reserved for issuance under our stock option and purchase
plans.
To the extent outstanding or future options or warrants are exercised, there
will be further dilution to new investors. For a description of our equity
plans, please see "Management--Stock plans" and Notes 8 and 10 of Notes to
consolidated financial statements.
If all outstanding options and warrants are exercised in full, including the
underwriters' over-allotment option, the following will occur:
- - the number of shares of our common stock held by existing shareholders will
decrease , or approximately to %;
- - the number of shares of our common stock held by new public investors will
increase to , or approximately %; and
- - an increase in pro forma net tangible book value to $ per share and
immediate dilution in pro forma net tangible book value of $ per share
to new investors.
- --------------------------------------------------------------------------------
23
<PAGE>
- --------------------------------------------------------------------------------
Selected consolidated financial data
THE FOLLOWING SELECTED CONSOLIDATED FINANCIAL DATA SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES AND "MANAGEMENT'S
DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
APPEARING ELSEWHERE IN THIS PROSPECTUS.
The consolidated statements of operations data for the fiscal years ended
December 31, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1997 and 1998 are derived from our audited consolidated financial
statements included elsewhere in this prospectus. The statement of operations
data for the nine months ended September 30, 1998 and 1999 is derived from
unaudited consolidated financial statements included elsewhere in this
prospectus. The statement of operations data for the fiscal years ended
December 31, 1995 and 1996 are derived from unaudited financial statements not
included in the prospectus. In the opinion of management, the unaudited
consolidated financial statements include all adjustments, consisting
principally of normal recurring adjustments necessary for a fair presentation of
the results of operations for this period. The historical results are not
necessarily indicative of the operations to be expected for future periods and
the results of interim periods are not necessarily indicative of the results for
a full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
CONSOLIDATED STATEMENT OF FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
OPERATIONS DATA 1995 1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Grant revenues.............. $-- $-- $-- $810,607 $630,635 $921,288
Operating expenses:
Research and development.. 196,891 207,545 1,041,720 1,309,980 798,494 2,106,046
General and
administrative.......... 57,664 92,020 275,829 396,858 365,555 1,249,578
Amortization of deferred
stock compensation...... -- -- 64,863 180,798 110,796 422,924
---------- ---------- ----------- ----------- ---------- -----------
Total operating
expenses.............. 254,555 299,565 1,382,412 1,887,636 1,274,845 3,778,548
---------- ---------- ----------- ----------- ---------- -----------
Loss from operations........ (254,555) (299,565) (1,382,412) (1,077,029) (644,210) (2,857,260)
Interest income............. -- 6,653 85,314 96,067 48,640 72,915
Interest expense............ -- -- (3,065) (15,464) (11,145) (80,407)
---------- ---------- ----------- ----------- ---------- -----------
Net loss.................... (254,555) (292,912) (1,300,163) (996,426) (606,715) (2,864,752)
---------- ---------- ----------- ----------- ---------- -----------
Other comprehensive income
(loss):
Change in foreign currency
translation
adjustments............. (8,964) (7,073) 35,760 (44,581) 5,270 (23,983)
---------- ---------- ----------- ----------- ---------- -----------
Comprehensive loss.......... (263,519) (299,985) $(1,264,403) $(1,041,007) $(601,445) $(2,888,735)
========== ========== =========== =========== ========== ===========
Net loss per share, basic
and diluted............... $(0.13) $(0.14) $(0.61) $(0.47) $(0.29) $(1.35)
========== ========== =========== =========== ========== ===========
Shares used in computing net
loss per share, basic and
diluted................... 2,027,013 2,094,345 2,114,506 2,116,728 2,116,728 2,119,886
========== ========== =========== =========== ========== ===========
Pro forma net loss per
share..................... $ $
=========== ===========
Shares used in computing pro
forma net loss per
share.....................
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
CONSOLIDATED BALANCE SHEET DATA: 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents........... 380,655 40,698 $2,305,882 $1,039,315 $3,609,974
Total assets........................ 396,171 49,870 2,693,408 1,997,048 4,959,161
Long-term obligations and capital
lease obligations................. 250,000 250,000 478,684 543,090 3,408,545
Total shareholders' equity
(deficit)......................... 130,359 (403,518) 1,707,699 862,490 714,712
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE>
- --------------------------------------------------------------------------------
Management's discussion and analysis of financial condition and results of
operations
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS THAT APPEAR ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY IN "RISK
FACTORS."
OVERVIEW
We are the first biotechnology company dedicated to developing and marketing
novel therapies for alcohol and drug abusers. We intend to become the leading
biopharmaceutical company in addiction care by offering a broad portfolio of
medications to serve the addiction care community. Our strategy is to develop
low risk, high value added products in the near term and expand our product
portfolio through internal discovery research and the acquisition of marketed
products and technologies.
We are a development stage company. Since our inception, we have incurred losses
and, as of September 30, 1999, we had an accumulated deficit of $6.0 million. To
date, our revenues have been solely from government grants. We intend to carry
out the necessary registration trials for our lead product, NALTREL-TM-, in
2000. We do not anticipate generating commercial product revenues from our own
internally developed products until the various regulatory agencies, such as the
FDA and other European agencies, have approved these for marketing.
We expect to recognize revenues from government grants and from the sale of
approved pharmaceutical products. We may in-license or acquire currently
available commercial products. We expect to market our own internally developed
products following regulatory approval. We expect our sales to increase over
time as our products become accepted by physicians and as we introduce a broader
array of products.
Our expenses have consisted primarily of research and development costs and
general and administrative costs associated with our operations. We expect our
research and development expenses to increase in the future as we continue to
improve and develop products. Our selling expenses will increase as we
commercialize our products. The additional obligations we will have as a public
company will also add to our expenses. As a result, we expect to incur losses in
the foreseeable future.
We have a limited history of operations and we anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including:
- - the time and extent of our research and development efforts;
- - the market acceptance of product candidates following approval;
- - the introduction of new products by our competitors; and
- - the timing of regulatory approval for additional products.
Our limited operating history makes accurate prediction of future operations
difficult or impossible.
- --------------------------------------------------------------------------------
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
REVENUE
Government grant revenue earned increased 46.1% to approximately $0.9 million in
the first nine months of 1999 from approximately $0.6 million in the first nine
months of 1998. This increase was due to the increased expenses of our
COC-AB-TM- development program which are partially reimbursed pursuant to the
terms of our French government grant.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 163.8% to $2.1 million in the first
nine months of 1999 from $0.8 million in the first nine months of 1998. These
expenses consist primarily of development work associated with NALTREL, COC-AB,
and other product candidates, as well as related personnel costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 241.8% to $1.3 million in the
first nine months of 1999 from $0.4 million in the first nine months of 1998.
These expenses consist primarily of salaries and related costs for executive,
financial and other administrative personnel and business development expenses.
AMORTIZATION OF DEFERRED STOCK COMPENSATION
Since inception we have issued options to employees and consultants. During the
nine months ended September 30, 1999, we recorded deferred stock compensation of
$1.9 million. We anticipate recording an additional $12.1 million for options
issued in October 1999 and December 1999. These amounts are being amortized over
the vesting periods of the individual stock options using an accelerated vesting
method. Deferred stock compensation consists of the difference between the
estimated fair market value of our common stock and the exercise price of
options granted to employees at the date of grants, as well as the valuation of
options granted to non-employees.
INTEREST INCOME
Interest income increased to $72,915 in the first nine months of 1999 from
approximately $48,640 in the first nine months of 1998. This increase resulted
from higher balances of cash and cash equivalents from the proceeds from the
sale of Series C preferred stock in March 1999.
INTEREST EXPENSE
Interest expense increased to approximately $80,407 in the first nine months of
1999 from $11,145 in the first nine months of 1998. The increase was primarily
due to higher average debt levels resulting from proceeds from a convertible
debt financing in June 1999, which debt was subsequently converted into shares
of our Series D preferred stock in October 1999.
INCOME TAXES
As of December 31, 1998, we had federal and state net operating loss carry
forwards of approximately $2.9 million. Pursuant to Internal Revenue Code
Sections 382 and 388, our net operating loss may be limited due to cumulative
change in ownership.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE
Government grant revenue increased to $0.8 million in 1998 from $0.0 in 1997 due
to the receipt of a grant from the French government.
- --------------------------------------------------------------------------------
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 25.8% to $1.3 million in 1998 from
$1.0 million in 1997. This increase resulted from the development work
associated with NALTREL and COC-AB.
GENERAL ADMINISTRATIVE EXPENSES
General and administrative expenses increased 43.9% to $0.4 million in 1998 from
$0.3 in 1997. This increase was primarily due to the costs associated with
patent work for NALTREL and COC-AB and the hiring of personnel in fourth quarter
of 1998.
INTEREST INCOME
Interest income increased to approximately $96,067 in 1998 from $85,314 in 1997.
The increase was due to higher rates on short term investments in 1998 offset by
expenditure of the proceeds from the Series B preferred stock financing in
March 1997.
INTEREST EXPENSE
Interest expense increased to $15,464 in 1998 from $3,065 in 1997. This increase
was due to the increase in borrowings under a capital lease agreement in France.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through $6.0 million in
private equity financings and $3.0 million in convertible debt funding. At
September 30, 1999, cash and cash equivalents were $3.6 million compared to $1.0
million at December 31, 1998. Our cash reserves are held in corporate bonds and
money market accounts.
Cash used in operations for the nine months ended September 30, 1999 was $2.6
million compared with $0.7 million for the same period in 1998.
Cash provided by financing activities was $5.2 million for the nine months ended
September 30, 1999 compared to use of funds of $48,000 for the same period in
1998. Financing activities included the receipt of net proceeds of $2.3 million
from the sale of preferred stock to investors and a convertible debt financing
of $3.0 million in the nine month period ended September 30, 1999 and $0 in the
nine month period ended September 30, 1998. Subsequent to September 30, 1999 we
raised $22.3 million from a Series D financing in October 1999. Of this
$22.3 million, $3.0 million consisted of the conversion of outstanding debt into
shares of Series D preferred stock.
Working capital increased to $3.7 million in the nine month period ended
September 30, 1999 from $1.0 million in the twelve month period ended December
31, 1998. The increase was due to our financings.
As of September 30, 1999, we had an aggregate of $3.6 million in future
obligations of principle payments under capital leases and long term
obligations, including the repayment of one of our grants. Subsequent to
September 30, 1999 outstanding debt of $3.0 million was converted into our
Series D preferred stock. $0.2 million of our capital leases and long term
obligations are to be paid during 2000.
We believe our existing cash, cash equivalents and short term investments,
together with the net proceeds of this offering will be sufficient to fund our
operating expenses and capital requirements through at least the next 18 months.
Our future capital uses and requirements depend on numerous factors, including:
- - our progress with research and development;
- - the success of our pre-clinical testing and clinical trials;
- - costs and timing of obtaining regulatory approval for our products;
- - our ability to license and/or acquire innovative technologies and products;
- --------------------------------------------------------------------------------
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
- - our ability to protect our intellectual property rights;
- - our ability to manufacture our products;
- - our ability to introduce and sell our products;
- - our ability to hire competent personnel;
- - the level of our sales and marketing expenses;
- - pricing and policies of reimbursement; and
- - the costs and timing of obtaining new patent rights, changes in regulation,
competition, and medical and technological developments in the market.
Therefore, our capital requirements may increase in the future periods. As a
result, we may require additional funds and may attempt to raise additional
funds through equity or debt financings, collaborative arrangements with
corporate partners, government grants or other sources.
We have a $140,000 bank line of credit, $65,000 of which is available for
borrowing. We have no commitments for additional financings, and we cannot
assure you that additional funding will be available to finance our operations
when needed or, if available, that the terms for obtaining such funds will be
favorable or will not result in dilution to our shareholders.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
and software products will need to accept four-digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software may need to be upgraded, redesigned or replaced to comply with such
Year 2000 requirements to avoid system failure or miscalculations causing
disruptions of normal business activities.
STATE OF READINESS
We are not currently aware of any Year 2000 compliance problems relating to our
systems that would have a material adverse effect on our business, financial
condition and operating results. In response to the Year 2000 problem, we have
implemented changes to our existing information technology systems through a
combination of modifications and upgrades to Year 2000 compliant software. We
have also evaluated our non-information technology systems and believe these
systems are Year 2000 compliant.
COSTS
To date, we have incurred minimal costs associated with identifying and
addressing Year 2000 compliance issues.
RISKS
We believe that the Year 2000 issue will not have a material adverse effect on
our business, financial condition or operating results. However, despite all of
our efforts to-date towards insuring Year 2000 compliance, latent issues may
still surface in the future that require upgrades, modifications, or
replacement, all of which could be time-consuming and expensive. In addition,
there can be no assurance that utility companies, Internet access companies and
our third-party vendors will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure such as a
prolonged Internet, telecommunications or electrical failure.
- --------------------------------------------------------------------------------
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
CONTINGENCY PLAN
Because no systems have been found to be non-compliant, we have determined that
a contingency plan is not required. We are unable to provide for contingencies
arising as a result of large scale or Internet-wide failure because we are not
aware of any adequate replacement service for the Internet.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our activities
without increasing risk. Some of the securities that we invest in may have
market risk. This means that a change in prevailing interest rates may cause the
fair value of the principal amount of the investment to fluctuate. For example,
if we hold a security that was issued with a fixed interest rate at the
prevailing rate and the prevailing rate later rises, the fair value of the
principal amount of our investment will probably decline. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and short
term investments in a variety of securities, including commercial paper,
government and non-government debt securities and money market funds. The
average duration of all our investments has generally been less than one year.
Due to the short term nature of these investments, we believe we have no
material exposure to interest rate risk arising from our investments. Therefore,
no quantitative tabular disclosure is required.
FOREIGN CURRENCY RATE FLUCTUATIONS
The functional currency for our French subsidiary is the French franc. The
translation from the French franc to the US dollar is translated for balance
sheet accounts using the current exchange rate in effect at the balance sheet
date and for revenues and expense accounts using average exchange rate during
the period. The effects of translation are recorded as a separate component of
shareholders equity. Our French subsidiary conducts its business with customers
in local European currencies or the Euro. Exchange gains and losses arising
through these transactions are recorded using the actual exchange differences on
the date of the transaction. We have not taken any action to reduce our exposure
to changes in currency in foreign currency exchange rates, such as options or
futures contracts, with respect to transactions with our French subsidiary or
transactions with our European customers.
INFLATION
We do not believe that inflation has had a material adverse impact on our
business or operating results during the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative--which focused on
freestanding contracts such as options and forwards, including futures and
swaps--expanding it to include embedded derivatives and many commodity
contracts. Under the statement, every derivative is recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
requires that changes in the derivatives fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. We do not anticipate
that the adoption of SFAS No. 133 will have a material impact on our financial
position or results of operations.
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
Business
OVERVIEW
We are the first biotechnology company dedicated to developing and marketing
novel therapies for alcohol and drug abusers. We intend to become the leading
biopharmaceutical company in addiction care by offering a broad portfolio of
medications to serve the addiction care community. Our strategy is to develop
low risk, high value added products in the near term, and expand our product
portfolio through internal discovery research and the acquisition of marketed
products and technologies. We intend to build a sales force to market our
products, taking advantage of the concentrated addiction care market.
We are developing a broad portfolio of biopharmaceutical products that address
various medical needs of alcohol abusers and drug addicts. Our product
candidates for the treatment of alcohol and heroin addiction, NALTREL-TM-,
BUPREL-TM- and METHALiz-TM-, are being developed to improve existing
medications. These products are designed to be administered only once a month by
a physician or a nurse, as opposed to once a day by the patient. By putting the
medical practitioner in control, our products are expected to promote continuous
therapy and help overcome patient non-compliance, the primary limitation of
current medications. Our other product candidates, COC-AB-TM-, MAP-AB-TM- and
ITAC-TM-, are intended to provide novel means to treat patients suffering from
cocaine and methamphetamine overdose and addiction. In 2000, to support
prospective market approval, we expect to conduct pivotal clinical trials with
NALTREL for the treatment of alcohol abuse and heroin addiction. In parallel, in
the next 18 months we expect to conduct several human trials with BUPREL and
METHALiz for treatment of severe heroin addiction, and with COC-AB and ITAC for
the treatment of cocaine overdose and addiction.
BACKGROUND
Alcohol and drug abuse is the most significant health problem in the United
States and Europe. It is a leading cause of death and in 1995 the direct and
indirect costs of alcohol and drug abuse consumed approximately 3.7% of the
Gross National Product in the United States alone. In the United States and
Europe, it is estimated that there are in excess of 20.0 million alcoholics and
2.0 million heroin addicts. In the United States, there are an estimated
3.6 million cocaine addicts. Substance abuse can have severe social and medical
consequences, including imprisonment, car accidents, overdose, liver failure,
infections such as HIV and viral hepatitis, and death. In addition, an estimated
$197.0 billion dollars is lost each year in the United States due to absenteeism
and lost productivity at work related to alcohol and drug abuse.
It is estimated that 7% of alcoholics and drug addicts, which is approximately
2.0 million patients in the United States and Europe receive treatment for their
addiction. The majority of these patients are being treated in the limited
number of specialized addiction care centers. Current treatments consist
primarily of psychosocial therapy and drug-substitution therapy and are
generally not effective in curing alcohol and drug addiction. In 1995, nearly
$8.5 billion was spent in the United States to treat alcohol and drug abuse. An
estimated $11.00 of social and medical costs are saved for every dollar spent on
substance abuse treatment. Despite the potential medical benefits and
cost-savings of treating addictions, we believe the market for addiction care is
poorly served by the pharmaceutical industry and that the medical community
needs new products to effectively treat alcohol abuse and drug addictions.
THE NEUROBIOLOGY OF ADDICTION
Addiction is a chronic disease of the brain triggering the compulsive use of
substances like alcohol, heroin, cocaine and methamphetamine at increasing and
more frequent doses, despite severe social and medical consequences. Scientists
have only recently uncovered the biology of addiction at the molecular level.
- --------------------------------------------------------------------------------
31
<PAGE>
BUSINESS
- --------------------------------------------------------------------------------
Alcohol and all drugs of abuse interfere with normal neurological pathways that
are responsible for transmitting signals in the brain, particularly the pathway
that involves the neurotransmitter dopamine. This dopamine pathway in the brain
controls euphoria and pain. All addictive substances impact dopamine directly or
indirectly. Alcohol and heroin stimulate a receptor in the brain called the
opiate receptor. Heroin binds directly to the opiate receptor, while alcohol
triggers the release of naturally occurring endorphins, which then bind to the
opiate receptor. Stimulation of the opiate receptor by heroin or alcohol-induced
endorphins causes cells to release dopamine. Unlike alcohol and heroin,
methamphetamine triggers a direct release of dopamine, while cocaine prevents
the normal reabsorption of dopamine following its release. Excess levels of
dopamine overstimulate the dopamine receptors of nearby cells, triggering
feelings of euphoria.
The molecular biology of opiate and dopamine receptors is now understood,
potentially enabling the rational design of novel medications targeting these
receptors. Opiate receptors include several subtypes, mu, delta, and kappa,
which are located on the outside of a neuron membrane in several regions of the
brain. The opiate receptors are made of proteins that contain six helices.
Molecules such as endorphins, morphine, heroin and methadone bind specifically
to the helices located in the outer region of the receptor, modify their shape,
and trigger transmission of an intracellular signal by the inner region of the
receptor. The molecules that stimulate the opiate receptor are called receptor
agonists. Stimulation of the receptors can induce euphoria and resistance to
pain. Other molecules, such as naltrexone, can bind to the receptor without
triggering its stimulation and can prevent the binding of agonists. They are
called antagonists. Dopamine receptors belong to a family of protein receptors
expressed on the membrane of neurons in various areas of the brain. Dopamine
binds to and stimulates three categories of dopamine receptors called D1, D2 and
D3, which mediate different neurochemical signals. These receptors are made of
seven protein helices linked by protein loops. Their shape changes when dopamine
occupies the receptor, triggering a signal transmission to the neuron. D1
receptors are involved in control of movement, cognitive functions and
cardiovascular functions. D2 receptors are involved in control of movement and
behavior. D3 receptors are involved in control of emotions and behavior.
When brain cells are repeatedly exposed to addictive substances, levels of
dopamine and other neurotransmitters, such as serotonin and GABA, and their
corresponding neuroreceptors are chronically modified, creating a chemical
imbalance. As a result of this chemical-imbalance, an abuser's neurological
pathways demand the presence of the addictive substance and the abuser has
become addicted. Once addicted, the substance abuser will use the substance more
frequently to induce euphoria at the expense of normal activities. The substance
abuser will also increase the amount of the substance taken, because an
increased concentration of alcohol or drug becomes necessary to obtain the same
level of euphoria. As dopamine and the other affected neurotransmitters play a
key role in multiple brain functions, this chemical imbalance often leads to
other neurological manifestations such as impaired judgement and perceptions,
memory loss, depression, irritability, aggressive behavior, seizures and
thoughts of suicide.
CLINICAL ASPECTS OF ADDICTION
The clinical aspects of addiction are the:
- - acute effects of a drug overdose or binge drinking;
- - chronic toxicity of repeated use on various biological systems and brain
functions;
- - acute withdrawal symptoms; and
- - lifelong risk of relapse.
ACUTE EFFECTS. Drug overdose and binge drinking affect multiple organs and
biological systems. Acute intoxication can often result in psychotic episodes,
respiratory or cardiovascular distress, accidental injury
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or death. For example, historical data has shown that approximately 40% of fatal
car accidents and 4.7% of all deaths in the United States are alcohol-related
and an estimated 250,000 emergency room visits per year are the result of drug
overdose.
CHRONIC TOXICITY OF SUBSTANCE OF ABUSE. As brain chemistry is modified on a
chronic basis, substance abusers may suffer multiple psychiatric and
neurological disorders such as depression, suicidal thoughts and psychotic
behavior. Permanent neurological damage may occur.
ACUTE WITHDRAWAL SYNDROME. Withdrawal is a condition resulting from sudden
discontinuation of a substance to which a person is addicted. Withdrawal from
alcohol can result in rapid heart rate, difficulty sleeping and life threatening
delirium tremens. Heroin withdrawal can result in irritability, pain, nausea,
vomiting, cramps and muscle aches. Withdrawal from cocaine or methamphetamine
can result in irritability, sleeplessness, and depression.
RELAPSE. The ultimate goal of medical treatment for addicts is to achieve an
alcohol-and drug-free state called abstinence. However, for patients who have
achieved abstinence the rate of relapse is high within the first months of
therapy, and remains a significant risk over the patient's lifetime. Relapse can
be very severe, and many patients experience multiple cycles of detoxification,
abstinence, relapse and overdose. Due to the long-term risk of relapse, alcohol
abusers and drug addicts are life-long patients.
CURRENT ADDICTION CARE AND AVAILABLE PRODUCTS
Care for addiction includes chronic therapy and emergency therapy. Chronic
therapy promotes and attempts to maintain long-term abstinence following
detoxification. Emergency therapy attempts to reverse the effects of overdose.
Few medications are available to promote abstinence in alcohol and heroin
abusers. No medication is available to treat cocaine and methamphetamine
addiction or overdose. Studies have shown that as many as eighty percent of
patients are not compliant with their therapeutic regimen, typically resulting
in treatment failure.
CHRONIC ADDICTION CARE
Chronic therapy relies heavily on psychosocial therapy because few medications
are available. Psychosocial therapy, which consists of regular counseling
sessions, is the cornerstone of addiction care but has limited success because
it does not address the biological basis of addiction.
There are two types of medications available for long-term therapy of addicts.
Substitution therapy is the use of a pharmaceutical product that mimics the
abused substance. Abstinence therapy is the use of a medication to help the
addict abstain from substance use and cure addiction.
Substitution therapy is used for heroin addicts whose dependence is too severe
to permit abstinence therapy. It consists of medications which are chemically
related to heroin and which bind to and stimulate the opiate receptor. These
medications prevent withdrawal symptoms and maintain the state of addiction, but
in a medically-controlled environment. Substitution therapy is not a cure for
addiction. However, there are significant medical and social benefits, such as
reducing the risk of contracting infections and decreasing propensity to commit
crime. Substitution therapy can be used as a temporary therapy for patients who
can then be detoxified and become abstinent, or as a long-term therapy for
severe addicts who are unresponsive to abstinence therapies.
Abstinence therapy is medically more desirable than substitution therapy, as it
can effectively reduce dependence and may restore normal brain functions.
However, there are few medications available to promote abstinence, and
medication non-compliance is a major limitation. An estimated 80% of patients
fail to take their medication on a daily basis as prescribed and typically
relapse into severe alcohol and heroin abuse. A minority of alcoholics and
heroin addicts receiving abstinence treatment typically remain abstinent after
one year.
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The existing medications are summarized in the following table.
<TABLE>
<CAPTION>
PRODUCT/FIRST US INDICATION/ DOSAGE
APPROVAL DATE TECHNOLOGY THERAPY SUBSTANCE OF ABUSE REGIMEN/LIMITATION
---------------- ----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
METHADONE Binds to and Substitution Heroin and other Requires daily
(1975) stimulates opiate therapy opiates therapy at a
receptor licensed clinic
BUPRENORPHINE(1) Binds to and Substitution Heroin and other Requires daily
stimulates opiate therapy opiates therapy
receptor
LAAM (1993) Binds to and Substitution Heroin and other Requires therapy 2
stimulates opiate therapy opiates times per week at
receptor clinic
NALTREXONE Blocks opiate Abstinence Alcohol and heroin Daily/
(1984, HEROIN; 1994, receptor maintenance non-compliance
ALCOHOL)
ACAMPROSATE(2) GABA antagonist Abstinence Alcohol Daily/
maintenance non-compliance
DISULFIRAM (1951) Induces nausea Relapse Alcohol Toxicity/
and vomiting upon prevention non-compliance
alcohol
absorption
</TABLE>
(1) APPROVED IN FRANCE IN 1995.
(2) APPROVED IN FRANCE IN 1987 AND SUBSEQUENTLY IN OTHER EUROPEAN COUNTRIES.
The opiate agonists, methadone, LAAM and buprenorphine are the three
substitution medications. Methadone is used in an estimated 180,000 patients in
the United States. Sales of this off-patent generic product are subject to low
pricing, with approximately $20.0 million in sales in 1999 in the United States.
Methadone binds to the opiate receptor, triggering a stimulation of the dopamine
pathway. It decreases the use of heroin but maintains dependence. Methadone is
dispensed by licensed methadone clinics that typically require the patient to
visit several times per week. LAAM is structurally related to methadone, has
similar effects, and is administered three times a week at the clinic.
Buprenorphine, currently marketed only in France, is a compound structurally
related to methadone, but which stimulates the opiate receptor to a lesser
extent. Buprenorphine is used on a daily basis by an estimated 62,000 patients
in France, approximately 37% of the heroin addict population. In 1999, sales in
France reached approximately $80 million. Buprenorphine therapy may result in
significant diversion of use and potential lethal overdoses, as the patient is
responsible for administration.
The two main products available to promote and maintain abstinence are
naltrexone, for alcoholics and heroin addicts, and acamprosate (available only
in the EU) for alcoholics. Both naltrexone and acamprosate are available as oral
daily tablets. Naltrexone is an opiate antagonist that blocks the opiate
receptor, thereby decreasing the effects of and desire to use both alcohol and
heroin, and promoting an alcohol and heroin-free state when used on a chronic
basis. Acamprosate only affects alcohol dependence. Worldwide sales of branded
and generic naltrexone were an estimated $34 million in 1999. Sales of
acamprosate were an estimated $20 million in 1999. Naltrexone and acamprosate
have a similar efficacy and safety profile in alcoholics and are both limited by
severe patient non-compliance. To avoid prescribing therapies which will
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not be used, physicians typically prescribe these medications only to the small
subset of their patients who are highly motivated to comply. We believe a
sustained-release formulation of naltrexone can be developed to address the
issue of non-compliance, but that acamprosate is not conducive to
sustained-release formulation development because of the high dose required to
obtain a therapeutic effect. The other medication to treat alcoholism is
disulfiram. Disulfiram induces nausea and vomiting when the patient drinks
alcohol because it increases the concentration of toxic alcohol byproducts. Few
patients are willing to use disulfiram long term.
For cocaine and methamphetamine dependence, there is no medication available.
EMERGENCY THERAPY
Emergency therapy focuses on reversing the life-threatening effects of alcohol
and drug overdose. The goal is to use an antidote to block the effect of or
rapidly remove the toxic substance from the patient's blood stream and tissue,
reduce the complications of the overdose and lower the overall cost of emergency
care. Heroin is the only drug of abuse for which there is an antidote, called
naloxone. Naloxone binds to the opiate receptor, displaces molecules of heroin
already bound to the receptor, and prevents further binding of heroin to the
receptor. For cocaine and methamphetamine overdose, there is no antidote
available.
Other medications commonly used in alcoholics and drug addicts are products to
treat medical conditions resulting from substance abuse such as depression,
infectious diseases or liver dysfunction.
We believe that due to the seriousness of addiction and the low compliance with
current medications, there is a substantial need for medications that treat the
biological basis of addiction, facilitate medication compliance through less
frequent dosing schedules and promote alcohol and drug abstinence.
OUR SOLUTION
We are developing and intend to market a broad portfolio of biopharmaceutical
products for alcohol and drug abusers that we believe will:
- - facilitate and maintain abstinence;
- - provide safer substitution therapy;
- - treat overdose; and
- - prevent the onset of addiction.
Our lead product candidates are:
- - NALTREL, a sustained-release formulation of naltrexone to treat patients
with alcohol or heroin dependence;
- - BUPREL, a sustained-release formulation of buprenorphine to provide
substitution therapy to patients with heroin dependence;
- - METHALiz, a sustained-release formulation of methadone to provide
substitution therapy to patients with severe heroin dependence; and
- - COC-AB, an antidote to treat cocaine overdose.
Our product candidates use two proven technologies. NALTREL, BUPREL and METHALiz
are based on our sustained-release polymer technology, called Lactiz, which we
licensed from Southern Research Institute. This patented technology from
Southern Research Institute has been applied by other companies to create
successful sustained-release medications outside addiction care. COC-AB is based
on an antidote
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technology which has been applied by others to various other applications
including treatment of snake venom and digoxin poisoning.
WE ARE IMPROVING EXISTING MEDICATIONS USING SUSTAINED-RELEASE FORMULATIONS
All current abstinence medications are available only as daily oral medications.
The majority of patients prescribed an abstinence medication fail to take their
daily pill. Non-compliance with prescribed medication typically leads to therapy
failure and relapse into alcohol or drug abuse. We are developing
sustained-release formulations of approved medications to overcome chronic
non-compliance with daily therapies. A sustained-release formulation only
requires the administration once a month by the physician or the nurse, as
opposed to once a day by the patient. We believe once-a-month administration
fits well with the regular schedule of patient visits to their physician for
psychosocial therapy sessions. Putting addiction care in the hands of doctors
rather than patients should ensure compliance and greatly improve the chances of
success in addiction therapy.
We are applying our sustained-release technology to several medications,
naltrexone, buprenorphine and methadone, which are already used in the field of
substance abuse. Naltrexone, an abstinence medication which blocks the opiate
receptor, is effective in alcohol and heroin dependent patients. Buprenorphine
(approved only in France) and methadone are substitution medications prescribed
to heroin addicts. Because the active ingredients in our product candidates,
naltrexone, buprenorphine and methadone have demonstrated safety and efficacy in
the oral dosage form approved by the FDA or by foreign regulatory agencies for
the treatment of addiction, we believe the demonstration in human trials of the
prolonged release of the medication in the blood is the critical step in
clinical development of our sustained-release dosage forms.
WE ARE CREATING PHARMACOLOGICAL BARRIERS TO BLOCK ACCESS OF A DRUG TO THE BRAIN
Drugs of abuse exert their toxic effect in the brain only after they have
crossed the barrier that separates the blood from the brain tissue, called the
blood brain barrier. Current medications only interfere with drugs of abuse once
they have entered the brain. We are developing novel medications to prevent a
drug from crossing the blood brain barrier. We believe that we can develop
antibodies that will bind to a specific drug in the bloodstream, such as
cocaine, forming large molecular complexes that are unable to pass through the
blood brain barrier. Preventing drugs from entering the brain will limit their
toxic effects and the desire to use them. We are developing two complementary
antibody technologies, COC-AB for treatment of overdose and ITAC for prevention
of cocaine dependence.
WE ARE CONDUCTING RESEARCH ON NOVEL COMPOUNDS THAT MAY REGULATE THE EFFECT OF
DOPAMINE
As dopamine is central to the biology of addiction, we believe that therapeutic
products derived from molecules that bind to the dopamine transporter or to
dopamine receptors could help treat drug dependence. In collaboration with
academic scientists at the University of Paris V, we are conducting discovery
research on rational drug design of novel molecules that can modulate the
dopamine transporter and certain members of the dopamine receptor family, D1 and
D3.
OUR STRATEGY
Our goal is to become the leader in the United States and Europe in the
development and commercialization of pharmaceutical products for the treatment
of patients with alcohol dependence or drug addiction.
WE FOCUS ON THE LARGE BUT UNDERSERVED ADDICTION CARE MARKET
We are the first biotechnology company to focus exclusively on addiction care.
We intend to develop products for the key medical indications for alcohol and
drug abusers:
- - promoting and maintaining abstinence;
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- - providing substitution therapy;
- - preventing relapse; and
- - treating overdose.
By offering new and improved therapies that address the multiple medical needs
of substance abusers, we plan to increase the availability and efficacy of
treatment options and promote phamacotherapy as the cornerstone of addiction
care.
WE ARE DEVELOPING LOW RISK, HIGH VALUE ADDED PRODUCTS IN THE NEAR TERM
We currently focus on developing products with short development time frames
that may be rapidly commercialized. We are applying two known and proven
technologies, a sustained-release polymer and an antidote technology, to develop
our first four products NALTREL, BUPREL, COC-AB and METHALiz. We believe we have
a greater probability of near-term success in gaining FDA approval for our three
sustained-release products as compared to the approval probability of novel
molecular entities. The sustained-release technology is a proven technology for
other marketed pharmaceutical products and the active ingredients are already
approved by the FDA or other regulatory authorities as oral dosage forms.
Several of our products are being developed to address major indications and
large potential markets.
WE ARE BUILDING A BROAD PRODUCT PORTFOLIO
We intend to build a broad portfolio of products through internal research and
development and the licensing or acquisition of existing commercial products and
product candidates. As the first company dedicated to this field, we believe we
will be well positioned to acquire new product candidates and technologies from
academic groups and biotechnology or pharmaceutical companies active in central
nervous system research but with no commercial interest in addiction care. We
may also seek to acquire, before our own products are on the market, some of the
products already marketed for addiction care. The synergies between our
different products will allow us to promote the potential efficacy of
combination and sequential therapeutic regimens tailored to addiction severity
and stage of therapy. We believe we can increase the probability of successful
treatment for patients already receiving therapy and induce more alcoholics and
drug addicts to seek treatment by making therapy easier and more effective.
WE INTEND TO MARKET OUR PRODUCTS IN THE UNITED STATES AND EUROPE USING OUR OWN
DEDICATED SALES FORCE
We intend to market our products directly. We believe that a small sales force
of approximately 60 dedicated representatives will enable us to effectively
market our products to the limited number of specialized, high volume, addiction
treatment centers in the United States and Europe.
WE INTEND TO FOCUS ON NEAR-TERM REVENUES AND FUND LONGER-TERM GROWTH WITH GRANTS
We hope to achieve profitability from sales generated in the United States and
Europe from the first approved product in our current portfolio. We believe we
can generate significant margins by marketing our broad portfolio of products
using the same sales force. While developing near-term products, we can also
develop a pipeline of innovative product candidates. As addiction care is a
government priority in many countries, significant grant funding is available to
support addiction research. To date we have received research grants from
European and US government entities of approximately $4.2 million and are
seeking additional grants.
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PRODUCT CANDIDATES
We are developing a portfolio of novel product candidates that we believe
improve existing medications by facilitating medication compliance, and address
novel treatment indications. Near term products are for treatment of alcohol and
heroin abusers. Longer term products are for treatment of cocaine and
methamphetamine addicts.
<TABLE>
<CAPTION>
PRODUCT CANDIDATE TECHNOLOGY INDICATION SUBSTANCE OF ABUSE DEVELOPMENT STATUS(1)
- ----------------- ----------------- ------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
NALTREL-TM- Lactiz-TM-(2) Abstinence Alcohol Pivotal trial planned
Sustained-release maintenance in 2000
naltrexone
Heroin Pivotal trial planned
in 2000
BUPREL-TM- Lactiz-TM-(2) Substitution Heroin Safety and
Sustained-release therapy for pharmacokinetic trial
buprenorphine mild addicts initiation planned
late 2000
METHALIZ-TM- Lactiz-TM-(2) Substitution Heroin Safety and
Sustained-release therapy for pharmacokinetic trial
methadone severe planned in 2001
addicts
COC-AB-TM- Antidote(2) Overdose Cocaine Phase I/II trial
therapy planned in 2000
MAP-AB-TM- Antidote(2) Overdose Methamphetamine Phase I/II trial
therapy planned in 2001
ITAC-TM- PLATFORM Vaccine(2) Abstinence Cocaine Phase I trial start
TECHNOLOGY induction planned in 2000/2001
DOPAMINE MODULATORS Rational drug Abstinence Cocaine Discovery research
design maintenance Methamphetamine
ALCOHOLMD.COM Website Clinician and Alcohol Launch planned late
patient 2000
education
Psychosocial
therapy
</TABLE>
(1) DATES ASSUME SUCCESSFUL COMPLETION OF PRECLINICAL RESEARCH.
(2) COMMERCIAL RIGHTS HELD BY US SUBJECT TO ROYALTY PAYMENTS TO OUR
COLLABORATORS.
NALTREL-TM-
NALTREL is a sustained-release formulation of naltrexone designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse. The potential indications of NALTREL are for the treatment of alcohol and
heroin dependence. NALTREL is designed to release naltrexone continuously over
30 days from a single administration. By putting the medical practitioner in
control of therapy, we expect NALTREL to facilitate treatment compliance,
enhance efficacy, improve treatment outcomes and become the therapy of choice
for a large number of patients.
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NALTREL IS BASED ON NALTREXONE, A PROVEN MEDICATION. Naltrexone is an effective
medication approved in more than 30 countries in an oral daily dosage form for
treatment of alcohol dependence and heroin addiction. It blocks the opiate
receptor, preventing euphoria and thereby decreasing the desire for, and the
effects of alcohol and heroin. If taken daily on a chronic basis, naltrexone is
highly effective in reducing alcohol and heroin consumption, promoting
abstinence and preventing relapse. In clinical trials involving the daily oral
dosage form of naltrexone, patients who were compliant in taking their
medication demonstrated a much higher success rate at achieving abstinence than
those who were not compliant. However, most patients who are prescribed daily
naltrexone tablets are not compliant; they stop taking their medication within
the first few weeks or months, and fail therapy.
NALTREL IS BASED ON OUR LACTIZ SUSTAINED-RELEASE TECHNOLOGY. The Lactiz
technology uses polylactide, a biodegradable, carbon-based polymer, which can be
processed into solid microspheres. The microspheres consist of a network of tiny
pores and channels into which a medication can be incorporated. When injected
into muscle, the microspheres fill with water, initiating a progressive and
continuous release of medication into surrounding tissues. The medication then
diffuses into small blood vessels called capillaries, and from capillaries into
larger blood vessels. It then crosses the blood brain barrier and diffuses into
the brain. The properties of Lactiz, including its molecular weight and density,
as well as the type and amount of medication loaded into the microspheres,
control the rate at which medication is released into surrounding tissue. The
polylactide polymer making up Lactiz breaks down into carbon dioxide and water
over time, eventually disappearing. Lactiz-based products can be re-injected at
appropriate intervals. By adjusting the properties of Lactiz, we can create
formulations with sustained-release characteristics that may allow for
medication release ranging from two weeks to three months.
NALTREL CLINICAL TRIAL RESULTS. We have developed multiple formulations of
NALTREL and evaluated them in animals and in humans to select a formulation that
we believe will safely deliver sufficient levels of naltrexone over a one-month
period following a single administration. We have completed human trials in 28
subjects to evaluate levels of naltrexone in the blood. The results evidenced
two critical facts. First, release of naltrexone over one month following a
single NALTREL administration was similar to the amount of naltrexone delivered
by 31 daily naltrexone oral tablets. Second, the blood levels of naltrexone
resulting from one NALTREL administration were less variable over time than with
the oral tablets. As naltrexone is a clinically-proven commercial drug in the
tablet dosage form, and as our sustained-release technology is similar to the
technology used in previously approved products, we believe that these first
human trials suggest that NALTREL will be effective in treating alcoholics and
heroin addicts.
NALTREL PIVOTAL TRIALS PLAN. In 2000, we intend to conduct pivotal safety and
efficacy trials in alcoholics and heroin addicts to support potential market
approvals in the United States and Europe. In the US, we expect to need a single
pivotal trial to support the alcohol dependence indication and a single pivotal
trial to support the heroin dependence indication. Subject to discussion of the
protocols with the FDA and European regulatory authorities, the clinical trial
in alcoholics will be a double-blind, randomized, placebo-controlled trial in an
estimated 300 alcoholic patients. We plan to conduct the trial at approximately
30 sites in the United States. We expect to treat and follow-up patients for
three to six months. The efficacy endpoints are expected to involve reduction in
days of heavy drinking, increase in time to relapse and reduction of relapse
rate. Subject to discussion of the protocols with the FDA and European
regulatory authorities, the clinical trial in heroin addicts will enroll an
estimated 100 patients and will be placebo-controlled. The efficacy endpoints
are expected to involve the demonstration that NALTREL has blocked the opiate
receptor and that the patient does not experience drug-induced euphoria. In
addition to these trials, we intend to conduct additional NALTREL studies in
particular patient sub-populations, such as rapid detoxification, converting
methadone users to abstinence therapy to respond to the interests of the medical
community.
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BUPREL-TM-
BUPREL is a sustained-release formulation of buprenorphine designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse, using the same Lactiz technology as for NALTREL. The potential indication
of BUPREL is for substitution therapy for heroin-dependent patients who are not
ready or willing to be detoxified. Buprenorphine partially stimulates the opiate
receptor, inducing mild euphoria and maintaining dependence, while reducing the
consumption of heroin. Frequent misuse of the oral dosage form by the patient
may limit the safety of buprenorphine therapy. By putting the physician or the
nurse in charge of medication administration, we expect BUPREL will simplify and
improve the safety of buprenorphine therapy.
We are currently optimizing formulations of BUPREL in preclinical studies and
expect to enter the clinic in late 2000. Initial trials in approximately 30
patients are expected to permit the potential selection of a formulation that
release an appropriate medication amount over one month. Subsequent trials in
approximately 100 patients will be designed to potentially confirm the
buprenorphine release profile and one pivotal trial will seek to establish
safety and efficacy in fewer than 300 heroin dependent patients.
METHALIZ-TM-
METHALiz is a sustained-release formulation of methadone designed to be
administered by intramuscular injection on a monthly basis by a physician or a
nurse, using the same Lactiz technology as for NALTREL and BUPREL. The potential
indication of METHALiz is for substitution therapy for severe heroin-dependent
patients who are not ready or willing to be detoxified and for whom
buprenorphine therapy is not available or sufficiently potent. Methadone
stimulates the opiate receptor, prevents withdrawal symptoms and maintains
dependence while reducing the consumption of heroin. Approximately
180,000 heroin addicts in the United States use an oral formulation of
methadone, dispensed by 900 specialized methadone clinics. While high-risk
patients are required to visit the registered methadone clinic on a daily basis
to be administered their dose of methadone, many patients are allowed to take
one or more days worth of product home for self-administration. This sometimes
leads to fatal overdosing. By putting the physician or the nurse in charge of
medication administration and making the dosing schedule more convenient, by
eliminating patient take-homes and self-dosing, we expect METHALiz will simplify
and improve the safety of methadone therapy.
Subject to successful preclinical development, we expect to enter the clinic in
2001. Initial trials in approximately 30 patients may permit the selection of
the formulation that provides an appropriate amount of medication over one
month. Subsequent trials in fewer than 100 subjects will be designed to confirm
the methadone release profile and one pivotal trial will seek to establish
safety and efficacy in fewer than 300 patients.
COC-AB-TM-
COC-AB is designed as a cocaine antidote for the treatment of cocaine overdose,
an indication for which there is no treatment available. The current care for
toxic overdose is intensive treatment with cardiovascular and central nervous
system medications, which may be costly and labor-intensive. COC-AB is designed
to rapidly remove cocaine from the brain and body, acting as an antidote by
binding free cocaine in the blood and triggering the removal of cocaine. COC-AB
is administered by intravenous injection. A similar antidote technology is used
commercially for therapy of digoxin overdose and snake venom bites. Aventis
Pasteur, a marketer of similar antidotes for other indications, is our
manufacturer.
COC-AB is a purified protein fragment, called F(ab')(2,) derived from an
antibody produced in horses. It binds tightly to cocaine and toxic cocaine
metabolites in the bloodstream to stop further cocaine entry into tissues,
particularly the heart and brain which is responsible for the potential
life-threatening consequences of cocaine overdose. As a result, the
concentration of free cocaine molecules in the bloodstream is reduced. The body
strives to maintain equilibrium of free cocaine between tissue sites and the
bloodstream.
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Therefore, as the free cocaine in the bloodstream is bound as a COC-AB-cocaine
complex, the cocaine present in the brain and other tissues diffuses back to the
bloodstream where it is captured by COC-AB. The liver and kidneys clear the
inactive COC-AB-cocaine complex within days.
COC-AB is made by injecting horses with a proprietary chemical derivative of
cocaine linked to a protein carrier. Most of the metabolites of cocaine are
benign. To be effective, an antidote should preferably target only cocaine
itself and its toxic metabolites and not be unnecessarily consumed by these
benign metabolites. By chemically modifying cocaine into novel chemical
entities, we succeeded in producing antibodies that distinguish between toxic
by-products of cocaine, such as cocaethylene and norcocaine, and its non-toxic
metabolites such as benzoylecgonine and ecgonine-methylester. As a result, we
expect that COC-AB activity in the body will target primarily the toxic
metabolites that result from cocaine overdose.
We are currently scaling-up COC-AB in collaboration with our manufacturer,
Aventis Pasteur. We expect to enter the clinic mid-2000 to study the effect of
COC-AB on blood levels of cocaine in approximately 25 cocaine users. To assess
the clinical benefits of COC-AB in patients suffering from cocaine overdose, we
then intend to conduct a clinical trial in the emergency room in fewer than 100
patients and additional trials to support potential market approval.
MAP-AB-TM-
We intend to apply the same antidote technology to develop additional products.
MAP-AB is intended for the treatment of methamphetamine overdose.
Methamphetamine is one of the substances of abuse with the fastest growth in the
United States. Recent research has demonstrated the long-lasting toxic effects
of methamphetamine. These effects are thought to be responsible for the severe
behavioral abnormalities that accompany the prolonged use of methamphetamine.
According to the National Institute for Drug Abuse, or NIDA, there is an urgent
need for an effective medication to treat methamphetamine addiction, especially
anti-methamphetamine antibodies which could be used by emergency room physicians
to treat the growing number of overdoses. We are currently in pre-clinical
development of the chemistry of MAP-AB that could, upon intravenous
administration to a patient in the emergency room, capture methamphetamine
molecules and decrease their toxicity.
ITAC-TM-
ITAC is a cocaine vaccine candidate designed to create a chemical barrier in the
blood to prevent cocaine from reaching the brain. Following administration of
the vaccine, anti-cocaine antibodies are formed. Upon cocaine use,
cocaine-antibody complexes will form that are too large to move through blood
vessel walls into the brain. Cocaine is trapped within the bloodstream until it
is eliminated with no toxic effects from the body through normal kidney and
liver activity. Such a vaccine may serve as a valuable component of treatment
programs that protect against relapse. In animals, ITAC prevents the onset of
cocaine dependence. Using a proprietary technology similar to the one developed
to produce COC-AB, our collaborators at the Scripps Research Institute have
developed the cocaine vaccine candidate by chemically modifying cocaine and
linking it to a large protein molecule. Animals vaccinated with the ITAC vaccine
develop cocaine-specific antibodies that bind with cocaine in the blood, as well
as its toxic metabolites, preventing most of the drug from reaching the brain.
Injecting cocaine into rodents immunized with the ITAC vaccine candidate
resulted in significantly higher levels of cocaine in the blood where it is
harmless, and correspondingly lower levels in the brain, thereby reducing
dependence to cocaine. We are currently studying in additional animal models
various vaccine formulations to select one candidate that may be tested in
humans. In 2000, we expect to initiate clinical trials with ITAC in cocaine
abusers to study the safety of the vaccine and its ability to generate
anti-cocaine antibodies in humans.
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ALCOHOLMD.COM
We are developing an interactive website for medical practitioners and patients
for alcohol addiction treatment. For medical practitioners, the website will
feature medical literature, including an online medical journal, information
about best practices for addiction care, latest treatment options and provide a
forum for addiction care physicians to exchange ideas on a real time basis. In
addition, the website will be designed to host a consultant forum allowing
physician in the field to solicit opinions from leading experts. For patients
and their families, AlcoholMD.com is expected to provide tools for the
self-evaluation of drinking habits, information on treatment options and an
online forum for patient and family support. We will seek to make AlcoholMD.com
the premier online website for alcohol abuse care by assembling broad
information about alcohol addiction care and providing links to other addiction
care websites. We also intend to study the use of online psychotherapy support
for patients who are in treatment for alcohol abuse. We expect to launch
AlcoholMD.com in the second half of 2000. Importantly, we expect this website to
facilitate the marketing of our own products and services.
THE MARKET
LARGE POPULATION OF CHRONIC PATIENTS TREATED IN A SMALL NUMBER OF SPECIALIZED
CENTERS
Approximately two million patients in the United States and Europe receive
therapy for alcohol, heroin or cocaine addiction in a limited number of
specialized treatment centers. For example, in the United States there are only
900 clinics dispensing methadone to an estimated 180,000 heroin addicts.
Approximately 3,200 physicians are members of the American Society of Addiction
Medicine and write most of the prescriptions for the few medications available
to treat these patients. Approximately 70% of alcohol abusers and drug users are
employed and most employers in the United States provide mental health plan
coverage. It is estimated that 90 percent of addiction care is paid through
insurance or direct government financing in the United States. In Europe,
addiction care is covered by various social security and private payers plans.
ADDICTION CARE IS COST-EFFECTIVE
For every dollar spent on substance abuse treatment, an estimated $11.00 of
other social and medical costs are avoided. For instance, treatment is estimated
to reduce overall hospital admission rates of substance abusers by 38% in the
United States. In addition, treatment for addiction can decrease crime rates. In
one study, treatment for one year was shown to reduce arrests by an estimated
65%. We believe novel addiction medications can command pricing comparable to
other critical care therapies. For example, buprenorphine in France, used now by
an estimated 37% of heroin addicts, costs approximately $1,500 per year.
MORE PATIENTS ARE IN NEED OF THERAPY
Only an estimated 6% of alcohol abusers and cocaine addicts, and 27% of heroin
addicts are in treatment in the United States and Europe. There are an estimated
12.4 million alcohol abusers, 810,000 heroin addicts and 3.6 million cocaine
addicts in the United States, and approximately 14 million alcohol and drug
abusers in Europe. Lack of effective medications often discourages families and
primary care physicians to refer more patients to addiction treatment centers.
COLLABORATIONS
We are strengthening our position by forming relationships with strategic
partners. Alliances with government organizations, academic institutions and
others will help develop and market our new therapies. We have cultivated
relationships with academic communities, clinics, government organizations and
others, to advance the development of medications in the treatment in addiction.
We have formed alliances with research organizations and pharmaceutical
companies for product development and the manufacturing of NALTREL, BUPREL,
METHALiz, COC-AB and ITAC. This strategy lowers costs and leverages the
resources and expertise of our collaborators.
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MANUFACTURING AND SUPPLY ARRANGEMENTS
We do not intend to build manufacturing facilities, but to contract out our
manufacturing requirements to recognized leaders in pharmaceutical
manufacturing.
RELATIONSHIP WITH AVENTIS PASTEUR
In June 1999, we entered into a manufacturing agreement with Aventis Pasteur for
the manufacture of COC-AB. Aventis Pasteur is one of the world's largest vaccine
companies with a broad range of products. Under the terms of the agreement,
Aventis Pasteur has agreed to manufacture and supply us with COC-AB (Fab')2
product. As part of the relationship, Aventis Pasteur has agreed to certain
exclusivity provisions that preclude Aventis Pasteur from developing,
manufacturing or licensing a product that contains an anti-cocaine antibody or
antibody derivative for anyone other than us. We have agreed to exclusively use
Aventis Pasteur to manufacture COC-AB. This agreement has been in effect since
June 1999 and will continue until the 10(th) anniversary of the first commercial
sale of COC-AB to the general public. After such ten year period, we can
negotiate up to two (2) year renewals. The manufacturing agreement may be
terminated upon:
- uncured material breach;
- failure to obtain regulatory approval within specified time frames ranging
from two years to six years, and;
- termination of the patent and know-how license agreement between us and
Aventis Pasteur.
Also in June 1999, we entered into a patent and know-how license agreement with
Aventis Pasteur. In this agreement, Aventis Pasteur granted to us an exclusive
license under certain patents and know-how to produce and sell COC-AB products
for the treatment of drug addiction. This agreement will continue for thirteen
years following the date of first commercial sale of COC-AB to the public and
until we have made all royalty payments. The agreement may be terminated by
either party 120 days following written notice of an uncured material breach.
RELATIONSHIP WITH SP PHARMACEUTICALS L.L.C.
In November 1999, we entered into a manufacturing agreement with SP
Pharmaceuticals L.L.C. for the manufacture of NALTREL active and placebo product
for our use in clinical trials. Under the terms of the agreement, SP
Pharmaceuticals has agreed to manufacture and supply us with NALTREL.
SP Pharmaceuticals also agreed not to develop, manufacture or sell any product,
drug or compound directed to the treatment of drug, alcohol, or other substance
abuse addiction which involve sustained-release properties for any party other
than us during the term of this agreement and for two years after the expiration
or termination of this agreement. The agreement is to continue until
February 1, 2001. It may be extended for additional successive one year periods
until the development work is completed. This agreement may be terminated upon
an uncured material breach.
LICENSING AGREEMENTS
RELATIONSHIP WITH SOUTHERN RESEARCH INSTITUTE
In February 1997, we entered into an agreement with Southern Research Institute,
or SRI, for the research and development of NALTREL. SRI is a multidisciplinary
non-profit research organization and is recognized for its ability to produce
practical, workable solutions to difficult technological problems. SRI has been
instrumental in developing the proprietary micro-encapsulation technology for
NALTREL.
Under the terms of the agreement, we are working with SRI on the development of
an injectable, biodegradable microsphere formulation for one-month delivery of
naltrexone. In connection with the agreement, we were also granted the option to
license some of the developed product. On July 1, 1999, we
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exercised the option of licensing worldwide rights, on an exclusive basis to
develop, produce and sell any injectable, sustained-release formulation of
naltrexone or other opiate receptor antagonists. In addition, we received a
nonexclusive license to certain other SRI patents and know-how for the purpose
of developing and commercializing any injectable, sustained-release formulations
of naltrexone. With respect to any of the other SRI patents, we agreed to give
SRI a non-exclusive, royalty-free license to fully exploit for any other purpose
any improvements to the other SRI patents for which we file a patent
application. The term of the development agreement will continue until
December 31, 2000. The license will continue until December 31, 2010, or the
expiration of the naltrexone patents or the expiration of the SRI patent rights,
whichever is last to occur. SRI may terminate the agreement if we have not filed
a new drug application for an injectable, sustained-release formulation of
naltrexone with the FDA by July 1, 2004, unless we can show our failure to file
resulted from events reasonably beyond our control. Further, SRI may terminate
the agreement upon 90 days written notice of an uncured material breach by us.
In January 2000, we entered into a second agreement with SRI for the research
and development of controlled release buprenorphine or other opiate receptor
agonists, including but not limited to, methadone. Under the terms of the
agreement, we are developing with SRI an injectable, sustained-release
formulation for delivery of controlled release buprenorphine. On January 21,
2000 we exercised the option of licensing exclusive worldwide rights for any
current or future patent rights covering inventions made during the performance
of the work under the research agreement to develop and commercialize any
injectable, sustained-release formulation of buprenorphine or other opiate
recepter agonists, including, but not limited to, methadone. The license
requires us to give a non-exclusive, royalty-free license to SRI to exploit for
any commercial purpose, other than sustained-release buprenorphine and other
opiate recepter agonists, any improvements we make to SRI patents. The term of
the development agreement will continue until January 21, 2003. The license will
continue until the expiration of the last of the buprenorphine patents or the
expiration of other relevant SRI patent rights. This agreement may be terminated
upon an uncured material breach by us.
RELATIONSHIP WITH SCRIPPS RESEARCH INSTITUTE
In June 1996, SCRIPPS Research Institute granted us a license of certain patents
relating to the development and marketing of diagnostic and therapeutic products
within the field of treatment of cocaine addition. SCRIPPS is engaged in
fundamental scientific biomedical and biochemical research. The SCRIPPS Research
Institute is one of the largest, private, non-profit research organizations in
the United States. SCRIPPS has become internationally known for its basic
research into immunology, molecular and cellular biology, chemistry,
neurosciences, autoimmune diseases, cardiovascular diseases and synthetic
vaccine development.
Under the terms of the agreement we licensed exclusive worldwide rights to
develop and market ITAC. This agreement will remain in effect so long as we sell
products covered under the terms of the license or until the licensed patents
expire. Scripps may terminate the agreement within 60 days after an arbitrator's
decision that we have not complied with the commercial development obligations
required in the agreement. Further, Scripps will be able to terminate the
agreement upon 15 days written notice for nonpayment of any amounts due by us
and upon 60 days notice for any other uncured breach by us.
RELATIONSHIP WITH UNIVERSITY OF PARIS V
In June 1999, we entered into a research and development agreement with the
University of Paris V to jointly develop COC-AB and related antibodies using
both the facilities and expertise of the University of Paris V.
Under the terms of the agreement, we have been granted worldwide rights, current
and future, to all inventions related to and including COC-AB. In consideration
of this agreement we have agreed to make royalty payments to the University of
Paris V for a period of five years from the date of the first commercial sale of
COC-AB.
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PATENTS AND PROPRIETARY TECHNOLOGY
Our success will depend in part on our and our licensors' ability to obtain
patents for our technology and preserve our trade secrets and to operate without
infringing upon the proprietary rights of others. We currently hold one US
patent relating to COC-AB and we expect that a second patent will be issued in
the near future. We also have a patent application pending for our proprietary
naltrexone formulation, NALTREL and have a patent application pending for our
proprietary buprenorphine formulation, BUPREL. In addition, we have an exclusive
license from Southern Research Institute for patents relating to
sustained-release formulations of NALTREL, BUPREL, and METHALiz and an exclusive
license from the Scripps Research Institute for a patent relating to ITAC.
Patent positions in the pharmaceutical field are often uncertain and may involve
complex legal, scientific and factual questions. There has been increasing
litigation in the pharmaceutical industry with respect to the manufacture, use
and sale of new therapeutic products that are the subject of conflicting patent
rights. The validity and breadth of claims in pharmaceutical patents may involve
complex factual and legal issues for which no consistent policy has emerged, and
therefore, are highly uncertain. Moreover, the patent laws of foreign countries
differ from those of the US, and hence the degree of protection afforded by
foreign patents may be different. There can be no assurance that patent
applications relating to products and technologies developed by us will result
in patents being issued or that, if issued, the patents will provide a
competitive advantage or will afford protection against competitors with similar
technologies, or that such patents will not be challenged successfully or
circumvented by competitors, or that our technologies, products or processes
will not be found to infringe on third parties patent rights. In addition, there
is a substantial backlog of biotechnology patent applications at the US Patent
and Trademark Office, and the approval or rejection of patent applications may
take several years.
We also rely on certain proprietary trade secrets and know-how that are not
patentable. Although we have taken steps to protect our unpatented trade secrets
and know-how, in part through the use of confidentiality agreements, with our
employees and consultants there can be no assurance that:
- these agreements will not be breached; or
- our trade secrets will not otherwise become known or independently
developed.
COMPETITION
The market for our products has few direct competitors but we expect the
intensity of competition to increase. Currently, we compete primarily with other
companies marketing products for the treatment of alcohol and heroin abuse. In
the future we may compete with companies developing similar products using
alternative technologies, or different products for similar medical indications
that could render our products obsolete. We believe we will compete in the
future on the basis of approved product indications, post-marketing studies,
pricing and reimbursement. Many of our competitors have greater financial,
operational, sales and marketing resources, and more experience in research and
development than we have. Companies known to market or actively develop products
for alcohol or drug addiction care include, but are not limited to Cantab,
Dupont Merck, Lipha, Mallinckrodt, Medimmune, Schering Plough, Reckitt Colman
and Roxane.
GOVERNMENT REGULATION
Our research and development activities, pre-clinical tests and clinical trials,
and ultimately the manufacturing, marketing and labeling of our products, are
subject to extensive regulation by the FDA and other regulatory agencies in the
United States and other countries. In the US, the Federal Food, Drug, and
Cosmetic Act, or the Act, and the regulations promulgated thereunder and other
federal and state statutes and regulations govern, among other things, the
testing, manufacture, safety, efficacy, labeling, storage, record keeping,
approval, advertising, promotion, import and export of our products. Similarly,
the EU
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subjects the manufacture, testing, marketing, labeling, advertising, and
classification of medicinal products to extensive regulation, which is
implemented at national level and supplemented by additional national rules
throughout the Member States of the EU. Pre-clinical testing and clinical trial
requirements and the regulatory approval process typically take years and
require the expenditure of substantial resources. Additional government
regulation may be established that could prevent or delay regulatory approval of
our product candidates. Delays or rejections in obtaining regulatory approvals
would adversely affect our ability to commercialize any pharmaceutical product
candidates we develop and our ability to receive product revenues or royalties.
Even if regulatory approval of a product candidate is granted, the approval may
include significant limitations on the indicated uses for which the product may
be marketed.
The FDA and other foreign regulatory agencies require that the safety and
efficacy of our product candidates be supported through adequate and
well-controlled clinical trials. If the results of pivotal clinical trials that
we submit in applications for approval do not establish the safety and efficacy
of our product candidates to the satisfaction of the FDA and other foreign
regulatory agencies, we will not receive the approvals necessary to market our
product candidates, which would have a material adverse effect on our business,
financial condition, cash flows and results of operations.
Some of our products will also be regulated by the United States Drug
Enforcement Administration and by the European Union as controlled substances.
FDA REGULATION--APPROVAL OF THERAPEUTIC PRODUCTS
Our therapeutic products are regulated either as drugs (in the case of NALTREL,
BUPREL, METHALiz, and dopamine modulators) or as biological products (in the
case of COC-AB, MAP-AB and ITAC). The steps required before a drug or biological
product may be marketed in the United States include:
- - pre-clinical and clinical studies;
- - the submission to the FDA of an Investigational New Drug application, or
IND, which must become effective before human clinical trials may commence;
- - adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug;
- - the submission to the FDA of a New Drug Application, or NDA, or, a
Biological License Application, or BLA; and
- - FDA approval of the application, including approval of all product labeling.
Pre-clinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Pre-clinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the pre-clinical tests are typically submitted and
reviewed by the FDA as part of an IND, before human clinical trials begin. If
the FDA does not object to an IND, it will become effective in 30 days.
Submission of an IND may not result in FDA authorization to commence clinical
trials and the lack of an objection may not mean that the FDA will ultimately
approve a product for marketing. We filed an IND for NALTREL in early 1999.
Clinical trials involve the administration of the investigational product to
humans under the supervision of a qualified principal investigator. The
protocols for clinical trials must be reviewed by the FDA and must be conducted
in accordance with Good Clinical Practices. Each clinical trial must be approved
by an Institutional Review Board that will consider, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution conducting the clinical trials. We must also obtain patient informed
consent.
Clinical trials are typically conducted in three sequential phases that may
overlap. In phase I clinical trials the drug is given to healthy human
volunteers and is tested for safety, dosage tolerance, metabolism,
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distribution, excretion and pharmacodynamics. Phase II clinical trials are
conducted in a target patient population:
- - to gather evidence about the pharmacokinetics, safety and effectiveness of
the drug for specific indications;
- - to determine dosage tolerance and optimal dosage; and
- - to identify possible adverse effects and safety risks.
Phase III clinical trials are undertaken to evaluate clinical efficacy and to
test for safety in an expanded patient population. Our clinical trials may not
be completed successfully or within any specified time period. We or the FDA may
suspend clinical trials at any time, if either we or the FDA conclude that
clinical subjects are being exposed to an unacceptable health risk, or for many
other reasons.
The FDA may disagree with the design of the Phase III clinical trial protocols
after the results of the Phase III clinical trials have been announced. The FDA
inspects and reviews clinical trial sites and data from the clinical trials to
determine compliance with Good Clinical Practice. The FDA also examines whether
there was bias in the conduct of clinical trials. Phase III clinical trials are
complex and difficult, and they may not be successful.
The results of pre-clinical studies and clinical trials, if successful, are
submitted in an application to seek the FDA approval to market the drug or
biological product for a specified use. The testing and approval process
requires substantial time and effort, and approval may not be granted for any
product nor approval granted according to any schedule. The FDA may refuse to
approve an application if it believes that regulatory criteria are not satisfied
and may require additional testing for safety and efficacy of the drug. If
regulatory approval is granted, the approval will be limited to specific
indications. Our product candidates may not receive regulatory approvals for
marketing, or if approved, the approval may not be for the indications we have
requested.
The FDA provides a "fast track" review process for drugs that treat serious or
life threatening diseases and conditions and have a demonstrated potential to
meet unmet medical needs for these diseases or conditions. Approval may be
conditioned on a requirement that, following product launch, a company continue
to study the drug to verify and describe its clinical benefit. Under "fast
track" procedures, the FDA may withdraw approval on an expedited basis if the
company fails to show due diligence in conducting post-marketing clinical trials
or if the post-approval clinical trials fail to demonstrate that the product is
safe or effective. When appropriate, we intend to pursue opportunities for "fast
track" review of our products. We may not be able to take advantage of "fast
track" review of our products.
The current fee for submission of NDAs and BLAs is $256,338, and may increase
from year to year. The FDA also may require annual fees for approved products
and for companies that manufacture products. The FDA may waive or reduce these
fees under special circumstances. We will seek waivers or reductions of fees
where possible, but we may not be eligible for any such waiver or reduction.
FDA REGULATION--POST-APPROVAL REQUIREMENTS
Even if regulatory approvals for our product candidates are obtained, our
products and the facilities that manufacture them are subject to continual
review and periodic inspection. Each US drug manufacturing establishment must be
registered with the FDA. Manufacturing establishments in the US and abroad are
subject to inspections by the FDA and must comply with the FDA's good
manufacturing practice regulations, which are strictly enforced. Full technical
compliance requires manufacturers to expend funds, time and effort in the area
of production and quality control.
The FDA continues to regulate products after they have been approved. For
example, the FDA and, in certain instances, the Federal Trade Commission,
regulate the labeling and promotion of approved
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products. The FDA also requires that we report certain adverse events involving
our products. In addition, the FDA can impose other post-marketing controls on
us and our products.
Failure to comply with regulatory requirements can result in warning letters,
fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, refusal or withdrawal of approvals and
criminal prosecution of our company and employees.
EU REGULATION--APPROVAL OF THERAPEUTIC PRODUCTS
Before clinical trials and marketing of our products in the EU begin, EU
regulatory approval must be obtained, regardless of FDA approval. The approval
procedure varies in each Member State, and the time required may be different
from that required for FDA approval.
Under EU law, there are two procedures for the approval of therapeutic products.
The first is a centralized approval procedure, administered by the European
Agency for the Evaluation of Medicinal Products , or the EMEA. The second is a
decentralized approval procedure, which requires approval by the Medicines
Agency in each Member State where our therapeutic products will be marketed.
Once a product has been approved by one Member State, the product is eligible
for expedited review by other Member States. The centralized approval procedure
is mandatory for certain biological products and may be applicable to our
products. We believe that approval of COC-AB, MAP-AB and ITAC will be considered
under this procedure. We believe that the approval of some of our other
products, such as, NALTREL, BUPREL and METHALiz will be considered under the
decentralized procedure. There can be no assurance that one Member State will
recognize a drug approval granted earlier by another Member State, but a
decision will be made within 90 days.
Regardless of which procedure might be used, the rigorous and lengthy steps
ordinarily required before a medicinal product may be marketed in the EU
include:
- - adequate non-clinical tests and clinical trials;
- - the submission to the EMEA or to the respective Member States' Medicines
Agencies of an application for a marketing authorization, supported by all
necessary documents and test results; and
- - approval of the application, including approval of all product labeling and
packaging, by the European Commission and/or the relevant Medicines Agencies
in each Member State.
- - In the EU, there is no "fast track" review process to for expedited
regulatory approval.
In all cases, the safety, efficacy and quality of our product candidates must be
demonstrated according to demanding criteria under EU and US rules. Our
non-clinical tests and clinical trials performed in the US may not be recognized
and accepted by the regulatory authorities in the EU. Pre-clinical tests in the
EU must be conducted by laboratories that comply with Good Laboratory Practice,
and clinical trials must be conducted in accordance with specific national Good
Clinical Practices. Moreover, many Member States require compliance with
principles of Good Manufacturing Practices in the manufacture of products
intended for use in clinical trials. The complex array of national requirements
for clinical trials conducted in the EU may delay regulatory approvals.
After receiving pre-marketing approval we will have to comply with rules in the
Member States relating to the labeling and advertising of our products.
Even if regulatory authorities approve our product candidates, our products and
our facilities, including facilities located outside the EU, may be subject to
ongoing testing, review and inspections by EU health regulatory authorities.
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Failure to comply with EU regulatory requirements can result in, among other
things, warning letters, fines, injunctions, civil penalties, recall orders or
seizure of products, total or partial suspension of production, refusal or
withdrawal of approvals and criminal prosecution of us and our employees.
DEA REGULATION
Some components of our current product candidates are regulated as controlled
substances by the Drug Enforcement Agency, or DEA. The active ingredient in
METHALiz is currently classified on Schedule II (signifying, among other things,
a high potential for abuse) and the active ingredient in BUPREL is currently
classified as Schedule V (signifying, among other things, a lower potential for
abuse). In addition, the active ingredient in ITAC is derived from a substance
classified on Schedule II and may itself be regulated as a Schedule II
substance.
As controlled substances, the handling of these ingredients, and the
manufacture, shipment, storage, sale, and use of finished products containing
these ingredients, are subject to the highest degree of regulation and
accountability by DEA. The amount of controlled substances we can obtain for
clinical trials and for commercial distribution is limited by the DEA and may
not be sufficient to complete clinical trials or meet commercial demand. There
is no assurance the DEA will not, in the future, seek to regulate other active
ingredients in our product candidates as controlled substances. DEA restrictions
on the controlled substances used in our products, or on the marketing of our
products containing those controlled substances, could significantly limit the
sales of our products, resulting in a material adverse impact on our financial
performance.
REGULATION OF CONTROLLED SUBSTANCES IN THE EUROPEAN UNION
EU regulations govern trade in controlled substances between the EU and third
countries, and may adversely affect the manufacture, clinical testing, shipment,
storage, sale and use of certain active ingredients contained in our products or
our products themselves. EU regulations impose a specific system of monitoring
trade in controlled substances, including licensing and registration
requirements, pre-notification of consignments of certain controlled substances,
prohibitions of certain operations, and a variety of record keeping, labeling
and security requirements. Enforcement actions for non-compliance with
regulations include fines and/or criminal sanctions.
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SCIENTIFIC ADVISORY BOARD
We have established a scientific advisory board made up of leading scholars in
the field of addiction science. Members of our scientific advisory board consult
with us on matters relating to the development of our products described
elsewhere in this prospectus. Members of our Scientific Advisory Board are
reimbursed for reasonable out-of-pocket expenses they incur in connection with
board meetings. Some of the members may also receive options to purchase shares
of our common stock. The members of the scientific advisory board are as
follows:
<TABLE>
<CAPTION>
ADVISOR INSTITUTION
- -----------------------------------------------------------------------------------------------
<S> <C>
Walter Ling, MD, Chairman University of California, Los Angeles
Jean Ades, MD Louis Mourier Hospital, Paris
Dominique Blanchard, PhD Establissement de Transfusion
Sanguine, Nantes
Herve Galons, PhD University of Paris V, Paris
Kim D. Janda, PhD The Scripps Research Institute, La
Jolla
Reese Jones, MD University of California, San
Francisco
George Koob, PhD The Scripps Research Institute, La
Jolla
Charles O'Brien, MD University of Pennsylvania,
Philadelphia
Jean-Marc Rouzioux, MD, PhD, LD Aventis Pasteur, Lyon
</TABLE>
EMPLOYEES
As of January 27, 2000, we employed 15 persons, four of whom hold PhD or MD
degrees and one who holds another advanced degree. Approximately seven employees
are engaged in management or administration, one in business development, one in
finance, one in marketing and sales, one in regulatory affairs and quality
assurance, and six are involved in research and clinical development. Our
success will depend in large part upon our ability to attract and retain
employees. We face competition in this regard from other companies, research and
academic institutions, government entities and other organizations. We believe
that we maintain good relations with our employees.
FACILITIES
We sublease an office facility in Menlo Park, California that is approximately
1,500 square feet for $4,500.00 per month that we use as our headquarters and as
the base for our operations. The sublease expires on September 30, 2000. We rent
laboratory space in Paris, France and also intend to lease a facility in Paris
that is approximately 1,700 square feet. Under the terms of this lease, we will
pay rent of approximately $3,400 per month beginning July 1, 2000. We believe
that our current facilities will be adequate to meet our near-term space
requirements. We also believe that suitable additional space will be available
to us, when needed, on commercially reasonable terms.
ORGANIZATION
We were incorporated in the state of California in 1993. We have a wholly-owned
subsidiary, DrugAbuse Sciences, SAS, incorporated under the laws of France.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
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Management
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers, directors and key employees as of
January 28, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND KEY
EMPLOYEES
Philippe Pouletty, MD..................... 41 Chairman of the Board and Chief Executive
Officer
Elizabeth M. Greetham..................... 50 Chief Financial Officer, Senior Vice
President, Business Development and Director
James W. Elder............................ 47 Senior Vice President, Marketing and Sales
Jason A. Gross, PharmD.................... 35 Vice President, Regulatory Affairs and
Quality Assurance
Maryvonne Hiance.......................... 51 General Manager of European Operations
Jacques Kusmierek, MD..................... 57 Deputy General Manager of European
Operations, Senior Vice President European
Development
David E. Smith, MD........................ 60 Medical Director and Director
Donald R. Wesson, MD...................... 58 Vice President, Clinical Development
Raffy Kazandjian(2)....................... 40 Director
Fred P. Phillips IV(2).................... 35 Director
Russell Ricci(1).......................... 53 Director
Gordon Russell(2)......................... 66 Director
Vincent Worms(1).......................... 47 Director
</TABLE>
- ---------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
PHILIPPE POULETTY, MD Dr. Pouletty is our founder and has served as our
Chairman of the Board since 1993 and chief executive officer since December
1999. In 1988, Dr. Pouletty founded SangStat Medical Corporation (NASDAQ: SANG),
the only specialty pharmaceutical company dedicated to organ transplantation
which received FDA approval for two new drugs in 1998. Dr. Pouletty served as
President, CEO and a director of SangStat from 1988 to 1995. From 1995 to 1998
he served as Chairman and CEO and is presently the Chairman. He is also a member
of the board of Conjuchem, a private biotechnology company. Before founding
SangStat, Dr. Pouletty co-founded Clonatec, a French biotechnology company,
where he was the director of research from 1984 to 1988. From 1981 to 1984,
Dr. Pouletty was Interne des Hospitaux de Paris and practiced hematology and
immunology at two of Paris' leading hospitals. He is the inventor of 22 issued
US patents, co-author of 41 published scientific papers and a member of the
American Society of Addiction Medicine. Dr. Pouletty received his M.D. degree
from the University of Paris VI and immunology and virology degrees (M.S.) at
Institut Pasteur. He was a post-doctoral fellow at Stanford University in the
Department of Medical Microbiology and Immunology.
ELIZABETH M. GREETHAM Ms. Greetham joined us in 1998 as a member of the board
of directors and in April 1999 assumed the position of Chief Financial Officer
and Senior Vice President, Business Development. From 1988 to 1999,
Ms. Greetham was a portfolio manager for Weiss, Peck & Greer, an institutional
investment management firm. She managed the WPG Life Sciences Funds, L.P., which
invested in select biotechnology stocks. Prior to that, Ms. Greetham was a
consultant to F. Eberstadt & Co. She has
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over 25 years of investment experience as a portfolio manager and health care
analyst in the United States and Europe. She is a member of the Board of
Directors of Guilford Pharmaceuticals, SangStat Medical Corporation,
PathoGenesis Corporation and CliniChem Development Inc., all publicly traded
companies. Ms. Greetham earned an MA (Hons.) from the University of Edinburgh,
Scotland.
JAMES W. ELDER Mr. Elder joined us in January 2000, to become our Senior Vice
President, Marketing and Sales. For the past twenty-one years, he has held
numerous management positions at Mallinckrodt Incorporated, a pharmaceutical
company that manufactures controlled substances in bulk. Mr. Elder was most
recently Business Director of the Addiction Treatment Business Unit, where he
was responsible for developing products and services for addiction treatment
clinics, including a methadone clinic computer, sales of methadone and
naltrexone pharmaceuticals and bulk methadone, and retail sales of generic
analgesics. Other positions held by Mr. Elder at Mallinkrodt include Marketing
Manager of the Pharmaceutical Dosage Products and Drug Chemicals Divisions,
Quality Assurance Manager, and Senior Business Manager. Prior to joining
Mallinckrodt, Mr. Elder worked as a Research Chemist for the Protein Research
Division of Ralston Purina. Mr. Elder earned an MBA at the Southern Illinois
University and received his Bachelor of Arts in Chemistry from the University of
Missouri-Columbia.
JASON A. GROSS, PHARMD Mr. Gross joined us in January 2000 to become our Vice
President, Regulatory Affairs and Quality Assurance. From 1997 until 2000, he
was the director of State, Federal and International regulatory affairs at
Zenith/Goldline Pharmaceuticals, a subsidiary of IVAX Corporation. From 1992 to
1997 Dr. Gross was an officer in the Public Health Service assigned to the Food
and Drug Administration, Center for Drug Evaluaion and Research (CDER). He
served in various regulatory capacities including Chief Consumer Safety Officer
for the Office of Generic Drugs; Division of Bioequivalence, Manager of the
Domestic Preapproval Inspection Process and was assigned to the Office of the
Commissioner at the US Food and Drug Administration, to work on issues
associated with the tobacco initiative and homeopathic medications. Dr. Gross
studied Marketing and Management at Pima Community College and received his
Doctor of Pharmacy from the University of Arizona, after which he completed a
post Doctorate specialized residency in Ambulatory Care at the National
Institutes of Health.
MARYVONNE HIANCE Ms. Hiance joined us as General Manager of our European
operations in 1997. She served as President of Sangstat Atlantique, Sangstat's
European subsidiary from 1990 to 1992. She was co-founder from 1991 to 1996, of
Demeter Innovation, a French consulting company where she was manager from 1991
to 1993. Ms. Hiance was General Manager of Strategic Ventures, a company focused
on organizing and financing the international growth of European companies, from
1993 to 1997. She holds an Engineering degree from the 'Ecole Polytechnique
Feminine', Paris and a Nuclear Engineering degree from the 'Institut des
Sciences et Techniques', Grenoble.
JACQUES KUSMIEREK, MD Dr. Kusmierek joined us in January 2000 as Deputy General
Manager of European Operations and Senior Vice President of European
Development. From 1990 to 1999, he served in several positions at Sanofi
Pharmaceuticals in Paris, France. From 1996 to 1999 he served as Vice President
and Chief Executive Medical Officer of Human Health Worldwide, where he was
responsible for establishing the new Medical Affairs division which included
Health Economics and Outcome Research, Pricing and Reimbursement. From 1990 to
1996 he was Executive Vice President of Research and Director of International
Clinical Development, a division he started and managed for six years.
Dr. Kusmierek has held medical director and clinical research positions at Eli
Lilly, Rhone Poulenc and Boehringer Ingelheim in both the US and Europe.
Dr. Kusmierek received his M.D. degree from the University of Rene Descartes in
Paris, France. He is a board-certified cardiologist and completed additional
training in clinical pharmacology at the University of Pierre and Marie Curie.
DAVID E. SMITH, MD Dr. Smith is our Medical Director and a member of our
Scientific Advisory Board, positions he has held since 1998. Dr. Smith founded
the Haight Ashbury Free Clinics in the San Francisco
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area in 1967 and has been the President and Medical Director from inception. He
serves as medical director for several organizations including the California
State Department of Alcohol and Drug Programs at the University of California in
San Francisco (UCSF). Dr. Smith has been an author and advisor of more than 300
articles, books, and films and has been an investigator in numerous clinical
trials of addiction treatments. He served as President of the American Society
of Addiction Medicine (ASAM) from 1995 to 1997 and also served as President of
the California Society of Addiction Medicine (CSAM). He is also a member of the
Clinical Review Board for the National Institute on Drug Abuse (NIDA). In 1967,
Dr. Smith founded the Journal of Psychoactive Drugs, where he currently serves
as Executive Editor. Dr. Smith received a M.S. in pharmacology and his M.D. from
the University of California, San Francisco.
DONALD R. WESSON, MD Dr. Wesson joined us in January 1998 as a member of our
Scientific and Medical Advisory Board, and in October 1999 he was appointed Vice
President, Clinical Development. Dr. Wesson has been the Scientific Director of
Friends Research Associates in Berkeley, California, a collaborative group of
researchers dedicated to expanding the treatment options for addiction care. He
has been the principal investigator for 11 clinical trials sponsored by the
National Institute on Drug Abuse (NIDA), and 10 clinical trials sponsored by the
pharmaceutical industry. Since 1997, Dr. Wesson has served as the Chairman of
the American Society of Addiction Medicine's (ASAM) Medications Development
Committee. He has written more than 100 articles, book chapters, and books
concerning drug abuse and its treatment and is on the editorial board of several
journals including the Journal of Psychoactive Drugs and the Journal of
Addictive Diseases. Dr. Wesson received his M.D. at the Medical College of
Alabama and is a board-certified psychiatrist.
RAFFY KAZANDJIAN Mr. Kazandjian joined our board of directors in March 1998. He
is currently the Investment Director at CDC-Innovation, a venture-capital firm
he joined in 1996. He has extensive knowledge in the area of life sciences
investments and information technology. Mr. Kazandjian currently serves on the
boards of directors of several European and North American pharmaceutical and
biotechnology and internet companies, including Thallia Pharmaceuticals,
Neurotech, and Quantum Biotechnologies. Mr. Kazandjian is a graduate of
Massachusetts Institute of Technology, with an MBA from INSEAD in Paris, and
started his career with the P&G Company.
FRED P. PHILLIPS IV Mr. Phillips joined our Board of Directors in
October 1999. Since November 1997, Mr. Phillips has invested in technology
companies on behalf of ABN AMRO NV, an investment firm in the Netherlands.
Mr. Phillips is presently a director of several privately held technology
companies in the United States and Europe. Mr. Phillips holds a B.S. in
economics from Cornell University, a M.St. in philosophy from Oxford University,
and a J.D. from Yale University.
RUSSELL J. RICCI, MD Dr. Ricci joined our board of directors in January 2000
and is the General Manager of IBM's Healthcare Industry leading a team
developing information technology and e-business solutions to payors, providers
and pharmaceutical companies. Prior to joining IBM, he held a number of
executive and clinical positions with other organizations, including Voluntary
Hospitals of America (VHA), and New Health Ventures at Blue Cross and Blue
Shield of Massachusetts, where he served as President. Dr. Ricci received his
M.D. from Harvard University and is a former associate chairman and assistant
clinical professor at Boston University School of Medicine.
GORDON RUSSELL Mr. Russell joined our board of directors in December 1998, and
was formerly a general partner at Sequoia Capital, a venture capital firm he
joined in 1979. At Sequoia he developed the partnership's original healthcare
investments in companies such as Acuson, Ventritex, SangStat Medical
Corporation, and Biotrack. Mr. Russell is a Chairman of Fusion Medical
Technologies, a publicly traded company. He is a Chairman of the Board of
Overseers of the Dartmouth Medical School and the C. Everett Koop Institute at
Dartmouth. He also sits on the Board of Trustees of the Palo Alto Medical
Foundation. Mr. Russell has an A.B. in History from Dartmouth College.
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VINCENT WORMS Mr. Worms joined our board of directors in July 1994, and is
currently a General Partner at Partech International a venture capital firm he
jointly founded in 1982. His 17 years of investment experience have been
concentrated in the computer and CAD/CAE areas, and now predominantly in the
software industry. Mr. Worms is presently a director of Business Objects,
SangStat Medical Corporation, Visioneer and Informatica. He has a MS in Civil
Engineering from the Massachusetts Institute of Technology and a MS in
engineering from Ecole Polytechnique in Paris.
BOARD OF DIRECTORS
We currently have authorized eight directors. All of our officers serve at the
discretion of the board of directors. There are no family relationships among
our directors and officers.
BOARD COMMITTEES
The compensation committee of the board of directors reviews and makes
recommendations to the board regarding all forms of compensation provided to our
executive officers and directors, including stock compensation and loans. In
addition, the compensation committee reviews and makes recommendations on bonus
and stock compensation arrangements for all of our employees. As part of these
responsibilities, the compensation committee also administers our 2000 Stock
Incentive Plan, 2000 Employee Stock Purchase Plan and 2000 Directors' Option
Plan. The current members of the compensation committee are Vincent Worms and
Russell Ricci.
The audit committee of the board of directors reviews and monitors our corporate
financial reporting and our external audits, the results and scope of the annual
audit and other services provided by our independent auditors and our compliance
with legal matters that have a significant impact on our financial reports. The
audit committee also consults with management and our independent auditors
before the presentation of financial statements to shareholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee has the responsibility to consider and recommend
the appointment of, and to review fee arrangements with, our independent
auditors. The current members of the audit committee are Fred Phillips, Gordon
Russell, and Raffy Kazandjian.
DIRECTOR COMPENSATION
We do not currently provide our directors with cash compensation for their
services as members of the board of directors, although members are reimbursed
for some expenses in connection with attendance at board and committee meetings.
On December 15, 1999, all non-employee directors, including Gordon Russell,
David Smith, Vincent Worms, Raffy Kazandijian, Fred Phillips, and Russell Ricci
were granted a stock option for 33,333 shares at $0.45. The directors will vest
in 25% of the shares subject to their options after 12 months of continuous
service as directors after their grant date; the remaining shares vest equally
over the next 36 months of continuous service. Following this offering,
directors will receive automatic option grants under our 2000 Directors' Option
Plan. A non-employee director who first joins our board following the offering
will receive an option for 20,000 shares of our common stock. Twenty-five
percent of the shares subject to this initial option vest after 12 months of
continuous service as a director; the remaining shares vest equally over the
next 36 months of continuous service. At each annual meeting of shareholders,
beginning in 2001, all non-employee directors who will continue to be board
members after the annual meeting will receive an option for 5,000 shares of our
common stock, which will vest after 12 months of continuous service after the
grant date. In no event will a non-employee director receive an option for 5,000
shares in the same calendar year that he or she receives the option for 20,000
shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Vincent Worms and Russell Ricci. No interlocking relationship exists between any
member of our board of directors or our
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compensation committee and any member of the board of directors or compensation
committee of any other company, and no interlocking relationship has existed in
the past, except that Elizabeth Greetham and Vincent Worms serve on the
compensation committee of SangStat Medical Corporation, a publicly traded
company, in which Philippe Pouletty serves as the Chairman of the Board.
EXECUTIVE COMPENSATION
The following table presents information on compensation for fiscal year 1999
paid by us for services by our current chief executive officer, our former chief
executive officer, and our executive officers, collectively referred to as the
Named Executive Officers.
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<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
OTHER ANNUAL RESTRICTED STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) OPTIONS(#)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D.... -- -- -- -- 726,656
Chairman of the Board,
Chief Executive Officer
and President
Elizabeth M. Greetham..... -- -- -- 2,200 480,553
Chief Financial Officer,
Senior Vice President,
Business Development and
Director
James W. Elder(1)......... -- -- -- -- --
Senior Vice President,
Marketing and Sales
Maryvonne Hiance.......... 60,000 -- -- -- 25,000
General Manager of
European Operations
Stanley Kaplan, Ph.D.(2)... 175,000 8,033 36,526 -- --
Former Chief Executive
Officer and Former
President
</TABLE>
- ------------
(1) MR. JAMES W. ELDER BEGAN SERVING AS OUR SENIOR VICE PRESIDENT, MARKETING AND
SALES ON JANUARY 19, 2000.
(2) DR. KAPLAN CEASED TO SERVE AS CHIEF EXECUTIVE OFFICER AS OF DECEMBER 26,
1999. HE CONTINUED TO SERVE AS PRESIDENT UNTIL DECEMBER 31, 1999.
DR. KAPLAN CURRENTLY PROVIDES CONSULTING SERVICES AND WILL PROVIDE THESE
SERVICES UNTIL APRIL 9, 2000. OTHER ANNUAL COMPENSATION FOR MR. KAPLAN
INCLUDES A SEVERANCE PAYMENT OF $30,834 AND $5,692 IN ACCRUED VACATION.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options we granted during fiscal year
1999 to each of our Named Executive Officers. Generally these stock options are
immediately exercisable. We have the right to repurchase all unvested shares at
the original exercise price if the optionee's service terminates. Each of the
options has a ten-year term, subject to earlier termination if the optionee's
service terminates.
The percentages in the column entitled "Percent of total options granted to
employees in 1999" are based on an aggregate of 1,721,210 options granted under
the 1994 Stock Plan, the 1999 Stock Plan A, and the 1999 Stock Plan B during the
12 months ended December 31, 1999.
The amounts listed in the following table under the heading "Exercise price"
were valued by our board of directors on the date of grant. In determining this
fair market value, the board of directors took into account
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the purchase price paid by investors for shares of our preferred stock (taking
into account the liquidation preferences and other rights, privileges and
preferences associated with such preferred stock) and an evaluation by the board
of directors of our revenues, operating history and prospects. The exercise
price may be paid in cash, in shares of our common stock valued at fair market
value on the exercise date or through a cashless exercise procedure involving a
same-day sale of the purchased shares. We may also finance the option exercise
by lending the optionee sufficient funds to pay the exercise price for the
purchased shares, together with any federal and state income tax liability
incurred by the optionee in connection with the exercise.
We calculated the amounts listed in the following table under the heading
"Potential realizable value at assumed annual rates of stock price appreciation
for option term" based on the ten-year term of the option at the time of grant.
For purposes of these columns, we assumed stock price appreciation of 5% and 10%
pursuant to rules promulgated by the Securities and Exchange Commission. These
rates do not represent our prediction of our stock price performance. We
calculated the potential realizable values at 5% and 10% appreciation by
assuming that the estimated fair market value on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. Information on how we determined the fair market value of our
common stock is disclosed in the preceding paragraph. The price to the public in
this offering is higher than the estimated fair market value on the date of
grant. Therefore, the potential realizable value of the option grants would be
significantly higher than the numbers shown in the column if future stock prices
were projected to the end of the option term by applying the same annual rates
of stock price appreciation to the public offering price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES PRICE EXPIRATION (IN THOUSANDS)
NAME GRANTED (#) IN 1999 ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D...... 106,709(1) 6.20% $0.30 09/27/2009 $20,133 $51,020
619,947(2) 36.02 0.45 12/14/2009 175,447 444,616
Elizabeth M. Greetham....... 108,585(3) 6.31 0.30 04/06/2009 20,487 51,917
371,968(4) 12.61 0.45 12/14/2009 105,268 266,770
James Elder................. -- -- -- -- -- --
Maryvonne Hiance............ 25,000(5) 1.45 0.30 07/12/2009 4,717 11,953
Stanley Kaplan, PhD......... -- -- -- -- -- --
</TABLE>
- ------------
(1) DR. POULETTY'S OPTION GRANT VESTS 25% UPON COMPLETION OF 12 MONTHS OF
SERVICE FROM THE VESTING START DATE AND THE BALANCE EQUALLY OVER THE NEXT
36 MONTHS OF SERVICE. THIS OPTION WILL BECOME FULLY VESTED UPON A CHANGE IN
CONTROL BEFORE DR. POULETTY'S SERVICE TERMINATES.
(2) DR. POULETTY'S OPTION GRANT VESTS FOR 30% OF THE SHARES EQUALLY OVER 36
MONTHS OF SERVICES AND FOR 70% AT THE END OF HIS SIXTH YEAR OF SERVICE, WITH
POTENTIAL VESTING ACCELERATION UPON THE ATTAINMENT OF SPECIFIC MILESTONES.
THIS OPTION WILL BECOME FULLY VESTED UPON A CHANGE IN CONTROL.
(3) MS. GREETHAM'S OPTION GRANT VESTS AT THE END OF HER SIXTH YEAR OF SERVICE,
WITH POTENTIAL VESTING ACCELERATION UPON THE ATTAINMENT OF SPECIFIC
MILESTONES.
(4) MS. GREETHAM'S OPTION GRANT VESTS AT THE END OF HER SIXTH YEAR OF SERVICE,
WITH POTENTIAL VESTING ACCELERATION UPON THE ATTAINMENT OF SPECIFIC
MILESTONES. THIS OPTION WILL BECOME FULLY VESTED UPON A CHANGE IN CONTROL.
(5) MS. HIANCE'S OPTION GRANT VESTS AS FOLLOWS: 25% OF THE SHARES VEST EQUALLY
OVER FOUR YEARS AND THE BALANCE AT THE END OF HER SIXTH YEAR OF SERVICE,
WITH ACCELERATION UPON THE ATTAINMENT OF SPECIFIC MILESTONES. THIS OPTION
WILL BECOME FULLY VESTED UPON A CHANGE IN CONTROL BEFORE MS. HIANCE'S
SERVICE TERMINATES.
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AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth for each of our Named Executive Officers the
number of options exercised during the fiscal year ended December 31, 1999 and
the number and value of securities underlying unexercised options that are held
by the Named Executive Officers as of December 31, 1999. No stock appreciation
rights were exercised by our Named Executive Officers in fiscal year 1999, and
no stock appreciation rights were outstanding at the end of that year.
The numbers in the column entitled "Value Realized" are equal to the fair market
value of the purchased shares on the option exercise date, less the exercise
price paid for such shares. Generally, these stock options are immediately
exercisable. We have the right to repurchase all unvested option shares at the
original exercise price if the optionee's service terminates. The heading
"Vested" refers to shares no longer subject to our right of repurchase; the
heading "Unvested" refers to shares subject to our right of repurchase as of
December 31, 1999.
The numbers in the column entitled "Value of unexercised in-the-money options at
December 31, 1999" are based on the value of our common stock at December 31,
1999, as determined by our board of directors, $0.45, less the exercise price
payable or paid for such shares. The fair market value of our common stock at
December 31, 1999 was estimated by the board of directors on the basis of the
purchase price paid by investors for shares of our preferred stock (taking into
account the liquidation preferences and other rights, privileges and preferences
associated with the preferred stock) and an evaluation by the board of our
revenues, operating history and prospects. The price to the public in this
offering is higher than the estimated fair market value at December 31, 1999.
Consequently, the value of unexercised options would be higher than the numbers
shown in the table if the value were calculated by subtracting the option
exercise price from the public offering price.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED ON VALUE 1999 (#) 1999 ($)
NAME EXERCISE (#) REALIZED ($) VESTED UNVESTED VESTED UNVESTED
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philippe Pouletty, M.D....... 726,656 16,006 -- -- -- --
Elizabeth M. Greetham........ 480,553 16,288 -- -- -- --
James Elder.................. -- -- -- -- -- 0
Maryvonne Hiance............. -- -- 10,417 39,583 260 990
Stanley Kaplan, PhD.......... 48,684 7,303 -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS, SEVERANCE AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
As a condition to employment, each employee must execute our Employee
Confidentiality Information and Inventions Agreement. In addition, all of our
current employees have entered into arrangements with us which contain
restrictions and covenants. These provisions include covenants relating to the
protection of our confidential information, the assignment of inventions, and
restrictions on competition and soliciting our clients, employees, or
independent contractors. None of our US employees are employed for a specified
term, and each employee's employment with us is subject to termination at any
time by either party for any reason, with or without cause. Our French employees
are also at-will employees but are subject to the employment laws of France,
including notice provisions and other restrictions regulating the termination of
employment.
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We have entered into an agreement dated December 26, 1999, with Dr. Stanley
Kaplan, our former Chief Executive Officer and President. On his termination
date, December 31, 1999, we paid Dr. Kaplan $30,834, which was equal to two
months of his base salary, and $5,692, which represented his accrued vacation.
In addition, the severance agreement confirms that Dr. Kaplan is vested in
48,683 shares of the 182,562 shares under his stock option granted September 8,
1998. Dr. Kaplan will provide us with consulting services from January 10, 2000
until April 9, 2000, for a salary of $7,800 per month for 20 hours of work per
week.
We have entered into an employment agreement dated December 27, 1999, with James
W. Elder, our Senior Vice President, Marketing and Sales, North America, which
provides for an initial annual base salary of $140,000 and a potential bonus of
up to 25% of base salary subject to meeting specific milestones and
participation in our employee benefit plans. We will pay reasonable moving
expenses, up to $20,000. If Mr. Elder is terminated without cause during the
first five years with us and if the total value of Mr. Elder's vested stock
options is lower than $140,000, we will pay Mr. Elder six months of severance
payments equal to his starting monthly salary. These payments will cease before
the end of the six months if Mr. Elder accepts a new full time position or the
value of his vested options exceeds $140,000. If Mr. Elder is terminated without
cause after the fifth anniversary of employment, we will pay Mr. Elder a
severance of two months salary.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with each of our directors
and officers that would require us to indemnify them against liabilities that
may arise by reason of their status or service as directors or officers and to
advance their expenses incurred as a result of any proceeding against them.
However, we will not indemnify directors or officers with respect to liabilities
arising from willful misconduct of a culpable nature. For more information
concerning these agreements, see "Description of securities--limitation of
liabilities and indemnification matters."
STOCK PLANS
2000 STOCK INCENTIVE PLAN
SHARE RESERVE
Our board of directors adopted our 2000 Stock Incentive Plan on January 13,
2000, subject to shareholder approval. We have reserved 750,000 shares of our
common stock for issuance under the 2000 Stock Incentive Plan. Any shares not
yet issued under our 1994 Stock Plan and 1999 Stock Plans on the date of this
offering will also be available under the 2000 Stock Incentive Plan. On
January 1 of each year, starting with the year 2001, the number of shares in the
reserve will automatically increase by 6% of the total number of shares of
common stock that are outstanding at that time or by 2,000,000 shares, whichever
is less. In general, if options or shares awarded under the 2000 Stock Incentive
Plan or the 1994 or 1999 Stock Plans are forfeited, then those options or shares
will again become available for awards under the 2000 Stock Incentive Plan. We
have not yet granted any options under the 2000 Stock Incentive Plan.
ADMINISTRATION
The compensation committee of our board of directors administers the 2000 Stock
Incentive Plan. The committee has the complete discretion to make all decisions
relating to the interpretation and operation of our 2000 Stock Incentive Plan.
The committee has the discretion to determine who will receive an award, what
type of award it will be, how many shares will be covered by the award, what the
vesting requirements will be (if any), and what the other features and
conditions of each award will be. The compensation committee may also reprice
outstanding options and modify outstanding awards in other ways.
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ELIGIBILITY
The following groups of individuals are eligible to participate in the 2000
Stock Incentive Plan:
- - Employees;
- - Members of our board of directors who are not employees; and
- - Consultants.
TYPES OF AWARD
The 2000 Stock Incentive Plan provides for the following types of awards:
- - Incentive stock options to purchase shares of our common stock;
- - Nonstatutory stock options to purchase shares of our common stock; and
- - Restricted shares of our common stock.
OPTIONS
An optionee who exercises an incentive stock option may qualify for favorable
tax treatment under Section 422 of the Internal Revenue Code of 1986.
Nonstatutory stock options, however, do not qualify for such favorable tax
treatment. The exercise price for incentive stock options granted under the 2000
Stock Incentive Plan may not be less than 100% of the fair market value of our
common stock on the option grant date. In the case of nonstatutory stock
options, the minimum exercise price is 50% of the fair market value of our
common stock on the option grant date. Optionees may pay the exercise price by
using:
- - Cash;
- - Shares of common stock that the optionee already owns;
- - A full-recourse promissory note;
- - An immediate sale of the option shares through a broker designated by us; or
- - A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee. In
most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
2000 Stock Incentive Plan provides that no participant may receive options
covering more than 1,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 2,000,000 shares in the first year
of employment.
RESTRICTED SHARES
Restricted shares may be awarded under the 2000 Stock Incentive Plan in return
for:
- - Cash;
- - A full-recourse promissory note; or
- - Services provided to us.
Restricted shares vest at the time or times determined by the compensation
committee.
CHANGE IN CONTROL
If a change in control of DrugAbuse Sciences occurs, an option or restricted
stock award under the 2000 Stock Incentive Plan may vest on an accelerated basis
to the extent determined by the compensation committee. The compensation
committee may determine that outstanding grants will vest in full or in part
- --------------------------------------------------------------------------------
59
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
at the time of the change in control. It may also determine that the grants will
vest on an accelerated basis only if the participant is actually or
constructively discharged within a specified period of time after the change in
control. Finally, the committee may determine that the grants will remain
outstanding without acceleration of vesting. However, if the surviving
corporation fails to assume an outstanding option or replace it with a
comparable option, then the option will always become fully vested as a result
of the change in control. A change in control includes:
- - A merger of DrugAbuse Sciences after which our own shareholders own 50% or
less of the surviving corporation (or its parent company);
- - A sale of all or substantially all of our assets;
- - A proxy contest that results in the replacement of more than one-half of our
directors over a 24-month period; or
- - An acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to our company (such as a holding company
owned by our shareholders).
AMENDMENTS OR TERMINATION
Our board may amend or terminate the 2000 Stock Incentive Plan at any time. If
our board amends the plan, it does not need to ask for shareholder approval of
the amendment unless applicable law requires it. The 2000 Stock Incentive Plan
will continue in effect for 10 years, unless the board decides to terminate the
plan earlier.
2000 EMPLOYEE STOCK PURCHASE PLAN
SHARE RESERVE AND ADMINISTRATION
Our board of directors adopted our 2000 Employee Stock Purchase Plan on
January 13, 2000, subject to shareholder approval. Our 2000 Employee Stock
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code. We have reserved 375,000 shares of our common stock for issuance under the
plan. On May 1 of each year, starting with the year 2001, the number of shares
in the reserve will automatically be restored to 375,000. In other words, the
reserve will be increased by the number of shares that have been issued under
the 2000 Employee Stock Purchase Plan during the prior 12-month period. The plan
will be administered by the compensation committee of our board of directors.
ELIGIBILITY
All of our employees are eligible to participate if they are employed by us for
more than 20 hours per week and for more than five months per year. Eligible
employees may begin participating in the 2000 Employee Stock Purchase Plan at
the start of any offering period. Each offering period lasts 24 months.
Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on April 30, 2002.
AMOUNT OF CONTRIBUTIONS
Our 2000 Employee Stock Purchase Plan permits each eligible employee to purchase
common stock through payroll deductions. Each employee's payroll deductions may
not exceed 15% of the employee's salary and commissions. Purchases of our common
stock will occur on April 30 and October 31 of each year. Each participant may
purchase up to 2,000 shares on any purchase date (4,000 shares per year). But
the value of the shares purchased in any calendar year (measured as of the
beginning of the applicable offering period) may not exceed $25,000.
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60
<PAGE>
MANAGEMENT
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PURCHASE PRICE
The price of each share of common stock purchased under our 2000 Employee Stock
Purchase Plan will be 85% of the lower of:
- - The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- - The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the plan
will be 85% of the lower of:
- - The price per share to the public in this offering, or
- - The fair market value per share of common stock on the purchase date.
OTHER PROVISIONS
Employees may end their participation in the 2000 Employee Stock Purchase Plan
at any time. Participation ends automatically upon termination of employment
with DrugAbuse Sciences. If a change in control of DrugAbuse Sciences occurs,
our 2000 Employee Stock Purchase Plan will end and shares will be purchased with
the payroll deductions accumulated to date by participating employees, unless
the plan is assumed by the surviving corporation or its parent. Our board of
directors may amend or terminate the plan at any time. If our board increases
the number of shares of common stock reserved for issuance under the plan
(except for the automatic increases described above), it must seek the approval
of our shareholders. The 2000 Employee Stock Purchase Plan will continue in
effect for 10 years, unless the board decides to terminate the plan earlier.
2000 DIRECTORS' OPTION PLAN
SHARE RESERVE
Our board of directors adopted our 2000 Directors' Option Plan on January 13,
2000, subject to shareholder approval. We have reserved 200,000 shares of our
common stock for issuance under the plan. On January 1 of each year, starting
with the year 2001, the number of shares in the reserve will automatically be
restored to 200,000. In other words, the reserve will be increased by the number
of shares that have been optioned under the 2000 Directors' Option Plan during
the prior 12-month period. In general, if options granted under the 2000
Directors' Option Plan are forfeited, then those options will again become
available for grants under the plan. The Directors' Option Plan will be
administered by the compensation committee of our board of directors, although
all grants under the plan are automatic and non-discretionary.
INITIAL GRANTS
Only the non-employee members of our board of directors will be eligible for
option grants under the 2000 Directors' Option Plan. Each non-employee director
who first joins our board after the effective date of this offering will receive
an initial option for 20,000 shares. That grant will occur when the director
takes office. The initial options vest in equal monthly installments over the
four-year period following the date of grant, except that all vesting for the
first year occurs at the close of that year.
ANNUAL GRANTS
At the time of each of our annual shareholders' meetings, beginning in 2001,
each non-employee director who will continue to be a director after that meeting
will automatically be granted an annual option for 5,000 shares of our common
stock. However, a new non-employee director who is receiving the 20,000-share
initial option will not receive the 5,000-share annual option in the same
calendar year. The annual options vest in full one year following the date of
grant.
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61
<PAGE>
MANAGEMENT
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OTHER OPTION TERMS
The exercise price of each non-employee director's option will be equal to the
fair market value of our common stock on the option grant date. A director may
pay the exercise price by using cash, shares of common stock that the director
already owns, or an immediate sale of the option shares through a broker
designated by us. The non-employee directors' options have a 10-year term,
except that they expire one year after a director leaves the board (if earlier).
If a change in control of DrugAbuse Sciences occurs, a non-employee director's
option granted under the 2000 Directors' Option Plan will become fully vested
(unless the accounting rules applicable to a pooling of interests preclude
acceleration). Vesting also accelerates in the event of the optionee's death or
disability.
AMENDMENTS OR TERMINATION
Our board may amend or terminate the 2000 Directors' Option Plan at any time. If
our board amends the plan, it does not need to ask for shareholder approval of
the amendment unless applicable law requires it. The 2000 Directors' Option Plan
will continue in effect for 10 years, unless the board decides to terminate the
plan.
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62
<PAGE>
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Related party transactions
SALES OF SECURITIES
Since our inception in December 1993 through January 20, 2000, we have issued
and sold the following securities in private placement transactions:
- - 672,892 shares of our common stock for an aggregate price of $30,280 in
August 1994, in connection with the sale of our Series A preferred stock,
and accounting for a three for one stock split on November 15, 1994 and a
four-for-one stock split on June 14, 1996;
- - 375,556 shares of our Series A preferred stock for an aggregate price of
$499,489 in August, which accounts for a three for one stock split on
November 15, 1994 and a four-for-one stock split on June 14, 1996, resulting
in aggregate proceeds to us of $499,489;
- - 1,316,069 shares of Series B preferred stock for an aggregate price of
$3,284,995 in March 1997;
- - warrants to purchase 1,855,684 shares of our common stock in connection with
the sale of Series B preferred stock;
- - 932,456 shares of Series C preferred stock for an aggregate price of
$2,327,428 on March 1999;
- - 4,681,688 shares of Series D preferred stock for an aggregate price of
$22,314,874 on October 1999, includes the exchange of 1,849 shares of common
stock in DrugAbuse Sciences, SAS;
- - warrants to purchase 374,519 shares of Series D preferred stock in
connection with the sale of Series D preferred stock.
All preferred stock was issued to various venture capital and other
institutional investors in reliance upon exemption from registration under
Section 4(2) of the Securities Act. All shares issued upon exercise of options
were issued to employees and consultants in reliance upon exemption from
registration under Rule 701 of the Securities Act. All shares of common stock
issued to one of our executive officers were issued in reliance upon exemption
from registration under Section 4(2) of the Securities Act. None of the
institutional investors who negotiated the terms of these transactions were
affiliated with us prior to purchasing these shares.
The purchasers of more than $60,000 of these securities include, among others,
the following executive officers, directors and holders of more than 5% of our
outstanding stock and their affiliates:
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF
SHARES OF SERIES A SERIES B SERIES C SERIES D
EXECUTIVE OFFICERS, DIRECTORS AND COMMON PREFERRED PREFERRED PREFERRED PREFERRED TOTAL
5% SHAREHOLDERS STOCK STOCK STOCK STOCK STOCK CONSIDERATION
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Philippe Pouletty............ 2,899,071(1) 20,032 52,083 16,784(2) $571,648
Elizabeth M. Greetham............ 487,886 60,096 31,470(3) 502,161
Gordon Russell(4)................ 296,542(5) 71,168 50,080 80,128 41,960(6) 626,350
Partech International(7)......... 699,230(8) 179,844 300,479 122,060 270,853 2,600,432
CDC Innovation(9)................ 300,479 122,060 167,841(10) 1,854,680
ABN-Amro Venture, France(11)..... 690,296(12) 1,222,807
Nomura International PLC......... 734,306(13) 3,499,999
Parnib Belgie N.V................ 591,641(14) 2,820,000
3i Group PLC..................... 986,517(15) 4,702,137
</TABLE>
- ------------
THESE FIGURES ASSUME THE CONVERSION OF THE SHARES OF OUR FRENCH SUBSIDIARY,
DRUGABUSE SCIENCES, SAS, INTO SHARES OF OUR COMMON STOCK.
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63
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
(1) INCLUDES WARRANTS TO PURCHASE 872,665 SHARES OF OUR COMMON STOCK AT AN
EXERCISE PRICE OF $0.30.
(2) EXCLUDES WARRANTS TO PURCHASE 1,342 SHARES OF OUR SERIES D PREFERRED STOCK
AT AN EXERCISE PRICE OF $0.06.
(3) EXCLUDES WARRANTS TO PURCHASE 2,517 SHARES OF OUR SERIES D PREFERRED STOCK
AT AN EXERCISE PRICE OF $0.06.
(4) CONSISTS OF: 246,400 SHARES OF COMMON STOCK, 71,168 SHARES OF SERIES A
PREFERRED STOCK, 50,080 SHARES OF SERIES B PREFERRED STOCK, 80,128 SHARES OF
SERIES C PREFERRED STOCK, 41,960 SHARES OF SERIES D PREFERRED STOCK, AND
WARRANTS TO PURCHASE 3,356 SHARES OF SERIES D PREFERRED STOCK HELD BY GORDON
W. RUSSELL, TTE RUSSELL, 1988 REVOCABLE TRUST. MR. RUSSELL, ONE OF OUR
DIRECTORS, IS THE TRUSTEE OF THE GORDON RUSSELL TRUST.
(5) INCLUDES WARRANTS TO PURCHASE 147,710 SHARES OF OUR COMMON STOCK AT AN
EXERCISE PRICE OF $0.30.
(6) EXCLUDES WARRANTS TO PURCHASE 3,356 SHARES OF SERIES D PREFERRED STOCK AT AN
EXERCISE PRICE OF $0.06.
(7) CONSISTS OF:
- - 43,702 SHARES OF COMMON STOCK, 11,240 SHARES OF SERIES A PREFERRED STOCK,
9,754 SHARES OF SERIES B PREFERRED STOCK, AND 3,962 SHARES OF SERIES C
PREFERRED STOCK HELD BY MULTINVEST, AN AFFILIATE OF PARTECH INTERNATIONAL;
- - 142,027 SHARES OF COMMON STOCK, 36,530 SHARES OF SERIES A PREFERRED STOCK,
67,802 SHARES OF SERIES B PREFERRED STOCK, AND 27,538 SHARES OF SERIES C
PREFERRED STOCK HELD BY PARVEST EUROPE, AN AFFILIATE OF PARTECH
INTERNATIONAL;
- - 426,100 SHARES OF COMMON STOCK, 109,594 SHARES OF SERIES A PREFERRED STOCK,
203,416 SHARES OF SERIES B PREFERRED STOCK, AND 82,636 SHARES OF SERIES C
PREFERRED STOCK HELD BY PARVEST US, AN AFFILIATE OF PARTECH INTERNATIONAL;
- - 63,779 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 5,102
SHARES OF SERIES D PREFERRED STOCK HELD BY AXA US GROWTH FUND, A SIDE FUND
OF PARVEST US;
- - 86,648 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 6,931
SHARES OF SERIES D PREFERRED STOCK HELD PARALLEL CAPITAL I LLC, A SIDE FUND
OF PARVEST US;
- - 120,427 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 9,635
SHARES OF SERIES D PREFERRED STOCK HELD PARALLEL CAPITAL II LLC, A SIDE FUND
OF PARVEST US; AND
- - 87,401 SHARES OF COMMON STOCK, 22,480 SHARES OF SERIES A PREFERRED STOCK,
19,507 SHARES OF SERIES B PREFERRED STOCK, AND 7,924 SHARES OF SERIES C
PREFERRED STOCK HELD BY TRADINVEST, AN AFFILIATE OF PARTECH INTERNATIONAL.
- - MR. VINCENT WORMS, ONE OF OUR DIRECTORS, IS A GENERAL PARTNER OF PARTECH
INTERNATIONAL.
(8) INCLUDES WARRANTS TO PURCHASE 353,126 SHARES OF OUR COMMON STOCK AT AN
EXERCISE PRICE OF $0.30.
(9) MR. RAFFY KAZANDJIAN, ONE OF OUR DIRECTORS, IS THE INVESTMENT DIRECTOR AT
CDC INNOVATION.
(10) EXCLUDES WARRANTS TO PURCHASE 13,427 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(11) CONSISTS OF:
- - 433,750 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 34,700
SHARES OF SERIES D PREFERRED STOCK HELD BY CAPITAL INVESTMENTS BELGIE N.V.,
AN AFFILIATE OF ABN-AMRO VENTURE, FRANCE;
- - 128,273 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 10,261
SHARES OF SERIES D PREFERRED STOCK HELD BY FRANCE INNOVATION 1, AN AFFILIATE
OF ABN-AMRO VENTURE, FRANCE;
- - 128,273 SHARES OF SERIES D PREFERRED STOCK AND WARRANTS TO PURCHASE 10,261
SHARES OF SERIES D PREFERRED STOCK HELD BY FRANCE INNOVATION 2, AN AFFILIATE
OF ABN-AMRO VENTURE, FRANCE.
- - MR. FRED PHILLIPS IV, ONE OF OUR DIRECTORS, IS AFFILIATED WITH ABN-AMRO
VENTURE, FRANCE.
(12) EXCLUDES WARRANTS TO PURCHASE 55,222 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(13) EXCLUDES WARRANTS TO PURCHASE 58,744 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(14) EXCLUDES WARRANTS TO PURCHASE 47,331 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
(15) EXCLUDES WARRANTS TO PURCHASE 78,921 SHARES OF SERIES D PREFERRED STOCK AT
AN EXERCISE PRICE OF $0.06.
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64
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
Shares by all affiliated persons and entities have been aggregated. Share
numbers and purchase price information are reflected on an as if converted into
shares of common stock basis. See "Principal shareholders" for more detail on
shares held by these purchasers.
In addition, we have granted options to some of our directors and executive
officers. See "Management--director compensation," "Management--executive
compensation" and "Principal shareholders."
We believe that all of the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal shareholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
Elizabeth Greetham and Vincent Worms serve on the compensation committee of
SangStat Medical Corporation, a publicly traded company, in which Philippe
Pouletty serves as the Chairman of the Board.
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65
<PAGE>
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Principal shareholders
The following table presents selected information regarding beneficial ownership
of our outstanding common stock as of January 20, 2000 and as adjusted to
reflect the sale of the common stock being sold in this offering for:
- - each of our directors;
- - our executive officers listed in the "Summary compensation" table above;
- - all of our directors and executive officers as a group; and
- - each other person (or group of affiliated persons) who owns beneficially 5%
or more of our common stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES
SHARES OUTSTANDING(1)(2)
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIVE PERCENT SHAREHOLDERS
Entities affiliated with Partech International (3) ........ 1,572,466 12.59%
50 California street, Suite 3200
San Francisco, California 94111
3i Group PLC .............................................. 986,517 7.90
91 Waterloo Road
London SE1 8XP,
United Kingdom
Nomura .................................................... 734,306 5.88
Nomura House
1 St. Martin's-le-Grant
London EC1A 4NP
Entities affiliated with ABN-Amro (4) ..................... 690,296 5.53
23, rue Balzac
75008 Paris
France
Parnib Belgie N.V. ........................................ 591,641 4.74
Uitbredingstraat 10/16
2600 Antwerpen
Belgium
CDC--Innovations .......................................... 590,388 4.73
Raffy Kazandjian
Tour Maine--Montparnasse
33 Avenue du Maine--B.P. 180
75755 Paris Cedex 15
France
</TABLE>
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66
<PAGE>
PRINCIPAL SHAREHOLDERS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES
SHARES OUTSTANDING(1)(2)
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Philippe Pouletty, M.D..................................... 2,987,970 23.93%
Elizabeth M. Greetham...................................... 579,452 4.64%
James W. Elder (5)......................................... 116,666 *
Maryvonne Hiance (6)....................................... 61,404 *
David E. Smith (7)......................................... 50,000 *
Raffy Kazandjian (8)....................................... 623,722 4.98%
Fred P. Phillips IV (9).................................... 723,630 5.78%
Russell Ricci (10)......................................... 33,333 *
Gordon Russell (11)........................................ 573,211 4.58%
Vincent Worms (12)......................................... 1,630,870 13.03%
All executive officers and directors 7,623,590 58.13%
as a group (13 persons) (13).............................
</TABLE>
- ------------
* REPRESENTS BENEFICIAL OWNERSHIP OF LESS THAN 1% OF THE OUTSTANDING SHARES OF
COMMON STOCK.
(1) PERCENTAGE OWNERSHIP IS BASED ON 12,486,226 SHARES OUTSTANDING AS OF
JANUARY 20, 2000, INCLUDING 7,305,764 SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF ALL OUTSTANDING PREFERRED STOCK AT THE CLOSING OF THIS
OFFERING, EXERCISE OF WARRANTS TO PURCHASE 1,800,013 SHARES OF COMMON
STOCK, AND CONVERSION OF DRUGABUSE SCIENCES SAS SHARES INTO SHARES OF OUR
SERIES D PREFERRED STOCK. SHARES OF COMMON STOCK SUBJECT TO OPTIONS
CURRENTLY EXERCISABLE OR EXERCISABLE WITHIN 60 DAYS OF JANUARY 20, 2000 ARE
DEEMED OUTSTANDING FOR PURPOSES OF COMPUTING THE PERCENTAGE OWNERSHIP OF
THE PERSON HOLDING SUCH OPTIONS BUT ARE NOT DEEMED OUTSTANDING FOR
COMPUTING THE PERCENTAGE OWNERSHIP OF ANY OTHER PERSON. UNLESS OTHERWISE
INDICATED, THE ADDRESS FOR EACH LISTED SHAREHOLDER IS: C/O DRUGABUSE
SCIENCES, INC., 1430 O'BRIEN DRIVE, MENLO PARK, CA 94025. TO OUR KNOWLEDGE,
EXCEPT AS INDICATED IN THE FOOTNOTES TO THIS TABLE AND UNDER APPLICABLE
COMMUNITY PROPERTY LAWS, THE PERSONS OR ENTITIES IDENTIFIED IN THIS TABLE
HAVE SOLE VOTING AND INVESTMENT POWER WITH RESPECT TO ALL SHARES OF COMMON
STOCK SHOWN AS BENEFICIALLY OWNED BY THEM.
(2) ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT IS NOT EXERCISED.
(3) INCLUDES 273,897 SHARES OWNED BY PARVEST EUROPE, 821,746 SHARES OWNED BY
PARVEST US, 63,779 SHARES OWNED BY AXA US GROWTH FUND, 86,648 SHARES OWNED
BY PARALLEL CAPITAL I LLC, 120,426 SHARES OWNED BY PARALLEL CAPITAL II LLC,
137,312 SHARES OWNED BY TRADINVEST, AND 68,658 SHARES OWNED BY MULTINVEST.
(4) INCLUDES 433,750 SHARES OWNED BY CAPITAL INVESTMENTS (BELGIE) N.V., 128,273
SHARES OWNED BY FRANCE INNOVATION 1, AND 128,273 SHARES OWNED BY FRANCE
INNOVATION 2.
(5) INCLUDES 116,666 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 116,666 SHARES OF WHICH ARE SUBJECT TO OUR
RIGHT OF REPURCHASE.
(6) INCLUDES 50,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 39,075 SHARES OF WHICH ARE SUBJECT TO OUR
RIGHT OF REPURCHASE.
(7) INCLUDES 50,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 41,667 OF WHICH ARE SUBJECT TO OUR RIGHT
OF REPURCHASE.
(8) INCLUDES 590,388 SHARES OWNED BY CDC-INNOVATION. INCLUDES 33,333 SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE OPTIONS,
33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
(9) INCLUDES 690,296 SHARES OWNED BY ABN-AMRO ENTITIES. INCLUDES 33,333 SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE OPTIONS,
33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
(10) INCLUDES 33,333 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
IMMEDIATELY EXERCISABLE OPTIONS, 33,333 OF WHICH ARE SUBJECT TO OUR RIGHT
OF REPURCHASE.
(11) INCLUDES 493,736 SHARES OWNED BY THE GORDON RUSSELL TRUST. INCLUDES 33,333
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE
OPTIONS, 33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE
(12) INCLUDES 1,572,466 SHARES OWNED BY PARTECH ENTITIES. INCLUDES 33,333
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF IMMEDIATELY EXERCISABLE
OPTIONS, 33,333 OF WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
(13) INCLUDES OPTIONS IMMEDIATELY EXERCISABLE FOR 609,996 SHARES, 599,071 OF
WHICH ARE SUBJECT TO OUR RIGHT OF REPURCHASE.
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67
<PAGE>
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Description of securities
Upon the consummation of this offering, we will be authorized to issue
shares of common stock, and shares of undesignated
preferred stock. The following is a summary description of our capital stock.
Our bylaws and our Amended and Restated Articles of Incorporation, to be
effective after the closing of this offering, provide further information about
our capital stock.
COMMON STOCK
As of January 20, 2000 there were 12,486,226 shares of common stock outstanding,
as adjusted to reflect the conversion of all outstanding shares of preferred
stock into common stock, the exercise of certain warrants, and the exchange of
all DrugAbuse Sciences SAS shares not owned by us for shares of our common stock
upon the closing of this offering. The preferred shares were held of record by
approximately 55 shareholders. There will be shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
assuming no exercise after January 20, 2000 of outstanding options or warrants,
after giving effect to the sale of the shares of common stock to the public
offered in this prospectus.
The holders of common stock are entitled to one vote per share on all matters to
be voted upon by the shareholders. Subject to preferences that may be applicable
to any outstanding preferred stock, the holders of common stock are entitled to
receive dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available. See "Dividend policy." In the event of
our liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. The common stock has 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, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable.
OPTIONS
As of January 20, 2000, options to purchase a total of 1,042,729 shares of
common stock were outstanding at a weighted average exercise price of $0.074.
Options to purchase a total of 1,656,417 shares of common stock may be granted
under our stock plans. Please see "Management--Stock plans" and "Shares eligible
for future sale."
WARRANTS
Immediately following the closing of this offering there will be outstanding
warrants to purchase a total of 374,519 shares of common stock at an exercise
price of $0.06 per share. The warrants are only exercisable if our valuation at
the expiration of the 180 day period following the closing of this offering is
not at least $150,000,000. This valuation target is based on the average of the
closing prices of our common stock for the twenty trading days ending on the
expiration of such 180 day period and does not include the sale of any shares
sold in this offering, including those that may be exercised by the underwriters
pursuant to their over-allotment option. The warrants expire 220 days following
the closing of this offering if it is not a qualifying IPO.
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68
<PAGE>
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
PREFERRED STOCK
The board of directors has the authority, without action by the shareholders, to
designate and issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and related restrictions, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of the series. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of us
without further action by the shareholders and may adversely affect the voting
and other rights of the holders of common stock. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others. At
present, we have no plans to issue any of our preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 7,305,763 shares of common
stock will be entitled to rights with respect to the registration of these
shares under the Securities Act. Under the terms of the agreement between us and
the holders of these registrable securities, if we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, these holders
are entitled to notice of registration and are entitled to include their shares
of common stock in the registration. Holders of 7,305,763 shares of the
registrable securities are also entitled to specified demand registration rights
under which they may require us to file a registration statement under the
Securities Act at our expense with respect to our shares of common stock, and we
are required to use our best efforts to effect this registration. Further, the
holders of these demand rights may require us to file additional registration
statements on Form S-3. All of these registration rights are subject to
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in the registration and our
right not to effect a requested registration within six months following the
initial offering of our securities, including this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Amended and Restated Articles of Incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law. Under California law, a director's liability
to a company or its shareholders may not be limited:
- - for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
- - for acts or omissions that a director believes to be contrary to the best
interests of the company or its shareholders or that involve the absence of
good faith on the part of the director;
- - for any transaction from which a director derived an improper personal
benefit;
- - for acts or omissions that show a reckless disregard for the director's duty
to the company or its shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing
the director's duties, of a risk of serious injury to the company or its
shareholders;
- - for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the company or its
shareholders;
- - under Section 310 of the California General Corporation Law concerning
contacts or transactions between the company and a director; or
- --------------------------------------------------------------------------------
69
<PAGE>
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------------------------
- - under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our shareholders for any violation by a
director of the director's fiduciary duty to us or our shareholders.
Our Articles of Incorporation also include an authorization for us to indemnify
our "agents," as defined in Section 317 of the California General Corporation
Law, through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, our Amended and Restated Bylaws
provide for indemnification of our directors, officers and employees. In
addition, we may, at our discretion, provide indemnification to persons whom we
are not obligated to indemnify. The Amended and Restated Bylaws also allow us to
enter into indemnity agreements with individual directors, officers, employees
and other agents. Indemnity agreements have been entered into with all directors
and certain executive officers and provide the maximum indemnification permitted
by law. We also intend to obtain directors' and officers' liability insurance.
These agreements, together with our Amended and Restated Bylaws and Amended and
Restated Articles of Incorporation, may require us, among other things, to
indemnify our directors and executive officers, other than for liability
resulting from willful misconduct of a culpable nature, and to advance expenses
to them as they are incurred, provided that they undertake to repay the amount
advanced if it is ultimately determined by a court that they are not entitled to
indemnification. Section 317 of the California General Corporation Law and our
Amended and Restated Bylaws and our indemnification agreements make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities, including reimbursement of expenses incurred, arising under the
Securities Act. We are not currently aware of any pending litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification will be required or permitted. Moreover, we are not
currently aware of any threatened litigation or proceeding that might result in
a claim for such indemnification. We believe that the foregoing indemnification
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is EquiServ.
- --------------------------------------------------------------------------------
70
<PAGE>
- --------------------------------------------------------------------------------
Shares eligible for future sale
Upon completion of this offering, we will have shares of common
stock outstanding, assuming no exercise of options after January 20, 2000. Of
these shares, the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares held by persons that directly or indirectly control, or
are controlled by, or are under common control with us, may generally only be
sold in compliance with the limitations of Rule 144 described below.
The remaining 12,486,226 shares of common stock are deemed restricted shares
under Rule 144. The number of shares of common stock available for sale in the
public market is limited by restrictions under the Securities Act and lock-up
agreements under which the holders of the shares have agreed not to sell or
dispose of any of their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Warburg Dillon Read. On the date
of this prospectus, no shares other than the shares being sold in
this offering will be eligible for sale. Beginning 180 days after the date of
this prospectus, or earlier with the consent of Warburg Dillon Read, 5,723,868
restricted shares will become available for sale in the public market subject to
the limitations of Rule 144 of the Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person, or persons whose shares are
aggregated, who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock,
approximately shares after giving effect to this offering, and the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding this sale. Sales under Rule 144 of the
Securities Act are subject to restrictions relating to manner of sale, notice
and the availability of current public information about us. A person who is not
our affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell
these shares immediately following this offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of
Rule 144 of the Securities Act. However, the transfer agent may require an
opinion of counsel that a proposed sale of shares comes within the terms of
Rule 144 of the Securities Act before effecting a transfer of these shares.
Before this offering, there has been no public market for our common stock and
no predictions can be made of the effect, if any, that the sale or availability
for sale of shares of additional common stock will have on the market price of
our common stock. Nevertheless, sales of substantial amounts of these shares in
the public market, or the perception that these sales could occur, could
adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
As of January 20, 2000, options to purchase a total of 1,042,729 shares of
common stock, including 358,826 under the 1994 Stock Plan, 481,405 under the
1999 Stock Plan A, 202,498 under the 1999 Stock Plan B and 0 under the 2000
Stock Incentive Plan, were outstanding and exercisable. All of the shares
subject to options are subject to lock-up agreements. An additional 1,564,179
shares of common stock were available as of January 20, 2000 for future option
grants or direct issuances under the 2000 Stock Incentive Plan. In addition, in
January 20, 2000, 575,000 shares were reserved for issuance under our 2000
Employee Stock Purchase Plan and our 2000 Directors' Option Plan. See
"Management--Stock plans."
Rule 701 under the Securities Act provides that shares of common stock acquired
on the exercise of outstanding options may be resold by persons other than our
affiliates, beginning 90 days after the date of this prospectus, subject only to
the manner of sale provisions of Rule 144, and by affiliates, beginning 90 days
after the date of this prospectus, subject to all provisions of Rule 144 except
its one-year minimum
- --------------------------------------------------------------------------------
71
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
holding period. We intend to file one or more registration statements on
Form S-8 under the Securities Act to register all shares of common stock subject
to outstanding stock options under our 1994 Stock Plan and our 1999 Stock Plans
and all shares offered under the 2000 Stock Incentive Plan, the 2000 Employee
Stock Purchase Plan and the 2000 Directors' Option Plan approximately five days
after the closing of this offering. This registration statement is expected to
become effective upon filing. Shares covered by this registration statement will
then be eligible for sale in the public markets, subject to the lock-up
agreements, if applicable.
- --------------------------------------------------------------------------------
72
<PAGE>
- --------------------------------------------------------------------------------
Underwriting
We have entered into an underwriting agreement concerning the shares being
offered with the underwriters for the offering named below. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC and FleetBoston
Robertson Stephens Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------------------------------
<S> <C>
Warburg Dillon Read LLC.....................................
FleetBoston Robertson Stephens Inc..........................
----------
Total...................................................
==========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Per Share................................................... $ $
Total................................................... $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $ .
Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all shares are not sold at the initial public
offering price, the representatives may change the offering price and the other
selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed 5% of the shares of common stock to be offered.
We and our directors, officers and certain of our shareholders have agreed with
the underwriters not to offer, sell, contract to sell, hedge or otherwise
dispose of, directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any of our common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, without the prior written consent of
Warburg Dillon Read LLC. This agreement does not apply to any securities issued
under existing employee benefit plans.
The underwriters have reserved for sale, at the initial public offering price,
up to shares of our common stock being offered for sale to our customers
and business partners. At the discretion of our management, other parties,
including our employees, may participate in the reserved shares program. The
number of shares available for sale to the general public in the offering will
be reduced to the extent these
- --------------------------------------------------------------------------------
73
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
persons purchase reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives of the underwriters. The principal factors to be considered in
determining the public offering price include:
- - the information set forth in this prospectus and otherwise available to the
representatives;
- - our prospects for future earnings, the present state of our development, and
our current financial position;
- - the history and the prospects for the industry in which we compete;
- - the ability of our management;
- - the general condition of the securities markets at the time of this
offering; and
- - the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933 and to contribute to
payments that the underwriters may be required to make in respect thereof.
- --------------------------------------------------------------------------------
74
<PAGE>
- --------------------------------------------------------------------------------
Legal matters
The validity of the common stock being offered will be passed upon for DrugAbuse
Sciences, Inc. by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California and for the underwriters by Brobeck, Phleger & Harrison
LLP, Broomfield, Colorado. Attorneys at Brobeck, Phleger & Harrison LLP
beneficially own, through an investment trust, 20,032 shares of our common
stock.
Experts
The consolidated financial statements as of December 31, 1997 and 1998 and for
each of the two years in the period ended December 31, 1998 and the for the
cumulative period from December 21, 1993 (date of inception) to December 31,
1998 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The statements in this prospectus relating to US and EU patent and other
intellectual property matters have been reviewed and approved by Raeventner Law
Group, our patent counsel, as experts on such matters and are included in this
prospectus in reliance upon that review and approval.
Bert Rowland, an attorney with Raeventner Law Group, beneficially owns 287,402
shares of our common stock.
Change in accountants
In October, 1999, we replaced Deloitte & Touche as our independent accountants
and in January 2000 retained PricewaterhouseCoopers LLP. There were no
disagreements with the former accountants during the fiscal years ended
December 31, 1997 and 1998 or during any subsequent interim period preceding
their replacement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to the former accountants' satisfaction, would have caused them to
make reference to the subject matter of the disagreement in connection with
their reports. The former independent accountants issued an unqualified report
on the financial statements as of and for the year December 31, 1998 and the
period from December 21, 1993 (inception to date) to December 31, 1998. We did
not consult with PricewaterhouseCoopers LLP on any accounting or financial
reporting matters in the periods prior to their appointment. The change in
accountants was approved by our board of directors.
- --------------------------------------------------------------------------------
75
<PAGE>
- --------------------------------------------------------------------------------
Where you can find more information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
being offered. This prospectus does not contain all of the information presented
in the registration statement and the exhibits to the registration statement.
For further information with respect to DrugAbuse Sciences and our common stock
we are offering, reference is made to the registration statement and the
exhibits filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
referred to may be only summaries of these documents. The exhibits to this
registration statement should be referenced for the complete contents of these
contracts and documents. Each statement is qualified in all respects by
reference to the exhibit. The registration statement, including the exhibits,
may be inspected without charge at the public reference facilities maintained by
the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part may be obtained from this office after payment of fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the
Commission. The address of the site is http://www.sec.gov.
- --------------------------------------------------------------------------------
76
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY (COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of DrugAbuse Sciences, Inc.
(a company in the development stage)
The stock split described in Note 1 to the consolidated financial statements has
not been consummated at the date of our opinion. When it has been consummated,
we will be in a position to furnish the following report.
"In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of DrugAbuse
Sciences, Inc. and its subsidiary (companies in the development stage) at
December 31, 1997 and 1998, and the results of their operations and their cash
flows for the years ended December 31, 1997 and 1998 and for the cumulative
period from December 21, 1993 (date of inception) to December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above."
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 31, 2000
- --------------------------------------------------------------------------------
F-2
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
----------- ----------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $2,305,882 $1,039,315 $3,609,974
Grant receivable......................... -- 416,040 862,432
Prepaid expenses and other current
assets................................. 141,219 135,248 70,775
----------- ----------- ------------
Total current assets................... 2,447,101 1,590,603 4,543,181
Property and equipment, net................ 146,307 297,445 306,885
Other assets............................... 100,000 109,000 109,095
----------- ----------- ------------
Total assets........................... $2,693,408 $1,997,048 $4,959,161
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................... 393,833 436,625 553,805
Accrued liabilities...................... 40,002 41,580 88,422
Current portion of long-term
obligations............................ 73,190 80,393 154,501
Current portion of capital lease
obligations............................ -- 32,870 39,176
----------- ----------- ------------
Total current liabilities.............. 507,025 591,468 835,904
Long-term obligations...................... 478,684 435,127 3,279,657
Long-term capital lease obligations........ -- 107,963 128,888
----------- ----------- ------------
Total liabilities...................... 985,709 1,134,558 4,244,449
----------- ----------- ------------
Commitments (Note 7)
Shareholders' Equity:
Convertible preferred stock: $0.001 par
value;
Shares authorized: 16,512,222
Shares issued and outstanding:
1,691,625 in 1997 and 1998 and
2,624,081 in 1999 (unaudited) and none
pro forma (unaudited).................. 1,692 1,692 2,624 $--
(Liquidation value: $11,606,225)
Common Stock: $0.001 par value;
Shares authorized: 120,000,000
Shares issued and outstanding:
2,116,726 in 1997 and 1998 and
2,169,908 in 1999 (unaudited); and
4,793,983 pro forma (unaudited)........ 1,457 1,457 1,511 4,135
Additional paid-in capital............... 3,929,374 4,364,841 7,978,658 7,978,658
Deferred stock compensation.............. (80,411) (320,080) (1,193,926) (1,193,926)
Accumulated other comprehensive income
(loss)................................. 35,277 (9,304) (33,287) (33,827)
Deficit accumulated during the
development stage...................... (2,179,690) (3,176,116) (6,040,868) (6,040,868)
----------- ----------- ------------ ------------
Total shareholders' equity............. 1,707,699 862,490 714,712 $714,712
----------- ----------- ------------ ============
Total liabilities and shareholders'
equity............................. $2,693,408 $1,997,048 $4,959,161
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
CUMULATIVE
PERIOD FROM
DECEMBER 21,
FOR THE YEAR ENDED NINE MONTHS ENDED 1993 (DATE OF
DECEMBER 31, SEPTEMBER 30, INCEPTION) TO
------------------------------- ------------------------------- DECEMBER 31,
1997 1998 1998 1999 1998
------------ ------------ ------------ ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Grant revenues....... $-- $810,607 $630,635 $921,288 $810,607
Operating expenses:
Research and
development...... 1,041,720 1,309,980 798,494 2,106,046 3,010,904
General and
administrative... 275,829 396,858 365,555 1,249,578 899,663
Amortization of
deferred stock
compensation..... 64,863 180,798 110,796 422,924 245,661
----------- ----------- ----------- ----------- -----------
Total operating
expenses....... 1,382,412 1,887,636 1,274,845 3,778,548 4,156,228
----------- ----------- ----------- ----------- -----------
Loss from
operations......... (1,382,412) (1,077,029) (644,210) (2,857,260) (3,345,621)
Interest income...... 85,314 96,067 48,640 72,915 188,034
Interest expense..... (3,065) (15,464) (11,145) (80,407) (18,529)
----------- ----------- ----------- ----------- -----------
Net loss............. (1,300,163) (996,426) (606,715) (2,864,752) (3,176,116)
----------- ----------- ----------- ----------- -----------
Other comprehensive
income (loss):
Change in foreign
currency
translation
adjustments...... 35,760 (44,581) 5,270 (23,983) (33,287)
----------- ----------- ----------- ----------- -----------
Comprehensive loss... $(1,264,403) $(1,041,007) $(601,445) $(2,888,735) $(3,209,403)
=========== =========== =========== =========== ===========
Net loss per share,
basic and diluted.. $(0.61) $(0.47) $(0.29) $(1.35)
=========== =========== =========== ===========
Shares used in
computing net loss
per share, basic
and diluted........ 2,114,506 2,116,728 2,116,728 2,119,886
=========== =========== =========== ===========
Pro forma net loss
per share
(unaudited)........ $(0.26) $(0.64)
=========== ===========
Shares used in
computing pro forma
net loss per share
(unaudited)........ 3,808,353 4,493,712
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-4
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 21, 1993 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share................................ -- $-- -- $--
Issuance of common stock in August 1994 at $0.045..... -- -- -- --
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance
costs of $8,000..................................... 375,556 376 -- --
Exercise of stock options in August 1995 at $0.045.... -- -- -- --
Issuance of common stock in June 1996 in exchange for
license agreement................................... -- -- -- --
Exercise of stock options in July 1996 at $0.135...... -- -- -- --
Net loss since inception.............................. -- -- -- --
--------- ---------- --------- ----------
Balances, December 31, 1996............................. 375,556 376 -- --
Exercise of stock options in January 1997 at $0.135... -- -- -- --
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance
costs of $56,183.................................... -- -- 1,316,069 1,316
Exercise of stock options in May 1997 at $0.135....... -- -- -- --
Repurchase of common stock in July 1997 at $0.135..... -- -- -- --
Stock options granted for services in 1997............ -- -- -- --
Deferred stock compensation...........................
Amortization of deferred stock compensation...........
Foreign currency translation adjustment............... -- -- -- --
Net loss.............................................. -- -- -- --
--------- ---------- --------- ----------
Balances, December 31, 1997............................. 375,556 376 1,316,069 1,316
Stock options granted for services in 1998............ -- -- -- --
Foreign currency translation adjustment............... -- -- -- --
Deferred stock compensation...........................
Amortization of deferred stock compensation...........
Net loss.............................................. -- -- -- --
--------- ---------- --------- ----------
Balances, December 31, 1998............................. 375,556 376 1,316,069 1,316
Exercise of stock options in January 1999 at $0.30.... -- -- -- --
Issuance of Series C convertible preferred stock in
March 1999 at $2.496, net of issuance costs of
$37,812............................................. -- -- -- --
Issuance of common stock for services from April
through September 1999..............................
Exercise of stock options in September 1999 at
$0.30............................................... -- -- -- --
Deferred stock compensation...........................
Amortization of deferred stock compensation...........
Foreign currency translation adjustment............... -- -- -- --
Net loss.............................................. -- -- -- --
--------- ---------- --------- ----------
Balances, September 30, 1999 (unaudited)................ 375,556 $376 1,316,069 $1,316
========= ========== ========= ==========
<CAPTION>
SERIES C
CONVERTIBLE,
$0.001
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share................................ -- $-- 1,320,000 $660
Issuance of common stock in August 1994 at $0.045..... -- -- 672,892 673
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance
costs of $8,000..................................... -- -- -- --
Exercise of stock options in August 1995 at $0.045.... -- -- 90,000 90
Issuance of common stock in June 1996 in exchange for
license agreement................................... -- -- 18,459 18
Exercise of stock options in July 1996 at $0.135...... -- -- 3,000 3
Net loss since inception.............................. -- -- -- --
--------- ---------- --------- ----------
Balances, December 31, 1996............................. -- -- 2,104,351 1,444
Exercise of stock options in January 1997 at $0.135... -- -- 6,000 6
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance
costs of $56,183.................................... -- -- -- --
Exercise of stock options in May 1997 at $0.135....... -- -- 8,500 9
Repurchase of common stock in July 1997 at $0.135..... -- -- (2,125) (2)
Stock options granted for services in 1997............ -- -- -- --
Deferred stock compensation...........................
Amortization of deferred stock compensation...........
Foreign currency translation adjustment............... -- -- -- --
Net loss.............................................. -- -- -- --
--------- ---------- --------- ----------
Balances, December 31, 1997............................. 0 0 2,116,726 1,457
Stock options granted for services in 1998............ -- -- -- --
Foreign currency translation adjustment............... -- -- -- --
Deferred stock compensation...........................
Amortization of deferred stock compensation...........
Net loss.............................................. -- -- -- --
--------- ---------- --------- ----------
Balances, December 31, 1998............................. 0 0 2,116,726 1,457
Exercise of stock options in January 1999 at $0.30.... -- -- 499 1
Issuance of Series C convertible preferred stock in
March 1999 at $2.496, net of issuance costs of
$37,812............................................. 932,456 932 -- --
Issuance of common stock for services from April
through September 1999.............................. 4,000 4
Exercise of stock options in September 1999 at
$0.30............................................... -- -- 48,683 49
Deferred stock compensation...........................
Amortization of deferred stock compensation...........
Foreign currency translation adjustment............... -- -- -- --
Net loss.............................................. -- -- -- --
--------- ---------- --------- ----------
Balances, September 30, 1999 (unaudited)................ 932,456 $932 2,169,908 $1,511
========= ========== ========= ==========
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL DEFERRED COMPREHENSIVE
PAID-IN CAPITAL STOCK COMPENSATION INCOME (LOSS)
--------------- -------------------- -----------------
<S> <C> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share................................ $-- $-- $--
Issuance of common stock in August 1994 at $0.045..... 29,607 -- --
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance
costs of $8,000..................................... 491,113 -- --
Exercise of stock options in August 1995 at $0.045.... 3,960 -- --
Issuance of common stock in June 1996 in exchange for
license agreement................................... 9,951 -- --
Exercise of stock options in July 1996 at $0.135...... 402 -- --
Net loss since inception.............................. -- -- --
------------ --------------- ------------
Balances, December 31, 1996............................. 535,033 -- --
Exercise of stock options in January 1997 at $0.135... 804 -- --
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance
costs of $56,183.................................... 3,227,409 -- --
Exercise of stock options in May 1997 at $0.135....... 1,139 -- --
Repurchase of common stock in July 1997 at $0.135..... (285) -- --
Stock options granted for services in 1997............ 20,000 -- --
Deferred stock compensation........................... 145,274 (145,274)
Amortization of deferred stock compensation........... 64,863
Foreign currency translation adjustment............... -- -- 35,277
Net loss.............................................. -- -- --
------------ --------------- ------------
Balances, December 31, 1997............................. 3,929,374 (80,411) 35,277
Stock options granted for services in 1998............ 15,000 -- --
Foreign currency translation adjustment............... -- -- (44,581)
Deferred stock compensation........................... 420,467 (420,467)
Amortization of deferred stock compensation........... 180,798
Net loss.............................................. -- -- --
------------ --------------- ------------
Balances, December 31, 1998............................. 4,364,841 (320,080) (9,304)
Exercise of stock options in January 1999 at $0.30.... 149 -- --
Issuance of Series C convertible preferred stock in
March 1999 at $2.496, net of issuance costs of
$37,812............................................. 2,288,666 -- --
Issuance of common stock for services from April
through September 1999.............................. 13,676
Exercise of stock options in September 1999 at
$0.30............................................... 14,556 -- --
Deferred stock compensation........................... 1,296,770 (1,296,770)
Amortization of deferred stock compensation........... 422,924
Foreign currency translation adjustment............... -- -- (23,983)
Net loss.............................................. -- -- --
------------ --------------- ------------
Balances, September 30, 1999 (unaudited)................ 7,978,658 $(1,193,926) $(33,287)
============ =============== ============
<CAPTION>
DEFICIT ACCUMULATED
DURING THE
DEVELOPMENT STAGE TOTALS
-------------------- -----------
<S> <C> <C>
Balances, December 21, 1993 (inception)
Issuance of founders common stock in June 1994 at
$0.0004998 per share................................ $-- $660
Issuance of common stock in August 1994 at $0.045..... -- 30,280
Issuance of Series A convertible preferred stock in
August 1994 at $1.33 per share, net of issuance
costs of $8,000..................................... -- 491,489
Exercise of stock options in August 1995 at $0.045.... -- 4,050
Issuance of common stock in June 1996 in exchange for
license agreement................................... -- 9,969
Exercise of stock options in July 1996 at $0.135...... -- 405
Net loss since inception.............................. (879,527) (879,527)
--------------- -----------
Balances, December 31, 1996............................. (879,527) (342,674)
Exercise of stock options in January 1997 at $0.135... -- 810
Issuance of Series B convertible preferred stock in
March 1997 at $2.496 per share, net of issuance
costs of $56,183.................................... -- 3,228,725
Exercise of stock options in May 1997 at $0.135....... -- 1,148
Repurchase of common stock in July 1997 at $0.135..... -- (287)
Stock options granted for services in 1997............ -- 20,000
Deferred stock compensation........................... -- --
Amortization of deferred stock compensation........... 64,863
Foreign currency translation adjustment............... -- 35,277
Net loss.............................................. (1,300,163) (1,300,163)
--------------- -----------
Balances, December 31, 1997............................. (2,179,690) 1,707,699
Stock options granted for services in 1998............ -- 15,000
Foreign currency translation adjustment............... -- (44,581)
Deferred stock compensation........................... -- --
Amortization of deferred stock compensation........... 180,798
Net loss.............................................. (996,426) (996,426)
--------------- -----------
Balances, December 31, 1998............................. (3,176,116) 862,490
Exercise of stock options in January 1999 at $0.30.... -- 150
Issuance of Series C convertible preferred stock in
March 1999 at $2.496, net of issuance costs of
$37,812............................................. -- 2,289,598
Issuance of common stock for services from April
through September 1999.............................. 13,680
Exercise of stock options in September 1999 at
$0.30............................................... -- 14,605
Deferred stock compensation........................... -- --
Amortization of deferred stock compensation........... 422,924
Foreign currency translation adjustment............... -- (23,983)
Net loss.............................................. (2,864,752) (2,864,752)
--------------- -----------
Balances, September 30, 1999 (unaudited)................ $(6,040,868) $714,712
=============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
CUMULATIVE
PERIOD FROM
DECEMBER 21,
1993 (DATE OF
FOR THE YEAR ENDED NINE MONTHS ENDED INCEPTION) TO
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1997 1998 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $(1,300,163) $(996,426) $(606,715) $(2,864,752) $(3,176,116)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 3,881 38,575 28,931 53,122 47,536
Amortization of deferred stock
compensation........................... 64,863 180,798 110,796 422,924 245,661
Common stock and options issued for
services............................... 20,000 15,000 -- 13,680 44,969
Changes in assets and liabilities:
Grant receivable....................... -- (416,040) (236,940) (446,392) (416,040)
Prepaid expenses and other assets...... (236,134) (3,029) 131,392 64,378 (244,248)
Accounts payable....................... 351,473 42,792 (76,139) 117,180 436,625
Accrued liabilities.................... (268,941) 1,578 (1,369) 46,842 41,580
Other.................................. (20,561) 1,502 (13,546) (3,018) 20,489
----------- ---------- ---------- ----------- ------------
Net cash used in operating
activities......................... (1,385,582) (1,135,250) (663,590) (2,596,036) (2,999,544)
----------- ---------- ---------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment......... (146,556) (32,759) (24,569) -- (188,027)
----------- ---------- ---------- ----------- ------------
Net cash used in investing
activities......................... (146,556) (32,759) (24,569) -- (188,027)
----------- ---------- ---------- ----------- ------------
Cash flows from financing activities:
Proceeds from long-term obligations........ 568,164 -- -- 2,930,000 568,164
Payment of long-term obligations and
capital lease obligations................ -- (98,558) (47,785) (67,658) (98,558)
Proceeds from issuance of preferred
stock.................................... 3,228,725 -- -- 2,289,598 3,720,214
Proceeds from issuance of common stock..... 1,958 -- -- 14,755 37,353
Repurchase of common stock................. (287) -- -- -- (287)
----------- ---------- ---------- ----------- ------------
Net cash provided by (used in)
financing activities............... 3,798,560 (98,558) (47,785) 5,166,695 4,226,886
----------- ---------- ---------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents................................ 2,266,422 (1,266,567) (735,944) 2,570,659 1,039,315
Cash and cash equivalents, beginning of
period..................................... 39,460 2,305,882 2,305,882 1,039,315 --
----------- ---------- ---------- ----------- ------------
Cash and cash equivalents, end of period..... $2,305,882 $1,039,315 $1,569,938 $3,609,974 $1,039,315
=========== ========== ========== =========== ============
ADDITIONAL CASH FLOW INFORMATION--INTEREST
PAID....................................... $3,065 $15,464 $11,145 $80,407 $99,998
=========== ========== ========== =========== ============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital leases.... $-- $156,954 $134,730 $62,562 $156,954
=========== ========== ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 1 -- FORMATION AND BUSINESS OF THE COMPANY:
DrugAbuse Sciences Inc., (the "Company") is a biotechnology company dedicated to
developing and marketing novel biopharmaceutical products that address key
medical needs of alcohol abusers and drug addicts. For the period from inception
through September 30, 1999, the Company has been in the development stage as
planned operations had not yet begun to generate significant revenue. The
Company was incorporated in December 1993 and operates in one business segment.
In February 2000, the Board of Directors and shareholders of the Company
approved a 1-for-6 reverse stock split of its common and preferred stock. All
share and per share amounts in the accompanying financial statements have been
adjusted retroactively.
In November 1994 and May 1996, the Board of Directors and shareholders of the
Company approved a 3-for-1 and a 4-for-1 stock split, respectively, of its
common and preferred stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. All intercompany transactions have been eliminated
in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
INITIAL PUBLIC OFFERING
In January 2000, the Board of Directors authorized management of the Company to
file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the preferred stock will automatically convert into 2,624,075 shares of common
stock. Unaudited pro forma shareholders' equity, as adjusted for the assumed
conversion of the preferred stock, is set forth on the balance sheet.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of cash and cash equivalents and accounts receivable. Cash
and cash equivalents are deposited in demand and money market accounts in one
financial institution in the United States and France.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable and accounts payable approximate
fair value due to their short maturities. Based on borrowing rates currently
available to the Company for loans with similar terms, the carrying value of its
debt obligations approximates fair value.
- --------------------------------------------------------------------------------
F-7
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
UNAUDITED INTERIM RESULTS
The accompanying interim consolidated financial statements for the nine months
ended September 30, 1998 and 1999, together with the related notes, are
unaudited. The unaudited interim consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements and,
in the opinion of management, reflect all adjustments, which include principally
normal recurring adjustments, necessary to present fairly the Company's results
of operations and their cash flows for the nine months ended September 30, 1998
and 1999.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents include money market funds and various deposit accounts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a straight-line
basis over their estimated useful lives of three to seven years. Leasehold
improvements are amortized over their estimated useful lives, or the lease term
if shorter. Upon retirement or sale, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations. Maintenance and repairs are charged to operations as
incurred.
REVENUE RECOGNITION
Research and development grant agreements provide for periodic payments in
support of the Company's research activities. Grant revenue is recognized as
earned based on actual costs incurred or as milestones are achieved.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for
Company-sponsored research and development activities. These costs include
direct and research-related overhead expenses and are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. A valuation allowance is
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
FOREIGN CURRENCY ACCOUNTING
Exchange adjustments resulting from foreign currency transactions are generally
recognized in operations, whereas adjustments resulting from the translation of
financial statements are reflected as a separate component of stockholders'
equity.
COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net loss by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from
- --------------------------------------------------------------------------------
F-8
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
common shares issuable through stock options, warrants and other convertible
securities. The following table is a reconciliation of the numerator (net loss)
and the denominator (number of shares) used in the basic and diluted EPS
calculations and sets forth potential shares of common stock that are not
included in the diluted net loss per share as their effect is antidilutive:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BASIC AND DILUTED:
Net loss......................... $(1,300,163) $(996,426) $(606,715) $(2,864,752)
Weighted average common shares
outstanding.................... 2,114,506 2,116,728 2,116,728 2,119,886
----------- ----------- ----------- -----------
Net loss per share............... $(0.61) $(0.47) $(0.29) $(1.35)
=========== =========== =========== ===========
ANTIDILUTIVE SECURITIES:
Convertible preferred stock...... 1,691,625 1,691,625 1,691,625 2,624,081
Options to purchase common
stock.......................... 369,459 598,489 596,823 875,691
Warrants......................... 1,855,684 1,855,684 1,855,684 1,855,684
----------- ----------- ----------- -----------
3,916,768 4,145,798 4,144,132 5,355,456
=========== =========== =========== ===========
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1998 and the nine
months ended September 30, 1999 was computed using the weighted average number
of shares of common stock outstanding, including the pro forma effects of the
automatic conversion of all of the company's preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on January 1, 1998, or at the
date of original issuance, if later.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components for
general-purpose financial statements. Comprehensive income is defined as net
income plus all revenues, expenses, gains and losses from non-owner sources that
are excluded from net income in accordance with generally accepted accounting
principles.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, the Company has not engaged in derivative and hedging activities.
- --------------------------------------------------------------------------------
F-9
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
NOTE 3 -- PROPERTY AND EQUIPMENT:
Property and equipment comprise:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment................................ $-- $9,039
Furniture and fixtures............................ 133 2,493
Equipment......................................... 50 164,350
Leasehold improvements............................ 146,374 160,388
-------- --------
146,557 336,270
Less: Accumulated depreciation and amortization... (250) (38,825)
-------- --------
$146,307 $297,445
======== ========
</TABLE>
Included in computer equipment at December 31, 1997 and 1998 is equipment
acquired under capital leases totaling approximately nil and $157,000,
respectively, net of accumulated amortization of nil and $23,000, respectively.
NOTE 4 -- GRANT RECEIVABLE
In December 1997, the Company received a grant from The Ministry of Research in
France (FRT) of approximately $2.8 million for the development and
commercialization of the COC-AB product. Under the terms of the grant the
Company is reimbursed for 50% of its expenses relating to COC-AB research and is
committed to pay royalties of 1% of worldwide net sales of the COC-AB product
for a period of 5 years up to a maximum amount of the grant.
NOTE 5--SPONSORED LICENSE AND RESEARCH AGREEMENTS:
In February 1997, the Company entered into a research agreement with Southern
Research Institute ("SRI") to help develop NALTREL and conduct animal studies.
Under the terms of the agreement, the Company pays SRI monthly for research
services performed during the three year agreement. Aggregate payments are
expected to be approximately $3.0 million. Expenses under the agreement were
$634,978 and $671,580 for the years ended December 31, 1997 and 1998,
respectively.
In connection with the research agreement, the Company entered into a license
agreement with SRI under which it obtained an exclusive, worldwide, royalty
bearing license to make, use and sell pharmaceutical products containing
controlled release Naltrexone. The license agreement terminates upon the later
of December 31, 2010 or the last Naltrexone Patent or Southern Patent Rights.
In June 1996, the Company entered into an exclusive worldwide license with the
Scripps Research Institute ("Scripps") for certain patents relating to the
development and marketing of diagnostic and therapeutic products within the
field of cocaine addiction treatment. In exchange for the exclusive license, the
Company paid Scripps $8,000 and issued 18,460 shares of common stock. Upon the
achievement of certain milestones, the Company will issue additional common
shares aggregating 55,382. As additional consideration, Scripps will receive a
royalty ranging from 1% to 2% of net sales of licensed products.
- --------------------------------------------------------------------------------
F-10
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
In June 1999, the Company entered into manufacturing and license agreements with
Aventis Pasteur ("Pasteur"). Under the terms of the agreements, Pasteur has
agreed to manufacture and supply the COC-AB product, as well as license certain
patents for the treatment of drug addiction. As consideration for the license
agreement, the Company will pay Pasteur royalties ranging from 4% to 14%.
In June 1999, the Company entered into a research and development agreement with
the University of Paris V (the "University") whereby the Company is developing
COC-AB and related antibodies using the facilities and expertise of the
University. Under the terms of the agreement, the Company was granted worldwide
rights to all inventions related to and including COC-AB. In consideration for
the agreement, the Company will make royalty payments to the University for a
period of five years from the date of the first commercial sale of COC-AB.
NOTE 6--LONG-TERM OBLIGATIONS:
In June 1997, the Company entered into a multi-year research and development
grant, with a French government agency. The Company received approximately
$420,000 for the future research and development activities in 1997. The Company
performs research on a "best-effort" basis and the grant is repayable over a
five year period.
In November 1997, the Company entered into a line of credit with a financial
institution. The line of credit has a total capacity of approximately $140,000
to finance research and development activities. The line of credit bears
interest at 6.25% with principal and interest payable semi-annually. The line of
credit terminates in November 2001.
In June 1999, the Company entered into a convertible note payable for $3,000,000
with a financial institution. The note and accrued interest (2% above US LIBOR)
is due on December 31, 2003. The note and accrued interest automatically convert
to Series D preferred stock in any private placement raising at least
$5 million prior to March 31, 2000 or into Series C preferred stock at the
option of the holder on March 31, 2000 (but not after) at a conversion price
equal to the Series C subscription price if no automatic conversion has taken
place. The Company may prepay the balance at any time after March 31, 2000. This
note converted into Series D preferred stock in connection with the Preferred
round of financing (Note 10).
Future repayments of the long-term obligations at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C>
1999........................................................ $80,393
2000........................................................ 126,857
2001........................................................ 166,935
2002........................................................ 141,335
---------
515,520
Less: current portion................................. 80,393
---------
$435,127
=========
</TABLE>
- --------------------------------------------------------------------------------
F-11
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
NOTE 7--COMMITMENTS:
The Company leases office space and equipment under noncancelable operating and
capital leases with various expiration dates through March 2003. Capital lease
obligations are collateralized by the equipment subject to the leases. The
Company is responsible for maintenance costs and property taxes on certain of
the operating leases. Rent expense for the years ended December 31, 1997 and
1998 and for the cumulative period from December 21, 1993 (date of inception) to
December 31, 1998 was nil, $13,500 and $13,500, respectively.
Future minimum lease payments under noncancelable operating and capital leases
at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIODS CAPITAL OPERATING
ENDING DECEMBER 31, LEASES LEASES
- -----------------------------------------------------------------------------
<S> <C> <C>
1999.................................................. $37,310 $54,000
2000.................................................. 37,310 40,500
2001.................................................. 37,310
2002.................................................. 37,310 --
2003.................................................. 12,440 --
Thereafter............................................ -- --
-------- --------
Total minimum lease payments.......................... 161,680 $94,500
========
Less: Amount representing interest.................... 20,847
--------
Present value of capital lease obligations............ 140,833
Less: Current portion................................. 32,870
--------
$107,963
========
</TABLE>
NOTE 8--SHAREHOLDERS' EQUITY:
COMMON STOCK
At December 31, 1998, the Company had reserved sufficient shares of common stock
for issuance upon conversion of preferred stock and the exercise of stock
options and warrants. Common shareholders are entitled to dividends as and when
declared by the Board of Directors subject to the prior rights of the preferred
shareholders. The holders of each share of common stock are entitled to one
vote.
CONVERTIBLE PREFERRED STOCK:
DIVIDENDS
The holders of shares of Series A, Series B and Series C convertible preferred
stock are entitled to receive dividends, out of any assets legally available,
prior and in preference to any declaration or payment of any dividend on the
common stock of the Company, at the rate of eight percent of the $15.96, $2.496
and $2.496 per share, respectively, when, as and if declared by the Board of
Directors. Dividends on the Series A, Series B and Series C convertible
preferred stock shall not accrue unless declared by the Board of Directors.
- --------------------------------------------------------------------------------
F-12
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
LIQUIDATION
In the event of any liquidation, dissolution or winding up for the Company,
either voluntary or involuntary, the holders of Series A, Series B and Series C
convertible preferred stock are entitled to receive, prior and in preference to
any distribution of any of the assets of the Company to the holders of common
stock by reason of their ownership, an amount per share equal to $15.96, $2.496
and $2.496, respectively, for each outstanding share of convertible preferred
stock, as adjusted for stock splits, stock dividends or similar events, plus any
accrued but unpaid dividends on such shares. If the assets and funds distributed
among the holders of Series A, Series B and Series C convertible preferred stock
are insufficient to permit the payment in the full preferential amounts, then
the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of Series A,
Series B and Series C convertible preferred stock in proportion to the full
amounts to which they would otherwise be respectively entitled.
After payment has been made to the holders of Series A, Series B, and Series C
convertible preferred stock, any remaining assets and funds are to be
distributed among the holders of common stock and convertible preferred stock
ratably until such time as the Series A, Series B and Series C convertible
preferred shareholders have received an aggregate of $31.92, $4.992 and $4.992
per share, respectively, thereafter any remaining assets will be distributed to
the holders of common stock.
MERGERS
A merger, reorganization or sale of all or substantially all of the assets of
the Company in which the shareholders of the Company immediately prior to the
transaction possess less than 50% of the voting power of the surviving entity
(or its parent) immediately after the transaction shall be deemed to be a
liquidation, dissolution or winding up.
VOTING
The holder of each share of Series A, Series B and Series C convertible
preferred stock is entitled to the number of votes equal to the number of shares
of common stock into which each share of convertible preferred stock could be
converted, except as otherwise required by law, and has voting rights and powers
equal to the voting rights and powers of common stock. For as long as fifty
percent of the authorized shares of Series A and Series B convertible preferred
stock remain outstanding, each class shall have the right to elect a member to
the Board of Directors voting separately as individual classes. One director
shall be elected by the holders of common stock and the holders of Series A,
Series B, and Series C convertible preferred stock, voting together with members
of common stock as one class, shall be entitled to elect the remaining
directors.
CONVERSION
Each share of Series A, Series B and Series C convertible preferred stock, at
the option of the holder, is convertible into the number of fully paid and
nonassessable shares of common stock which results from dividing the liquidation
price for each respective series, $15.96, $2.496 and $2.496 respectively, by the
respective conversion prices. The per share conversion price of Series A
Series B and Series C convertible preferred stock is $1.3302, $2.496 and $2.496,
respectively. Conversion is automatic immediately (i) upon the closing of a sale
of common stock by the Company in an underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended, in which
(a) the aggregate gross
- --------------------------------------------------------------------------------
F-13
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
proceeds exceed $15,000,000 and (b) the public offering price equals or exceeds
$10.50 or (ii) at the election of the holders of sixty-seven percent of the then
outstanding Series A, Series B and Series C convertible preferred stock, voting
together as a single class on an as-converted basis, or (iii) or at the election
of the holders of two-thirds Series A and Series B convertible preferred stock,
voting together as a separate series and the holders of two thirds of Series C,
convertible preferred stock voting together as a separate series.
STOCK OPTION PLAN
In July 1994 and December 1999, the Company adopted the 1994 Stock Plan, and the
1999 A and 1999 B Stock Plans (the "Plans"), respectively, under which the Board
of Directors may issue incentive and non-qualified stock options to employees,
directors and consultants. The Board of Directors has the authority to determine
to whom options will be granted, the number of shares, the term and exercise
price. Options are to be granted at an exercise price not less than fair market
value for incentive stock options or 85% of fair market value for non-qualified
stock options. For individuals holding more than 10% of the voting rights of all
classes of stock, the exercise price of incentive stock options will not be less
than 110% of fair market value. The options are exercisable immediately upon the
Optionee entering into a Restricted Stock Purchase Agreement with respect to any
invested options. Options generally vest and become exercisable annually at a
rate of 25% after the first year and 1/48 per month thereafter. The term of the
options is no longer than five years for incentive stock options for which the
grantee owns greater than 10% of the voting power of all classes of stock and no
longer than ten years for all other options.
Activity under the Plans are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE
<S> <C> <C> <C>
Balances, December 31, 1996.............................. 2,580,874 386,126 $0.08
Granted................................................ (13,333) 13,333 0.30
Exercised.............................................. -- (12,375) 0.14
Cancelled.............................................. 17,625 (17,625) 0.14
---------- -------- ------
Balances, December 31, 1997.............................. 2,585,166 369,459 0.14
Additional options reserved............................ 1,000,000 -- --
Granted................................................ (302,396) 302,396 0.27
Cancelled.............................................. 73,366 (73,366) 0.14
---------- -------- ------
Balances, December 31, 1998.............................. 3,356,136 598,489 $0.24
========== ======== ======
</TABLE>
- --------------------------------------------------------------------------------
F-14
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
AT DECEMBER 31, 1998
-------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE
- --------------- ----------- ------------ --------
<S> <C> <C> <C>
$0.05 24,000 6.14 years $0.05
$0.14 211,050 7.95 years $0.14
$0.30 363,439 8.36 years $0.30
---------
598,489
=========
</TABLE>
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation." Had compensation cost for the Incentive Stock Plan been
determined based on the fair value at the grant date for awards during 1997 and
1998, consistent with the provisions of SFAS No. 123, the Company's pro forma
net loss and pro forma net loss per share would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Net loss as reported.............................. $(1,300,163) $(996,426)
Net loss pro forma................................ $(1,302,972) $(1,000,067)
Net loss per share, as reported,
basic and diluted............................... $(0.61) $(0.47)
Net loss per share, pro forma,
basic and diluted............................... $(0.62) $(0.47)
</TABLE>
Such pro forma disclosures may not be representative of future compensation cost
because options vest over several years and additional grants are anticipated to
be made each year.
At December 31, 1997 and 1998, all options under the Plan were exercisable. The
Plan provides for employees to exercise their options at any time. Unvested
options are subject to repurchase by the Company at their original exercise
price upon termination of employment. The weighted average fair values of
options granted during 1997 and 1998 were $0.06 and $0.07, respectively.
- --------------------------------------------------------------------------------
F-15
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
The fair value of each option grant is estimated on the date of grant using the
minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate................................... 6.1% 6.2%
Expected life............................................. 4 years 4 years
Expected dividends........................................ -- --
</TABLE>
DEFERRED STOCK COMPENSATION
During the period from January 1, 1997 through September 30, 1999, the Company
recorded $1,862,511 of deferred stock compensation in accordance with
APB No. 25, SFAS No. 123 and EITF 96-18, related to options granted to
consultants and employees in 1997, 1998 and 1999. The Company will record
additional deferred compensation of $12,119,380 related to options to purchase
common stock issued subsequent to September 30, 1999. During this period the
Company determined the fair value of options granted to consultants using the
Black-Scholes option pricing model with the following assumptions: expected
lives of four years; weighted average risk-free rate of 5.75%; expected dividend
yield of zero percent; expected volatility of 50% and deemed values of common
stock between $0.13 and $10.00 per share. Stock compensation expense is being
recognized in accordance with FIN 28 over the vesting periods of the related
options, generally four years. The Company recognized stock compensation expense
of $64,863, $180,798 and $422,924 for the years ended December 31, 1997 and 1998
and the nine months ended September 30, 1999, respectively.
WARRANTS
In connection with its license agreement with the Scripps Research Institute in
June 1996, the Company issued warrants to purchase 55,382 shares of common stock
at an exercise price of $0.14. The warrants expire in June 2016. The fair value
of these warrants determined using the Black-Scholes valuation model was not
considered material, and accordingly, no value was ascribed to them for
financial reporting purposes.
In connection with the Series B preferred stock financing, the Company issued
warrants to purchase 1,855,684 shares of common stock with an exercise price of
$0.30. The warrants will become exerciseable only in the event of a merger or
sale of substantially all of the Company's assets or an initial public offering
with gross proceeds to the Company of $10 million and a price per share of at
least $12.00. The term of the warrants is five years.
NOTE 9--INCOME TAXES:
As of December 31, 1998, the Company has net operating loss carryforwards of
approximately $2.9 million for federal and state income tax purposes. The net
operating loss carryforwards expire primarily in the year 2018 for federal and
in 2006 for state purposes.
The Company's ability to utilize its net operating loss carryforwards to offset
future taxable income will be subject to annual limitations resulting from
changes in ownership, as defined in the Tax Reform Act of 1986.
- --------------------------------------------------------------------------------
F-16
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
<S> <C>
Net operating loss carryforwards............................ 1,172,000
Other....................................................... 1,600
-----------
Gross deferred tax asset................................ 1,173,600
Valuation allowance......................................... (1,173,600)
-----------
Net deferred tax assets................................. $--
===========
</TABLE>
Due to uncertainty surrounding the realization of deferred tax assets, a full
valuation allowance has been provided against the deferred tax asset.
NOTE 10--SUBSEQUENT EVENTS
SERIES D PREFERRED STOCK
In October 1999, the Company issued 2,236,557 shares of Series D convertible
preferred stock at a price of $4.77 raising gross proceeds of $10,660,412.
Additionally, the Company's subsidiary in France, DrugAbuse Sciences, SAS,
issued 1,849 shares of common stock at a price of $39,919 per share raising
gross proceeds of $11,654,492. These common shares are convertible into
2,445,131 shares of the Company's Series D preferred stock at the option of the
holders. In connection with the sale of the Company's Series D preferred stock
and DrugAbuseSciences, SAS common stock, the Company issued 374,519 warrants to
purchase Series D preferred stock. The warrants have an exercise price of $0.06
per share and will terminate on November 30, 2001 or earlier upon the closing of
certain events. The warrants become exercisable only in the event that the
Company has not completed on or before April 26, 2001 either (i) an initial
public offering with a valuation at the expiration of the 180 day lock-up period
following the closing of the initial public offering of at least $150 million
based on the average of the closing prices of the Company's common stock for the
twenty trading days ending on the expiration of such 180 day period, or (ii) a
merger or sale of all or substantially all of the Company's assets resulting in
proceeds of $150 million.
2000 STOCK INCENTIVE PLAN
In January 2000, the Board of Directors adopted the 2000 Stock Incentive Plan
(the "2000 Plan"). The Company reserved 750,000 shares of common stock for
issuance under the 2000 Plan. Additionally, any shares not yet issued under the
1999 Stock Plans are also available under the 2000 Plan. Beginning on
January 1, 2001, the number of shares in the reserve will automatically increase
by the lesser of 6% of the total number of shares of common stock that are
outstanding or by 2,000,000 shares. The 2000 Plan allows for the issuance of
nonstatutory and incentive stock options which will generally vest over the four
year period following the date of the grant and expire ten years after they are
granted. Upon a change of control, options will become fully vested if the
surviving corporation fails to assume an outstanding option or replace it with a
comparable option.
- --------------------------------------------------------------------------------
F-17
<PAGE>
DRUGABUSE SCIENCES, INC. AND SUBSIDIARY
(COMPANIES IN THE DEVELOPMENT STAGE)
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(CONTINUED)
2000 EMPLOYEE STOCK PURCHASE PLAN
In January 2000, the Board of Directors adopted the 2000 Employee Stock Purchase
Plan ("2000 Purchase Plan"). The 2000 Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code. The Company has reserved 375,000
shares of common stock for issuance under the plan. On May 1 of each year,
starting with the year 2001, the number of shares in the reserve will
automatically be restored to 375,000. All employees are eligible to participate
if they are employed by the Company for more than 20 hours per week and for more
than five months per year. Eligible employees may begin participating in the
2000 Purchase Plan at the start of any offering period, which lasts 24 months.
Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period will start on the effective date of this
offering and end on April 30, 2002.
The 2000 Purchase Plan permits each eligible employee to purchase common stock
through payroll deductions up to 15% of the employee's salary and commissions.
Purchases of our common stock will occur on April 30 and October 31 of each
year. The price of each share of common stock purchased under our 2000 Purchase
Plan will be 85% of the lower of the fair market value per share of common stock
on the date immediately before the first day of the applicable offering period,
or the fair market value per share of common stock on the purchase date.
Employees may end their participation in the 2000 Purchase Plan at any time,
although participation ends automatically upon termination of employment with
the Company.
2000 DIRECTORS' OPTION PLAN
Also in January 2000, the Board of Directors adopted the 2000 Directors' Option
Plan ("2000 Directors' Plan"). The Company has reserved 200,000 shares of common
stock for issuance under the plan. On January 1 of each year, starting with the
year 2001, the number of shares in the reserve will automatically be restored to
200,000. Only the non-employee members of the Board of Directors will be
eligible for option grants under the 2000 Directors' Plan. Each non-employee
director who first joins the board after the effective date of the offering will
receive an initial option for 20,000 shares. That grant will occur when the
director takes office. The initial options vest in equal monthly installments
over the four-year period following the date of grant, except that all vesting
for the first year occurs at the close of that year. At the time of each of the
annual shareholders' meetings, beginning in 2001, each non-employee director who
will continue to be a director after that meeting will automatically be granted
an annual option for 5,000 shares of common stock.
The exercise price of each non-employee director's option will be equal to the
fair market value of common stock on the option grant date. The non-employee
directors' options have a 10-year term, except that they expire one year after a
director leaves the board. If a change in control of the Company occurs, a
non-employee director's option granted under the 2000 Directors' Plan will
become fully vested. Vesting also accelerates in the event of the optionee's
death or disability.
- --------------------------------------------------------------------------------
F-18
<PAGE>
[LOGO]
<PAGE>
- --------------------------------------------------------------------------------
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table presents the costs and expenses, other than underwriting
discounts and commissions, payable by us in connection with the sale of common
stock being registered. All amounts are estimates except the SEC registration
fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $18,216.00
NASD fee.................................................... 7,400.00
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Custodian and transfer agent fees........................... *
Miscellaneous fees and expenses............................. *
----------
Total................................................... $*
==========
</TABLE>
- ---------
* Information to be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended and Restated Articles of Incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law (the "California Law"). Under the California
Law, a director's liability to a company or its shareholders may not be limited:
- - for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law,
- - for acts or omissions that a director believes to be contrary to the best
interest of our company or our shareholders or that involve the absence of
good faith on the part of the director,
- - for any transaction from which a director derived an improper personal
benefit,
- - for acts or omissions that show a reckless disregard for the director's duty
to our company or our shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the Registrant or its
shareholders,
- - for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to our company or our
shareholders,
- - under Section 310 of the California Law concerning contacts or transactions
between our company and a director, or
- - under Section 316 of the California Law concerning directors' liability for
improper dividends, loans and guarantees.
- --------------------------------------------------------------------------------
II-1
<PAGE>
PART II
- --------------------------------------------------------------------------------
The limitation of liability does not affect the availability of injunctions and
other equitable remedies available to our shareholders for any violation by a
director of the director's fiduciary duty to our company or our shareholders.
Our Articles of Incorporation also include an authorization for the company to
indemnify our "agents" (as defined in Section 317 of the California Law),
through bylaw provisions, by agreement or otherwise, to the fullest extent
permitted by law. Pursuant to this provision, the company's Bylaws provide for
indemnification of the company's directors, officers and employees. In addition,
the company, at its discretion, may provide indemnification to persons whom we
are not obligated to indemnify. The Bylaws also allow the company to enter into
indemnity agreements with individual directors, officers, employees and other
agents. These indemnity agreements have been entered into with all directors and
executive officers and provide the maximum indemnification permitted by law.
These agreements, together with the company's Bylaws and Articles of
Incorporation, may require us, among other things, to indemnify these directors
or executive officers (other than for liability resulting from willful
misconduct of a culpable nature), to advance expenses to them as they are
incurred, provided that they undertake to repay the amount advanced if it is
ultimately determined by a court that they are not entitled to indemnification,
and to obtain directors' and officers' insurance if available on reasonable
terms. Section 317 of the California Law and the company's Bylaws make provision
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities (including reimbursement of expense incurred) arising under the
Securities Act. We currently maintain directors' and officers' liability
insurance.
There is no pending litigation or proceeding involving any of our directors,
officers, employees or agent in which indemnification will be required or
permitted. Moreover, we are not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification. We believe that the
foregoing indemnification provisions and agreements are necessary to attract and
retain qualified persons as directors and executive officers. The Underwriting
Agreement (the form of which is filed as Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of our company and our officers and
directors, and by us of the Underwriters, for certain liabilities arising under
the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1997, we have issued and sold the following securities:
1. On March 28, 1997, we issued and sold an aggregate of 1,316,063 shares of
Series B Preferred Stock to a group of 26 investors for an aggregate
purchase price of $3,284,995.52.
2. On March 28, 1997, in connection with the Series B Preferred Stock
Financing, we issued and sold warrants to purchase 1,855,684 shares of
common stock to a group of 17 investors.
3. On March 17, 1999, we issued and sold an aggregate of 932,456 shares of
Series C Preferred Stock to a group of 29 investors for an aggregate
purchase price of $2,327,428.25.
4. On October 6, 1999, we issued and sold an aggregate of 2,236,563 shares of
Series D Preferred Stock to a group of 27 investors for an aggregate
purchase price of $10,660,409.49.
5. On October 6, 1999, in connection with the Series D Preferred Stock
Financing, we issued and sold warrants to purchase 178,913 shares of
Series D Preferred Stock to a group of 26 investors.
6. On October 6, 1999, our French subsidiary, DrugAbuse Sciences, SAS, issued
and sold an aggregate of 2,445,126 shares of the capital stock of DrugAbuse
Sciences, SAS to a group of 9 investors for an aggregate purchase price of
$11,654,492.35. These shares convert into shares of our Series D Preferred
Stock upon certain circumstances.
- --------------------------------------------------------------------------------
II-2
<PAGE>
PART II
- --------------------------------------------------------------------------------
7. On October 6, 1999, in connection with the Series D Preferred Stock
Financing, our French subsidiary, DrugAbuse Sciences, SAS, issued and sold
warrants to purchase 195,606 shares of Series D Preferred Stock to a group
of 9 investors.
8. On January 31, 2000, we issued 2,445,126 shares of our Series D Preferred
Stock in connection with the exchange of 1,849 shares of DrugAbuse
Sciences, SAS.
9. On January 31, 2000, and in connection with the exchange of the DrugAbuse
Sciences, SAS shares, our French subsidiary, DrugAbuse Sciences, SAS issued
and sold warrants to purchase 195,606 shares of Series D Preferred Stock to
a group of 9 investors.
From inception through January 20, 2000, we granted options to purchase
2,680,024 shares of common stock at exercise prices ranging from 0.045 to 0.45
per share to employees, consultants, directors, and other service providers
pursuant to our 1994 and 1999 stock plans.
The sale of the above securities was deemed to be exempt from registration under
the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving any public
offering or transactions under compensation benefit plans and contracts relating
to compensation as provided under Rule 701. The recipients of securities in each
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution and appropriate legends were affixed to the share certificates
issued in these transactions. All recipients had adequate access, through their
relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Our Amended and Restated Articles of Incorporation.
3.2* Form of Amended and Restated Articles of Incorporation to be
filed upon the closing of the offering made under this
Registration Statement.
3.3 Our Bylaws.
3.4* Our Amended and Restated Bylaws to be effective upon the
closing of the offering made under this Registration
Statement.
4.1 Amended and Restated Investors' Rights Agreement, dated
October 6, 1999.
4.2* Form of our Common Stock certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1* Form of Indemnification Agreement entered into between us
and each of our directors and executive officers.
10.2 1994 Stock Option Plan.
10.3 1999 Stock Plan A.
10.4 1999 Stock Plan B.
10.5* 2000 Stock Incentive Plan.
10.6* 2000 Employee Stock Purchase Plan.
</TABLE>
- --------------------------------------------------------------------------------
II-3
<PAGE>
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
10.7* 2000 Directors' Option Plan.
10.8 Sublease between Etak, Inc. and us dated October 1, 1998, as
amended.
10.9* Clinical Supply Agreement by and between the Registrant and
SP Pharmaceuticals, L.L.C. dated November 24, 1999.
10.10* Research Agreement with Option to License by and between us
and Southern Research Institute dated February 28, 1997, as
amended.
10.11* Product License Agreement by and between us and Southern
Research Institute dated July 1, 1999.
10.12* Research Agreement with Option to License by and between us
and Southern Research Institute dated January 21, 2000.
10.13* Product License Agreement by and between us and Southern
Research Institute dated January 21, 2000.
10.14* License Agreement by and between us and SCRIPPS dated
June 18, 1996.
10.15* License Agreement by and between us and Pasteur Meriux
Serums & Vaccins dated June 8, 1999.
10.16* Manufacturing and Supply Agreement by and between us and
Pasteur Meriux Serums & Vaccins dated June 8, 1999.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Patent Counsel.
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
+ Confidential Treatment requested.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be presented
in them is not applicable or is shown in the consolidated financial statements
or related notes.
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in the denominations and registered in the
names as required by the underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
under the California Corporations Code, the Certificate of Incorporation or our
bylaws, the underwriting agreement, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission this indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against these
liabilities, other than the payment by us of expenses incurred or paid by a
director, officer, or
- --------------------------------------------------------------------------------
II-4
<PAGE>
PART II
- --------------------------------------------------------------------------------
controlling person of ours in the successful defense of any action, suit or
proceeding, is asserted by a director, officer or controlling person in
connection with the securities being registered in this offering, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
this indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of this issue.
We undertake 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 us under 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, and
the offering of these securities at that time shall be deemed to be the
initial bona fide offering.
- --------------------------------------------------------------------------------
II-5
<PAGE>
- --------------------------------------------------------------------------------
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Menlo Park, State of
California, on this 3rd day of February, 2000.
<TABLE>
<S> <C>
DRUGABUSE SCIENCES, INC.
By: /s/ PHILIPPE POULETTY, M.D.
--------------------------------------------
Philippe Pouletty, M.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
Power of attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Philippe Pouletty and Elizabeth M. Greetham, and
each of them, his or her true and lawful attorneys-in-fact and agents with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective on filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
her or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ PHILIPPE POULETTY, M.D.
- --------------------------------- Chairman of the Board and Chief February 3, 2000
Philippe Pouletty, M.D. Executive Officer
/s/ ELIZABETH M. GREETHAM Chief Financial Officer, Senior Vice
- --------------------------------- President, Business Development and February 3, 2000
Elizabeth M. Greetham Director
/s/ DAVID E. SMITH, M.D.
- --------------------------------- Medical Director and Director February 3, 2000
David E. Smith, M.D.
</TABLE>
- --------------------------------------------------------------------------------
II-6
<PAGE>
SIGNATURES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ RAFFY KAZANDJIAN
- --------------------------------- Director February 3, 2000
Raffy Kazandjian
/s/ FRED P. PHILLIPS IV
- --------------------------------- Director February 3, 2000
Fred P. Phillips IV
/s/ RUSSELL RICCI
- --------------------------------- Director February 3, 2000
Russell Ricci
/s/ GORDON RUSSELL
- --------------------------------- Director February 3, 2000
Gordon Russell
/s/ VINCENT WORMS
- --------------------------------- Director February 3, 2000
Vincent Worms
</TABLE>
- --------------------------------------------------------------------------------
II-7
<PAGE>
- --------------------------------------------------------------------------------
Index to exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Our Amended and Restated Articles of Incorporation.
3.2* Form of Amended and Restated Articles of Incorporation to be
filed upon the closing of the offering made under this
Registration Statement.
3.3 Our Bylaws.
3.4* Our Amended and Restated Bylaws to be effective upon the
closing of the offering made under this Registration
Statement.
4.1 Amended and Restated Investors' Rights Agreement, dated
October 6, 1999.
4.2* Form of our Common Stock certificate.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
10.1* Form of Indemnification Agreement entered into between us
and each of our directors and executive officers.
10.2 1994 Stock Option Plan.
10.3 1999 Stock Plan A.
10.4 1999 Stock Plan B.
10.5* 2000 Stock Incentive Plan.
10.6* 2000 Employee Stock Purchase Plan.
10.7* 2000 Directors' Option Plan.
10.8 Sublease between Etak, Inc. and us dated October 1, 1998, as
amended.
10.9* Clinical Supply Agreement by and between the Registrant and
SP Pharmaceuticals, L.L.C. dated November 24, 1999.
10.10* Research Agreement with Option to License by and between us
and Southern Research Institute dated February 28, 1997, as
amended.
10.11* Product License Agreement by and between us and Southern
Research Institute dated July 1, 1999.
10.12* Research Agreement with Option to License by and between us
and Southern Research Institute dated January 21, 2000.
10.13* Product License Agreement by and between us and Southern
Research Institute dated January 21, 2000.
10.14* License Agreement by and between us and SCRIPPS dated June
18, 1996.
10.15* License Agreement by and between us and Pasteur Meriux
Serums & Vaccins dated June 8, 1999.
10.16* Manufacturing and Supply Agreement by and between us and
Pasteur Meriux Serums & Vaccins dated June 8, 1999.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
23.3 Consent of Patent Counsel.
24.1 Power of Attorney. Reference is made to page II-6.
27.1 Financial Data Schedule.
</TABLE>
- ---------
* To be filed by amendment.
+ Confidential Treatment requested.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DRUGABUSE SCIENCES, INC.
Stanley A. Kaplan, Ph.D. and Jeffrey P. Higgins certify that:
They are the duly elected and acting President and Secretary,
respectively, of DrugAbuse Sciences, Inc., a California corporation (the
"Corporation").
The Articles of Incorporation of the Corporation are hereby
amended and restated to read in their entirety as set forth on EXHIBIT A
attached hereto.
The attached Amended and Restated Articles of Incorporation
have been duly approved by the Board of Directors of this Corporation.
The attached Amended and Restated Articles of Incorporation
have been duly approved by the required vote of the outstanding shares of Common
Stock and Preferred Stock entitled to vote in accordance with the Articles of
Incorporation of this Corporation and Sections 902 and 903 of the California
Corporations Code. The total number of shares of Common Stock entitled to vote
with respect to the attached Amended and Restated Articles of Incorporation was
13,005,218 shares of Common Stock and the total number of shares of Preferred
Stock entitled to vote with respect to the attached Amended and Restated
Articles of Incorporation was 13,678,970 shares of Preferred Stock; 187,778
shares of which were Series A Preferred Stock (which are convertible into
2,253,336 shares of Common Stock), 7,896,418 shares of which were Series B
Preferred Stock and 5,594,774 shares of which were Series C Preferred Stock. The
number of shares of Common Stock and Preferred Stock voting in favor of the
Amended and Restated Articles of Incorporation equaled or exceeded the vote
required. The percentage vote required was a majority of the outstanding shares
of Common Stock; a majority of the
<PAGE>
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, voting together as a single class; and a majority
of the outstanding shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, voting together as a single
class and on an as-converted basis.
The undersigned further declare under penalty of perjury under
the laws of the State of California that the matters set forth in this
certificate are true and correct of their own knowledge.
Executed at Menlo Park, California on _________ ___, 1999:
----------------------------------------------
Stanley A. Kaplan, Ph.D., PRESIDENT
----------------------------------------------
Jeffrey P. Higgins, SECRETARY
2
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
DRUGABUSE SCIENCES, INC.
ARTICLE I
The name of this Corporation is DrugAbuse Sciences, Inc.
ARTICLE II
The purpose of this Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust company
business or the practice of a profession permitted to be incorporated by the
California Corporations Code.
ARTICLE III
The Corporation is authorized to issue two classes of shares
to be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares the Corporation shall have the authority to issue is 85,000,000
shares of Common Stock, $0.001 par value per share, and 44,178,970 shares of
Preferred Stock, $0.001 par value per share. Preferred Stock may be issued from
time to time in one or more series.
The first Series of Preferred Stock shall be designated
"Series A Preferred" and shall consist of 187,778 shares, the second Series of
Preferred Stock shall be designated "Series B Preferred" and shall consist of
7,896,418 shares, the third Series of Preferred Stock shall be designated
"Series C Preferred" and shall consist of 5,594,774 shares, the fourth Series of
Preferred Stock shall be designated "Series D Preferred" and shall consist of
30,500,000 shares.
The relative rights, preferences and restrictions granted to
or imposed upon the authorized Series of the shares of Preferred Stock and the
holders thereof are as follows:
1. DIVIDENDS.
The holders of the shares of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred shall be entitled to
receive dividends, when, as and if declared by the Board of Directors, out of
funds legally available therefore at a rate of eight percent (8%) of the
Original Issue Price with respect to each Series of Preferred Stock. For
purposes hereof, the Original Issue Price of the Series A Preferred shall be
$2.66, the Original Issue Price of the Series B and Series C Preferred shall be
$0.416, and the Original Issue Price of the Series D Preferred shall be $0.7944.
No dividends or other distributions shall be made with respect to the Common
Stock of this Corporation, other than dividends payable solely in Common Stock,
unless dividends on the Series A Preferred, Series B Preferred, Series C
Preferred, and Series D Preferred in an amount per share equal to those paid on
the Common Stock (determined on an
<PAGE>
as-converted basis for the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred) shall have been paid or declared and set
apart for payment. No right to dividends shall accrue to holders of the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred unless declared by the Board of Directors.
Dividends, if paid or declared and set apart for payment, must
be paid or declared and set apart for payment in full on Series A Preferred,
Series B Preferred, Series C Preferred, and Series D Preferred
contemporaneously, or if less than full dividends are paid or declared and set
apart for payment on the Series A Preferred, Series B Preferred, Series C
Preferred, and Series D Preferred, the same percentage of dividends shall be
paid or declared and set apart for payment on each such Series of Preferred
Stock, based on the aggregate dividend preference of each such series.
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution, or
winding up of the Corporation, either voluntary or involuntary (a
"Liquidation"), the holders of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of the Common Stock and any other stock of the
Company (other than the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred), by reason of their ownership of such stock,
the amount of $2.66 per share for each share of Series A Preferred (the
aggregate of such amount being the "Series A Preference") then held by them, the
amount of $0.416 per share of Series B Preferred (the aggregate of such amount
being the "Series B Preference") then held by them, the amount of $0.416 per
share of Series C Preferred (the aggregate of such amount being the "Series C
Preference"), and the amount of $0.7944 per share of Series D Preferred (the
aggregate of such amount being the "Series D Preference") in each case adjusted
for any stock splits or recapitalizations with respect to such shares and, in
addition, an amount equal to all declared but unpaid dividends on such shares.
If the assets and funds of the Corporation available for distribution to the
holders of the Series A Preferred, the holders of the Series B Preferred, the
holders of the Series C Preferred and the holders of the Series D Preferred
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire remaining assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred, the holders of the Series B
Preferred, the holders of the Series C Preferred and the holders of the Series D
Preferred in proportion to the full amounts to which they would otherwise be
respectively entitled.
(b) After payment has been made to the holders of
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred of the full liquidation to which they shall be entitled as set forth
in 1(a), the holders of the Common Stock and the holders of Preferred Stock
(determined on an as-if-converted-to-Common-Stock basis) shall be entitled to
receive distributions of the remaining assets of the Corporation until such time
as the Series A Preferred has received an aggregate of $5.32 per share, the
Series B and Series C Preferred has received an aggregate of $0.832 per share
and the Series D Preferred has received an aggregate of $1.589 per share,
thereafter any remaining proceeds shall be distributed to the holders of Common
Stock.
2
<PAGE>
(c) For purposes of this Section 2, the following
events shall be treated as a Liquidation: (i) a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Corporation, or any other
corporate reorganization, in which consolidation, merger or reorganization the
shareholders of the Corporation own less than 50% of the Corporation's voting
power immediately after such consolidation, merger or reorganization or any
transaction or Series of related transactions to which the Corporation is a
party in which in excess of 50% of the Corporation's voting power is
transferred, excluding any consolidation or merger effected exclusively to
change the domicile of the Corporation, or (ii) a sale of all or substantially
all of the assets of the Corporation.
(d) in any of such events, if the consideration
received by this corporation is other than cash, its value will be deemed its
fair market value as determined in good faith by the Board of Directors. Any
securities shall be valued as follows:
(i) Securities not subject to investment
letter or other similar restrictions on free marketability covered by (ii)
below:
(1) If traded on a securities
exchange or through the Nasdaq National Market, the value shall be deemed to be
the average of the closing prices of the securities on such quotation system
over the thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing; and
(3) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the Board of Directors and the holders of a least a majority of the voting
power of all then outstanding shares of Preferred Stock.
(ii) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in (A)(1), (2) or (3) to reflect the
approximate fair market value thereof, as mutually determined by the Board of
Directors and the holders of at least a majority of the voting power of all then
outstanding shares of such Preferred Stock.
(e) As authorized by Section 402.5(c) of the
California Corporations Code, the provisions of Sections 502 and 503 of the
California Corporations Code shall not apply with respect to repurchase by the
Corporation of shares of Common Stock issued to or held by directors, officers,
employees or consultants of the Corporation or its subsidiaries upon termination
of their employment or services pursuant to an agreement providing for such
repurchase right.
3
<PAGE>
3. VOTING RIGHTS.
(a) Except as otherwise required by law or by
Sections 3(b) and 6 hereof, the holder of each share of Common Stock issued and
outstanding shall have one vote and the holder of each share of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
be entitled to the number of votes equal to the number of shares of Common Stock
into which such share of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred could be converted at the record date for
determination of the shareholders entitled to vote on such matters, or, if no
such record date is established, at the date such vote is taken or any written
consent of shareholders is solicited, such votes to be counted together with all
other shares of stock of the Corporation having general voting power and not
separately as a class. Holders of Common Stock, Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred shall be entitled to notice
of any shareholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes by the holders of Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred shall not, however, be permitted and
any fractional voting rights shall (after aggregating all shares into which
shares of Series A Preferred, Series B Preferred, Series C Preferred and Series
D Preferred held by each holder could be converted) be rounded to the nearest
whole number.
(b) For so long 50% or more of the authorized shares
of Series A Preferred remains outstanding (as adjusted for stock splits, reverse
stock splits or other similar event), one (1) director shall be elected by vote
of the holders of the Series A Preferred, voting as a separate class. For so
long as 50% or more of the authorized shares of Series B Preferred remains
outstanding (as adjusted for stock splits, reverse stock splits or other similar
events), one (1) director shall be elected by vote of the holders of the Series
B Preferred, voting as a separate class. For so long as 46% or more of the
authorized shares of Series D Preferred remains outstanding (as adjusted for
stock splits, reverse stock splits or other similar events and assuming for
purposes of this Section 3(b) only that all shares of Series D Preferred Stock
issuable upon exchange of the outstanding capital stock of DrugAbuse Sciences,
S.A.S., shall be deemed outstanding), two (2) directors shall be elected by vote
of the holders of the Series D Preferred, voting as a separate class. One (1)
director shall be elected by vote of the holders of the Common Stock, voting as
a separate class, and any remaining directors shall be elected by vote of the
holders of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and the Common Stock, voting together as a single class. In
the event of a vacancy in the office of any director elected by the holders of
any class, a successor shall be elected to hold office for the unexpired term of
such director by the holders of shares of such class given by written consent or
at a special meeting of such shareholders duly called for that purpose.
4. CONVERSION.
The holders of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred shall have conversion rights as
follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share at the office of the Corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable
4
<PAGE>
shares of Common Stock as is determined by dividing (x) $2.66, in the case of
the Series A Preferred, $0.416, in the case of the Series B Preferred,
$0.416, in the case of the Series C Preferred, and $0.7944, in the case of
the Series D Preferred by (y) the Conversion Price, determined as hereinafter
provided, in effect at the time of the conversion. The price at which shares
of Common Stock shall be deliverable upon conversion (the "Conversion Price")
of shares of Series A Preferred shall initially be $0.2217 per share of
Common Stock, of the Series B Preferred shall initially be $0.416 per share
of Common Stock, of the Series C Preferred shall initially be $0.416 per
share of Common Stock and of the Series D Preferred shall initially be
$0.7944 per share of Common Stock.
(b) AUTOMATIC CONVERSION. Each share of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon either (i) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Corporation to the public at an aggregate offering price
of not less than $15,000,000 and at a public offering price (prior to
underwriters' discounts and commissions) equal to or exceeding $1.75 per share
of Common Stock (as adjusted for any stock dividends, combinations or splits) as
a result of which such shares of Common Stock are traded in the Nasdaq National
Market, New York Stock Exchange, American Stock Exchange or other equivalent
national market (a "Qualifying IPO") or (ii) the written consent of holders of
sixty-seven percent (67%) of the outstanding shares of Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred, voting together
as a single class, in connection with a bona fide underwritten initial public
offering of the Corporation's Common Stock which does not constitute a
Qualifying IPO; or (iii) with respect to the Series A Preferred and Series B
Preferred, the written consent of holders of at least two-thirds of the then
outstanding shares of Series A Preferred and Series B Preferred, voting together
as a separate series; with respect to the Series C Preferred, the written
consent of holders of at least two-thirds of the then outstanding shares of
Series C Preferred, voting together as a separate series; and with respect to
the Series D Preferred, the written consent of holders of at least two-thirds of
the then outstanding shares of Series D Preferred, voting as a separate series.
In the event of the automatic conversion of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred upon a public offering
pursuant to (i) or (ii) of this paragraph, the person(s) entitled to receive the
Common Stock issuable upon such conversion shall not be deemed to have converted
such Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred until immediately prior to the closing of such sale of securities.
(c) MECHANICS OF CONVERSION. No fractional shares of
Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Preferred Stock shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Preferred Stock and shall give written notice to the Corporation
at such office that he elects to convert the same; provided, however, that in
the event of an automatic conversion pursuant to Section 4(b), the outstanding
shares of Preferred Stock shall be converted automatically without any further
action by the holders of such shares and
5
<PAGE>
whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent, and provided further that the
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless the
certificates evidencing such shares of Preferred Stock are either delivered
to the Corporation or its transfer agent as provided above, or the holder
notifies the Corporation or its transfer agent that such certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. The Corporation shall, as soon as
practicable after delivery of such certificates, or such agreement and
indemnification in the case of a lost, stolen or destroyed certificate, issue
and deliver at such office to such holder of Preferred Stock, a certificate
or certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, or in the case of automatic conversion on
the date of closing of the offering or the effective date of such written
consent, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date. The
Corporation shall from time to time in accordance with the laws of the State
of California increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
(d) ADJUSTMENTS TO CONVERSION PRICE.
(i) SPECIAL DEFINITIONS. For purposes of
this Section 4(d), the following definitions shall apply:
(1) "OPTIONS" shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall
mean the date on which the first share of Series D Preferred was first issued.
(3) "CONVERTIBLE SECURITIES" shall
mean any evidences of indebtedness, shares (other than the Common Stock) or
other securities convertible into or exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON
STOCK" shall mean all shares of Common Stock issued (or, pursuant to Section
4(d)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable at any time:
(A) upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred authorized herein;
6
<PAGE>
(B) Common Stock issued to
officers, directors and employees of, and consultants to, the Corporation to be
designated and approved by the Board of Directors;
(C) as a dividend or
distribution on Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred or any event for which adjustment is made pursuant to
Sections 4(e), (f), or (g) of this Article III;
(D) in connection with
bona fide business acquisitions by the Corporation approved by the Board of
Directors;
(E) shares issued in
connection with a Corporate Partnering Transaction (as defined below), approved
by the Board of Directors, or shares issued pursuant to any equipment leasing
arrangement, approved by the Board of Directors;
(F) upon exercise of the
warrants to purchase up to 10,822,405 shares of Common Stock, issued on March
28, 1997.
(G) upon exercise of the
warrants to purchase up to 2,266,893 shares (as adjusted for stock splits and
the like) of Series D Preferred Stock issued in connection with the Series D
Preferred Stock financing.
For the purposes of subsection 4(d)(i)(4)(E) of this Article
III, the term "Corporate Partnering Transaction" shall mean a transaction in
which a corporate partner invests in the Corporation in conjunction with an
agreement between the Corporation and such corporate partner providing for a
license to develop and commercialize the Corporation's products, provided that
such transaction is not primarily for equity financing purposes. To the extent
that shares of Common Stock issued after the Original Issue Date pursuant to
clause (B) above, in the aggregate, exceed 10% of the Common Stock of the
Corporation calculated on an as-converted and fully diluted basis at the time of
any such issuance, such shares shall constitute Additional Shares of Common
Stock. To the extent that shares of Common Stock issued after the Original Issue
Date pursuant to clauses (D) and (E) above, in the aggregate, exceed 10% of the
Common Stock of the Corporation calculated on an as-converted and fully diluted
basis at the time of any such issuance, such shares shall constitute Additional
Shares of Common Stock.
(ii) (1) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation
shall issue Additional Shares of Common Stock (including, in each case,
Additional Shares of Common Stock deemed to be issued pursuant to Section
4(d)(iii)), which Additional Shares of Common Stock are not issued pursuant to
equity financings in which an aggregate of less than $4,000,000 has been raised
for all such equity financings after the Original Issue Date (which issuances
are covered by Section 4(d)(ii)(2) hereof), without consideration or for a
consideration per share less than the Conversion Price in effect for the Series
A, Series B, Series C or Series D Preferred, as respectively applicable, on the
date of and immediately prior to such issue, then and in such event, the
Conversion Price of the Series A, Series B, Series C or Series D Preferred, as
respectively applicable, shall be reduced, concurrently with such issue, to a
price equal to the Effective Price at which such Additional Shares of Common
Stock were issued. The "Effective
7
<PAGE>
Price" of Additional Shares of Common Stock shall mean the quotient
determined by dividing (x) the aggregate consideration received, or deemed to
have been received by the Company for such issue under Section 4(d)(iii), for
such Additional Shares of Common Stock, by (y) the total number of Additional
Shares issued, or deemed to have been issued by the Company pursuant to
Section 4(d)(iii).
(2) ADDITIONAL ADJUSTMENT OF
CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation shall issue Additional Shares of Common Stock in one or
more equity financings in which less than an aggregate of $4,000,000 has been
raised in all such equity financings after the Original Issue Date (including,
in each case, Additional Shares of Common Stock deemed to be issued pursuant to
Section 4(d)(iii)) without consideration or for a consideration per share less
than the Conversion Price in effect for the Series A Preferred or Series B
Preferred, Series C Preferred or Series D Preferred, as applicable, on the date
of and immediately prior to such issue, then and in such event, the Conversion
Price of the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred, as applicable, shall be reduced, concurrently with such
issue, to a price (calculated to the nearest one one-hundredth of a cent)
determined by multiplying the applicable Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding and
the number of shares of Common Stock issuable upon conversion of the shares of
Preferred Stock outstanding immediately prior to such issue, plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such applicable Conversion Price, and the denominator of which
shall be the number of shares of Common Stock outstanding and the number of
shares of Common Stock issuable upon conversion of the shares of Preferred Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; provided, however, that in each such case, the
Conversion Price shall not be so reduced at that time if the amount of such
reduction would be an amount less than one cent ($0.01), but any such amount
shall be carried forward and reduction with respect thereto made at the time of
any subsequent reduction which, together with such amount and any other amount
or amounts so carried forward, shall aggregate to one cent ($0.01) or more.
(iii) DEEMED ISSUANCE OF ADDITIONAL SHARES
OF COMMON STOCK.
(1) OPTIONS AND CONVERTIBLE
SECURITIES. Except as otherwise provided in Section 4(d)(ii), in the event
the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to
any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined pursuant to
Section 4(d)(iv) hereof) of such Additional Shares of Common Stock would be
less than the Conversion
8
<PAGE>
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any such case
in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment
in the Conversion Price of the Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred shall be made upon the subsequent issue of
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(B) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(C) upon the expiration of
any such Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
1. in the case of
Convertible Securities or Options for Common Stock, the only Additional Shares
of Common Stock issued were shares of Common Stock, if any, actually issued upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange, and
2. in the case of Options
for Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities with respect to which
such Options were actually exercised;
(D) no readjustment
pursuant to clause (B) or (C) above shall have the effect of increasing the
Conversion Price of the Series A Preferred, Series B Preferred, Series C
Preferred or Series D Preferred to an amount which exceeds the decrease in
Conversion Price associated with the original adjustment.
9
<PAGE>
(E) in the case of any
Options which expire by their terms not more than thirty (30) days after the
date of issue thereof, no adjustment of the Conversion Price of the Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred shall be
made until the expiration or exercise of all such Options.
(iv) DETERMINATION OF CONSIDERATION. For
purposes of this Section 4(d), the consideration received by the Corporation for
the issue of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it consists
of cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it
consists of property other than cash, be computed at the fair value thereof
at the time of such issue, as determined in good faith by the Board; and
(C) in the event
Additional Shares of Common Stock are issued together with other shares or
securities or other assets of the Corporation for consideration which covers
both, be the proportion of such consideration so received, computed as provided
in clauses (A) and (B) above, as determined in good faith by the Board.
(2) OPTIONS AND CONVERTIBLE
SECURITIES. The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to Section
4(d)(iii)(1), relating to Options and Convertible Securities, shall be
determined by dividing
(v) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(vi) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) ADJUSTMENTS FOR SUBDIVISIONS, STOCK DIVIDENDS,
COMBINATIONS OR CONSOLIDATION OF COMMON STOCK. In the event that the outstanding
shares of Common Stock shall be subdivided or increased (by stock split, stock
dividend or otherwise), into a greater number of shares of Common Stock, the
Conversion Price then in effect shall, concurrently with the effectiveness of
such subdivision or the close of business on the record date for the
10
<PAGE>
determination of holders of Common Stock entitled to receive such stock
dividend, be proportionately decreased; provided, however, that if following the
record date with respect to such stock dividend such dividend is not fully paid,
the Conversion Price shall be recomputed accordingly based on the number of
shares of Common Stock actually issued. In the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification, reverse
stock split or otherwise, into a lesser number of shares of Common Stock, the
Conversion Price then in effect shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(f) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event
the Corporation at any time or from time to time makes, or fixes a record date
for the determination of holders of Common Stock entitled to receive, any
distribution payable in securities of the Corporation other than shares of
Common Stock and other than as otherwise adjusted in this Section 4, then and in
each such event provision shall be made so that the holders of Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Corporation which
they would have received had their Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the date of conversion, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Series A Preferred, Series B Preferred, Series
C Preferred and Series D Preferred.
(g) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Common Stock issuable upon conversion of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall
be changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred immediately before that
change.
(h) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred against impairment.
11
<PAGE>
(i) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price pursuant
to this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
at the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred, as applicable.
(j) NOTICES OF RECORD DATE. In the event that this
Corporation shall propose at any time:
(i) to declare any dividend or distribution
upon its Common Stock, whether in cash, property, stock or other securities,
whether or not a regular cash dividend and whether or not out of earnings or
earned surplus;
(ii) to offer for subscription pro rata to
the holders of any class or Series of its stock any additional shares of stock
of any class or Series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge or consolidate with or into
any other corporation, or sell, lease or convey all or substantially all its
property or business, or to liquidate, dissolve or wind up; then, in connection
with each such event, this Corporation shall send to the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred :
(1) at least thirty (30) days'
prior written notice of the date on which a record shall be taken for any such
dividend, distribution or subscription rights (and specifying the date on which
the holders of Common Stock shall be entitled thereto); and
(2) in the case of the matters
referred to in (iii) and (iv) above, at least thirty (30) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon the occurrence of such
event).
Each such written notice shall be delivered personally or
given by first-class airmail, postage prepaid, addressed to the holders of the
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred at the address for each such holder as shown on the books of this
Corporation.
12
<PAGE>
5. STATUS OF CONVERTED SHARES.
In case shares of Series A Preferred, Series B Preferred,
Series C Preferred or Series D Preferred shall be converted pursuant to Section
4 of this Article III, the shares so converted shall be canceled, retired and
eliminated from the shares which the Corporation is authorized to issue.
6. PROTECTIVE PROVISIONS.
In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a sixty-six and 2/3 percent (66 2/3%) of
the outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred and Series D Preferred Stock, voting together as a single
class:
(a) amend, alter or repeal any provision of, or add
any provision to, this Corporation's Amended and Restated Articles of
Incorporation or Bylaws of the Corporation if such action would adversely alter
or change the preferences, rights or privileges of the Preferred Stock;
(b) authorize, designate, issue or obligate itself to
issue shares of any class of stock or any other security convertible into or
exchangeable for shares of any class of stock having any preference on parity or
senior to the rights, preferences and privileges of any Series of Preferred
Stock or any increase in the authorized number or designated number of any such
new class or series; or
(c) authorize a liquidation, dissolution, winding-up,
or a sale or transfer of all or substantially all of the assets of the
Corporation or a merger or consolidation of the Corporation if, as a result of
such merger or consolidation, the shareholders of the Corporation would own less
than 50% of the voting securities of the surviving corporation.
(d) increase or decrease in the authorized number of
shares of Preferred Stock and Common Stock;
(e) take any steps in connection with any redemption,
repurchase, payment of dividends or other distributions with respect to Common
Stock or other stock of the Corporation with rights, preferences or privileges
junior to the Series Preferred (except for acquisitions of Common Stock by the
Corporation pursuant to agreements which permit the Corporation to repurchase
such shares upon termination of services to the Corporation or in exercise of
the Corporation's right of first refusal upon a proposed transfer).
(f) take any steps in connection with any voluntary
dissolution or liquidation of the Corporation.
(g) take any steps in connection with any increase in
the authorized number of members of the Corporation's Board of Directors above
nine (9).
13
<PAGE>
ARTICLE IV
1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
2. INDEMNIFICATION OF CORPORATE AGENTS. The Corporation is
authorized to provide indemnification of agents (as defined in Section 317 of
the California Corporations Code) through bylaw provisions, agreements with
agents, votes of shareholders or disinterested directors or otherwise, to the
fullest extent permissible under California law.
3. REPEAL OR MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article IV shall not adversely affect any right or
protection of an agent of this Corporation existing at the time of such
amendment, repeal or modification.
* * *
14
<PAGE>
Exhibit 3.3
BYLAWS
OF
DRUGABUSE SCIENCES, INC.
<PAGE>
BYLAWS OF
DRUGABUSE SCIENCES, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - CORPORATE OFFICES.....................................................................................1
1.1 PRINCIPAL OFFICE....................................................................................1
1.2 OTHER OFFICES.......................................................................................1
ARTICLE II - MEETINGS OF SHAREHOLDERS.............................................................................1
2.1 PLACE OF MEETINGS...................................................................................1
2.2 ANNUAL MEETING......................................................................................1
2.3 SPECIAL MEETING.....................................................................................1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS....................................................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................................................2
2.6 QUORUM..............................................................................................3
2.7 ADJOURNED MEETING; NOTICE..........................................................................3
2.8 VOTING..............................................................................................4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT...................................................4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................................5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS........................................6
2.12 PROXIES............................................................................................6
2.13 INSPECTORS OF ELECTION.............................................................................7
ARTICLE III DIRECTORS............................................................................................7
3.1 POWERS..............................................................................................7
3.2 NUMBER OF DIRECTORS.................................................................................7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS............................................................8
3.4 RESIGNATION AND VACANCIES...........................................................................8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................................................9
3.6 REGULAR MEETINGS....................................................................................9
3.7 SPECIAL MEETINGS; NOTICE............................................................................9
3.8 QUORUM..............................................................................................9
3.9 WAIVER OF NOTICE...................................................................................10
3.10 ADJOURNMENT.......................................................................................10
3.11 NOTICE OF ADJOURNMENT.............................................................................10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................................................10
3.13 FEES AND COMPENSATION OF DIRECTORS................................................................10
3.14 APPROVAL OF LOANS TO OFFICERS.....................................................................11
ARTICLE IV - COMMITTEES..........................................................................................11
4.1 COMMITTEES OF DIRECTORS............................................................................11
4.2 MEETINGS AND ACTION OF COMMITTEES..................................................................12
i
<PAGE>
<S> <C>
ARTICLE V - OFFICERS.............................................................................................12
5.1 OFFICERS...........................................................................................12
5.2 ELECTION OF OFFICERS...............................................................................12
5.3 SUBORDINATE OFFICERS...............................................................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................................................12
5.5 VACANCIES IN OFFICES...............................................................................13
5.6 CHAIRMAN OF THE BOARD..............................................................................13
5.7 PRESIDENT..........................................................................................13
5.8 VICE PRESIDENTS....................................................................................13
5.9 SECRETARY..........................................................................................13
5.10 CHIEF FINANCIAL OFFICER...........................................................................14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.................................14
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................14
6.2 INDEMNIFICATION OF OTHERS..........................................................................15
6.3 PAYMENT OF EXPENSES IN ADVANCE.....................................................................15
6.4 INDEMNITY NOT EXCLUSIVE............................................................................15
6.5 INSURANCE INDEMNIFICATION..........................................................................15
6.6 CONFLICTS..........................................................................................16
ARTICLE VIII RECORDS AND REPORTS................................................................................16
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.......................................................16
7.2 MAINTENANCE AND INSPECTION OF BYLAWS...............................................................17
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS..............................................17
7.4 INSPECTION BY DIRECTORS............................................................................17
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER..............................................................17
7.6 FINANCIAL STATEMENTS...............................................................................18
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................................................18
ARTICLE VIII GENERAL MATTERS....................................................................................19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING..............................................19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..........................................................19
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED..................................................19
8.4 CERTIFICATES FOR SHARES............................................................................20
8.5 LOST CERTIFICATES..................................................................................20
8.6 CONSTRUCTION; DEFINITIONS..........................................................................20
ARTICLE IX AMENDMENTS...........................................................................................20
9.1 AMENDMENT BY SHAREHOLDERS..........................................................................20
9.2 AMENDMENT BY DIRECTORS.............................................................................21
</TABLE>
ii
<PAGE>
BYLAWS
OF
DRUGABUSE SCIENCES, INC.
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the second
Tuesday of May at 10:00 a.m. However, if such day falls on a legal holiday, then
the meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding
<PAGE>
shares in the aggregate entitled to cast not less than ten percent (10%) of
the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
2
<PAGE>
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than forty-five (45) days from the date
set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
3
<PAGE>
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of
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shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section
2.4 of these bylaws, the waiver of notice or consent or approval shall state
the general nature of the proposal. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of
the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director maybe elected at any time to fill any
vacancy on the board of directors, provided that it was not created by removal
of a director and that it has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
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2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
(b) the record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting or by voting in person at the
meeting, or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy. The dates contained on the forms of proxy presumptively determine the
order of execution, regardless of the postmark dates on the envelopes in which
they are mailed. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Code.
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2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
So long as the corporation has no more than one (1) shareholder the
exact number of directors shall be one (1). Upon the issuance of shares to
additional shareholders the number of
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directors of the corporation shall not be less than three (3) nor more than
five (5). The exact number of directors shall be four (4) until changed,
within the limits specified above, by a bylaw amending this Section 3.2, duly
adopted by the board of directors or by the shareholders. The indefinite
number of directors may be changed, or a definite number may be fixed without
provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing the
fixed number or the minimum number of directors to a number less than five
(5) cannot be adopted if the votes cast against its adoption at a meeting, or
the shares not consenting in the case of an action by written consent, are
equal to more than sixteen and two-thirds percent (16-2/3%) of the
outstanding shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number greater than two
(2) times the stated minimum number of directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be elected at that
meeting.
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The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a
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direct or indirect material financial interest), Section 311 of the Code (as
to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
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3.14 APPROVAL OF LOANS TO OFFICERS*(*)
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in
any committee;
(c) the fixing of compensation of the directors for serving on
the board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
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(*) This section is effective only if it has been approved by the shareolders
in accordance with Sections 315(b) and 152 of the Code.
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4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
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Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
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authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented
at shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article VI, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who
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was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of
such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agents of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
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(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
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corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of
these bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
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7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of
18
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any shares on the books of the corporation after the record date so fixed,
except as otherwise provided in the Code.
If the board of directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
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certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account
of the alleged loss, theft or destruction of the certificate or the issuance
of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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CERTIFICATE OF AMENDMENT
OF
THE BYLAWS OF
DRUGABUSE SCIENCES, INC.,
a California corporation
The undersigned, Jeffrey P. Higgins, hereby certifies that:
1. He is the duly elected Secretary of DrugAbuse Sciences,
Inc., a California corporation (the "Company").
2. Effective as of December 17, 1998, Article III Section 3.2
of the Company's Bylaws was amended in its entirety to read as follows:
"Section 3.2 NUMBER OF DIRECTORS. So long as the
corporation has no more than one (1) shareholder, the exact
number of directors shall be one (1). Upon the issuance of
shares to additional shareholders, the number of directors of
the corporation shall not be less than four (4) nor more than
seven (7). The exact number of directors shall be seven (7)
until changed, within the limits specified above, by a bylaw
amending this Section 3.2, duly adopted by the board of
directors or by the shareholders. The indefinite number of
directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted
amendment to the articles of incorporation or by an amendment
to this bylaw duly adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to
vote; provided, however, that an amendment reducing the fixed
number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the
case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding
shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number
greater than two (2) times the stated minimum number of
directors minus one (1)."
<PAGE>
IN WITNESS HEREOF, the undersigned has set his hand hereto
this 17th day of December, 1998.
/s/ Jeffrey P. Higgins
-----------------------------------------------------
Jeffrey P. Higgins, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE BYLAWS OF
DRUGABUSE SCIENCES, INC.,
a California corporation
The undersigned, Jeffrey P. Higgins, hereby certifies that:
1. He is the duly elected Secretary of DrugAbuse Sciences,
Inc., a California corporation (the "Company").
2. Effective as of September 28, 1999, Article III Section 3.2
of the Company's Bylaws was amended in its entirety to read as follows:
"Section 3.2 NUMBER OF DIRECTORS. So long as the
corporation has no more than one (1) shareholder, the exact
number of directors shall be one (1). Upon the issuance of
shares to additional shareholders, the number of directors of
the corporation shall not be less than five (5) nor more than
nine (9). The exact number of directors shall be nine (9)
until changed, within the limits specified above, by a bylaw
amending this Section 3.2, duly adopted by the board of
directors or by the shareholders. The indefinite number of
directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted
amendment to the articles of incorporation or by an amendment
to this bylaw duly adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to
vote; provided, however, that an amendment reducing the fixed
number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the
case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding
shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number
greater than two (2) times the stated minimum number of
directors minus one (1)."
<PAGE>
IN WITNESS HEREOF, the undersigned has set his hand hereto this 28th
day of September, 1999.
/s/ Jeffrey P. Higgins
-----------------------------------------------------
Jeffrey P. Higgins, Secretary
<PAGE>
Exhibit 4.1
DRUGABUSE SCIENCES, INC.
--------------------------------------------------
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
--------------------------------------------------
OCTOBER 6, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 CERTAIN DEFINITIONS..............................................2
1.1 Commission...........................................2
1.2 Common Stock.........................................2
1.3 Conversion Shares....................................2
1.4 Exchange Act.........................................2
1.5 Founder..............................................2
1.6 Founder's Stock......................................2
1.7 Holder or Holders....................................2
1.8 Initiating Holders...................................2
1.9 Preferred Shares.....................................2
1.10 Register, registered and registration...............2
1.11 Registrable Securities..............................3
1.12 Registration Expenses...............................3
1.13 Restricted Securities...............................3
1.14 Securities Act......................................3
1.15 Selling Expenses....................................3
SECTION 2 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT..............................................3
2.1 Restrictions on Transferability......................3
2.2 Restrictive Legend...................................4
2.3 Notice of Proposed Transfers.........................4
2.4 Request for Registration.............................5
2.5 Company Registration.................................7
2.6 S-3 Registrations....................................8
2.7 Expenses of Registration.............................9
2.8 Registration Procedures..............................9
2.9 Indemnification.....................................10
2.10 Information by Holder..............................12
2.11 Rule 144 Reporting.................................12
2.12 Assignment of Registration Rights..................12
2.13 Termination of Registration Rights.................13
2.14 Market Stand-Off Agreement.........................13
SECTION 3 AFFIRMATIVE COVENANTS OF THE COMPANY............................14
3.1 Financial Information...............................14
3.2 Inspection..........................................14
3.3 Reservation of Common Stock.........................15
3.4 Employment, Confidential Information and
Inventions Assignment Agreement..........................15
3.5 Use of Proceeds.....................................15
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<PAGE>
3.6 Key-Man Insurance...................................15
3.7 Termination of Covenants............................15
SECTION 4 RIGHT OF FIRST REFUSAL..........................................15
4.1 Grant of Right......................................15
4.2 New Securities......................................16
4.3 Notice..............................................16
4.4 Sale After Notice...................................16
4.5 Assignment..........................................17
4.6 Termination.........................................17
SECTION 5 MISCELLANEOUS...................................................17
5.1 Governing Law.......................................17
5.2 Successors and Assigns..............................17
5.3 Entire Agreement....................................17
5.4 Amendment...........................................17
5.5 Notices.............................................18
5.6 Delay or Omissions..................................18
5.7 Counterparts........................................18
5.8 Severability........................................18
5.9 Aggregation of Stock................................18
5.10 Termination of Prior Agreement.....................18
</TABLE>
ii
<PAGE>
DRUGABUSE SCIENCES, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement is made
as of October 6, 1999 (the "Agreement") by and among DRUGABUSE SCIENCES, INC., a
California corporation located at 1430 O'Brien Drive, Suite E, Menlo Park,
California 94025 (the "Company"), the prior investors listed on Exhibit A to
this Agreement, (the "Prior Investor") and the individuals and entities listed
on Exhibit B to this Agreement (the "New Investors"). The Prior Investors and
the New Investors shall collectively be referred to herein as the "Investors."
RECITALS
WHEREAS, the Company and certain of the Investors are parties
to the Amended and Restated Investors' Rights Agreement, dated March 17, 1999
(the "Prior Agreement");
WHEREAS, the Company and certain of the Investors are parties
to the Series A Preferred Stock Purchase Agreement, dated August 30, 1994 (the
"Series A Agreement");
WHEREAS, the Company and certain of the Investors are parties
to the Series B Preferred Stock Purchase Agreement, dated March 28, 1997 (the
"Series B Agreement");
WHEREAS, the Company and certain of the Investors are parties
to the Series C Preferred Stock Purchase Agreement, dated March 17, 1999 (the
"Series C Agreement");
WHEREAS, the Company and certain of the Investors are parties
to the Series D Preferred Stock and Warrant Purchase Agreement of even date
herewith (the "Series D Agreement");
WHEREAS, certain of the New Investors are parties to the
Subscription Agreement (the "Subscription Agreement") of even date herewith
between the Company, DrugAbuse Sciences, S.A.S., a French corporation ("DAS
S.A.S.") and certain of the New Investors, whereby such certain New Investors
are purchasing shares of the capital stock of DAS S.A.S. that are exchangeable
into shares of the Company's Series D Preferred Stock pursuant to the terms of
the Exchange Agreement, dated of even date herewith (the "Exchange Agreement);
WHEREAS, in order to induce the Company to enter into the
Series D Agreement and to induce the Investors to invest funds in the Company
and DAS S.A.S. pursuant to the Series D Agreement and the Subscription
Agreement, the Investors and the Company hereby agree that this Agreement shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issuable to the Investors and certain other matters as set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and the
promises and covenants contained herein, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
<PAGE>
SECTION 1
CERTAIN DEFINITIONS
As used in this Agreement the following terms shall have the
following respective meanings:
1.1 ."COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.2 ."COMMON STOCK" shall mean the Common Stock of the
Company, as adjusted for any stock splits, stock dividends, reverse stock
splits, consolidations, recapitalizations and similar events.
1.3 ."CONVERSION SHARES" shall mean the Common Stock
issued or issuable upon conversion of the Series A Preferred Shares, Series B
Preferred Shares, Series C Preferred Shares and Series D Preferred Shares.
1.4 ."EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.5 ."FOUNDER" shall mean Philippe Pouletty.
1.6 ."FOUNDER'S STOCK" shall mean shares of Common Stock held
by the Founder or issuable to the Founder upon exercise of stock options.
1.7 ."HOLDER" or "HOLDERS" shall mean any person or
persons identified as an investor on Exhibit A or Exhibit B hereto who owns or
has the right to acquire Registrable Securities or any permitted transferees
thereof in accordance with Section 2.12 hereof; provided, however, that the
definition of "Holder" or "Holders" shall include the Founder only for purposes
of Sections 2.7, 2.8 and 2.9.
1.8 ."INITIATING HOLDERS" shall mean any Holders, or
permitted transferees of Holders under Section 2.12 hereof, who in the aggregate
hold not less than twenty-five percent (25%) of the outstanding Registrable
Securities in the case of a registration requested pursuant to Section 2.4
hereof.
1.9 ."PREFERRED SHARES" shall mean Series A Preferred
Shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
Shares (including such shares issued pursuant Section 1.4 of the Series D
Agreement in connection with the exchange of shares of the capital stock of DAS
S.A.S. into shares of Series D Preferred Stock of the Company pursuant to the
Exchange Agreement).
1.10 "REGISTER," "REGISTERED" and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
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1.11 "REGISTRABLE SECURITIES" shall mean shares Common
Stock issued or issuable on conversion of the Series A Preferred Stock issued
pursuant to the Series A Agreement, Common Stock issued or issuable on
conversion of the Series B Preferred Stock issued pursuant to the Series B
Agreement, Common Stock issued or issuable on conversion of the Series C
Preferred Stock issued pursuant to the Series C Agreement, Common Stock issued
or issuable on conversion of the Series D Preferred Stock or Common Stock issued
pursuant to the Series D Agreement (including such shares of Series D Preferred
Stock or Common Stock issued pursuant to the Warrants to purchase Series D
Preferred Stock issued pursuant to the Series D Agreement and such shares issued
pursuant to Section 1.4 of the Series D Agreement in connection with the
exchange of shares of the capital stock of DAS S.A.S. into shares of Series D
Preferred Stock of the Company pursuant to the Exchange Agreement) and any
shares of aforementioned Common Stock issued or issuable in respect of such
Common Stock held by Investors upon any stock split, reverse stock split, stock
dividend, recapitalization, consolidation or similar event.
1.12 "REGISTRATION EXPENSES" shall mean all expenses
incurred in complying with registrations, filings or qualifications under
Sections 2.4, 2.5 and 2.6 hereof, including, without limitation, all
registration, qualification and filing fees, accounting fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company in its capacity
as counsel for the Holders, Blue Sky fees and expenses, the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company and Selling Expenses).
1.13 "RESTRICTED SECURITIES" shall mean the securities of the
Company required to bear the legend set forth in Section 2.2 hereof (or any
similar legend).
1.14 "SECURITIES ACT" shall mean the Securities Act of
1933, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
1.15 "SELLING EXPENSES" shall mean all underwriting discounts,
selling commission, and stock transfer taxes applicable to the sale.
SECTION 2
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
2.1 RESTRICTIONS ON TRANSFERABILITY. The Founder's Stock,
Preferred Shares and the Conversion Shares shall not be transferable except upon
the conditions specified in this Section 2, which conditions are intended to
ensure compliance with the provisions of the Securities Act, or, in the case of
Section 2.14 hereof, to assist in an orderly distribution. Each Investor and
Founder will cause any proposed transferee of the Founder's Stock, Preferred
Shares and the Conversion Shares held by such Investor or Founder to agree to
take and hold such securities subject to the provisions and upon the conditions
specified in this Section 2 (including the "market stand-off" provisions of
Section 2.14).
3
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2.2 RESTRICTIVE LEGEND. Each certificate representing (i)
Founder's Stock, (ii) the Preferred Shares, (iii) Conversion Shares and (iv) any
other securities issued in respect of the Common Stock, Preferred Shares or
Conversion Shares or Founder's Stock issuable upon any stock split, reverse
stock split, stock dividend, recapitalization, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 2.3 below) be
stamped or otherwise imprinted with a legend in substantially the following form
(in addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICE.
2.3 NOTICE OF PROPOSED TRANSFERS. The holder of each
certificate representing Restricted Securities agrees to comply in all respects
with the provisions of this Section 2.3. Prior to any proposed transfer of any
Restricted Securities (unless there is in effect a registration statement under
the Securities Act covering the proposed transfer), the holder thereof shall
give written notice to the Company of such holder's intention to effect such
transfer. Each such notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail, and (except in transactions in
compliance with Rule 144) shall be accompanied by either (i) a written opinion
of legal counsel, which counsel shall be reasonably satisfactory to the Company,
addressed to the Company and reasonably satisfactory in form and substance to
the Company's counsel, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act, or (ii) a "no action" letter from the Commission to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred pursuant to the above shall bear the legend
set forth in Section 2.2 above, except that such certificate shall not bear such
restrictive legend if, in the opinion of counsel for the Company, such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
Notwithstanding the provisions of paragraph 2.3 above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Investor which is (A) a partnership to its partners or former partners in
accordance with partnership interests, (B) a corporation to its shareholders in
accordance with their interest in the corporation, (C) a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, or (D) to the Investor's or Founder's family
member or trust for the benefit of an individual Investor or Founder,
respectively; PROVIDED that in each case the transferee will be subject to the
terms of this Agreement to the same extent as if he were an original Investor or
Founder, as the case may be, hereunder.
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2.4 REQUEST FOR REGISTRATION.
(a) REQUEST FOR S-1 REGISTRATION. In case the Company
shall receive from Initiating Holders a written request that the Company effect
a registration, with respect to at least ten percent (10%) of the Registrable
Securities pursuant to a Registration Statement on a Form S-1, or any lesser
percentage of the Registrable Securities if the estimated aggregate offering
price to the public of the Registrable Securities proposed to be registered
thereunder equals or exceeds $10,000,000, the Company will:
(i) promptly (and in any event within 10
days) give written notice of the proposed registration, qualification or
compliance to all other Holders; and
(ii) use best efforts to effect such
registration, qualification or compliance as soon as practicable, (including,
without limitation, appropriate qualification under applicable Blue Sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request in writing received by the Company within thirty (30)
days after receipt of such written notice from the Company; provided, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 2.4:
(A) In any particular jurisdiction
in which the Company would be required to execute a general consent to service
of process in effecting such registration, qualification or compliance unless
the Company is already subject to service in such jurisdiction and except as may
be required by the Securities Act;
(B) After the Company has effected
two (2) such registrations pursuant to this Section 2.4(a), and such
registrations have been declared or ordered effective;
(C) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company pertaining to
a public offering (other than a registration of securities with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective and provided further that in the case of a registration of securities
in a Rule 145 transaction such period shall end on the date such transaction is
consummated;
(D) If the Company shall furnish to
such Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for a registration statement to
be filed in the near future, then the Company's obligation to use best efforts
to register, qualify or comply under this Section 2.4 shall be deferred for a
period not to exceed one hundred twenty (120) days from the date of receipt of
written request from the
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Initiating Holders; provided, however, that the Company may not utilize
this right more than once in any twelve (12) month period; or
(E) Prior to April 30, 2001.
Subject to the foregoing clauses (A) through (E), the Company
shall file a registration statement covering the Registrable Securities so
requested pursuant to this Section 2.4(a) as soon as practicable after receipt
of the request or requests from Initiating Holders.
(b) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of their request made
pursuant to Section 2.4 and the Company shall include such information in the
written notice referred to in Section 2.4(a)(i). The right of any Holder to
registration pursuant to Section 2.4 shall be conditioned upon such Holder's
participation in such underwriting, and the inclusion of such Holder's
Registrable Securities in the underwriting shall be limited to the extent
provided herein.
The Company shall (together with all Holders and other parties
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Initiating
Holders. Notwithstanding any other provision of this Section 2.4, if the
underwriters advise the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, the Initiating
Holders shall so advise all holders of Registrable Securities, and the
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting on a pro rata basis based on the total number of
securities (including, without limitation, Registrable Securities) entitled to
registration held by the Holders. The Company and/or the underwriters may, in
their sole discretion, round the number of securities offered hereunder to the
nearest 100 shares. No securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the underwriters and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration; provided, however, that, if by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held by
other participating Holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
allocate such greater number of Registrable Securities to such Holders in
proportion, as nearly as practicable, to the respective amount of Registrable
Securities held by such participating Holders.
If the underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account or for the account of other shareholders of the Company in such
registration if the underwriter so agrees.
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2.5 COMPANY REGISTRATION.
(a) REGISTRATION. If at any time or from time to
time, the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or Holders exercising their
respective demand registration rights pursuant to Sections 2.4 and 2.6, other
than (i) a registration on Form S-8 (or a similar or successor form) relating
solely to employee stock option, stock purchase or other benefit plans, or (ii)
a registration on Form S-4 (or similar or successor form) relating solely to a
Securities and Exchange Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder or Founder
written notice thereof; and
(ii) offer to include in such registration
(and any related qualification under Blue Sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities and Founder's
Stock specified in a written request or requests, made within thirty (30) days
after mailing of written notice by the Company, by any Holder or Founder except
as set forth in Section 2.5(b) below; provided, however, that Registrable
Securities shall take priority over Founder's Stock as set forth below in
Section 2.5(b).
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 2.5(a)(i). In such event the right of any
Holder or Founder to registration pursuant to Section 2.5 shall be conditioned
upon such Holder's or Founder's participation in such underwriting and the
inclusion of such Registrable Securities or Founder's Stock in the underwriting
to the extent provided herein.
All Holders, including Founder, proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.5, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities and
other securities to be included in such registration. The Company shall so
advise all participating Holders, and the number of shares that may be included
in the registration and underwriting by all participating Holders, shall be
allocated among them, as nearly as practicable; first, to the Company (or, if
applicable, to the holders for whose account the Company is registering the
securities); second, among the Holders of Registrable Securities in proportion
to the respective amounts of Registrable Securities held by such Holders at the
time of filing of the registration statement; third, to the Founder; and fourth,
to any other shareholder of the Company. The number of securities includable by
any Holder or other person may, in the discretion of the underwriters, be
rounded to the nearest one hundred (100) shares. No securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration.
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If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If the underwriter has not limited the number of such shares
to be underwritten for the Company's account and the account of the Holders, the
Company may include securities for the account of employees, officers, directors
and consultants.
(c) RIGHT TO TERMINATE REGISTRATION. The Company
shall have the right to terminate or withdraw any registration [initiated by the
Company under this Section 2.5 prior to the effectiveness of such registration
whether or not any Holder has elected to include Registrable Securities in such
registration.
2.6 S-3 REGISTRATIONS. If the Company is requested (and
qualifies under applicable SEC rules) by Holders to undertake a Form S-3 or
equivalent short-form registration, regardless of its designation, and any
related qualification or compliance, of its securities by the Holders of
Registrable Securities for an offering estimated to result in aggregate offering
proceeds of at least $1,000,000, net of underwriting discounts and commissions,
the Company shall promptly give notice of such proposed registration to all
Holders of Registrable Securities and the Company shall, as expeditiously as
possible, use all reasonable efforts to effect the registration on Form S-3 of
the Registrable Securities which the Company has been requested to register (i)
in such request and (ii) in any response given within thirty (30) days to a
notice from the Company pursuant to this Section 2.6. Notwithstanding the
foregoing, however, the Company shall not be required to effect more than one
such registration pursuant to this Section 2.6 in any twelve (12) month period.
The substantive provisions of Section 2.4(b) shall be applicable to each
registration initiated under this Section 2.6.
Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 2.6: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to such service in such
jurisdiction and except as may be required by the Securities Act; (ii) if the
Company, within ten (10) days of the receipt of the request of such Holders,
gives notice of its bona fide intention to effect the filing of a registration
statement with the Commission within ninety (90) days for a public offering (or
sixty (60) days in the case of a registration with respect to a Rule 145
transaction) of receipt of such request (other than with respect to a
registration statement relating to an employee benefit plan); (iii) during the
period starting with the date of filing of, and ending on the date three (3)
months (or the date a Rule 145 transaction is consummated in the case of a
registration relating to such transaction) immediately following the filing of a
registration statement for a public offering, the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities with respect to an employee benefit plan), provided
that the Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or (iv) if the Company
shall furnish to such Holder a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its shareholders for
registration statements to be filed in the near future, then the Company's
obligation to use all reasonable efforts to file a registration statement shall
be deferred for a
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period not to exceed one hundred twenty (120) days from the receipt of the
request to file such registration by such Holder, provided, however, that the
Company may not utilize the right set forth in this clause (iv) more than
once in any twelve (12) month period.
The Company may include in the registration under this Section
2.6 any other shares of Common Stock (including issued and outstanding shares of
Common Stock as to which the holders thereof have contracted with the Company
for "piggyback" registration rights pursuant to Section 2.5 hereof or any other
similar agreement) so long as the inclusion in such registration of such shares
will not, in the opinion of the managing underwriter (or in the reasonable
opinion of the Company in the event that the offering is not underwritten),
interfere with the successful marketing in accordance with the intended method
of sale or other disposition of all the shares of Registrable Securities sought
to be registered by the Holder or Holders of Registrable Securities pursuant to
this Section 2.6. If it is determined as provided above that there will be such
interference, the other shares of Common Stock sought to be included by the
Company shall be excluded to the extent deemed necessary by the managing
underwriter (or the Company if the offering is not underwritten), and all other
shares of Common Stock held by other parties shall be excluded before the
exclusion of any shares of Registrable Securities held by the Holders who desire
to have their shares included in the registration and offering. If, as
contemplated above, and after excluding all other shares of Common Stock held by
other parties, shares of the Common Stock of the Holders are to be excluded, the
number of shares of Common Stock of each participating Holder which are to be
excluded shall be proportionate to the number of shares which such party is
seeking to register. Registrations effected pursuant to this Section 2.6 shall
not be construed as registrations effected pursuant to Section 2.4 or 2.5.
2.7 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to each of Sections 2.4, 2.5 and 2.6 shall be borne by the Company; and
all Selling Expenses relating to securities registered by the Holders, shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
2.8 REGISTRATION PROCEDURES. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 2, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the SEC a registration
statement with respect to such securities and use reasonable efforts to cause
such registration statement to become and remain effective for at least ninety
(90) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; and
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement for the period set forth in
paragraph (a) above.
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(c) Furnish to each Holder participating in the
registration such number of registration statements, preliminary prospectuses,
final prospectuses and such other documents as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities being sold by such Holder.
(d) Use its reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
2.9 INDEMNIFICATION.
(a) The Company will, and does hereby undertake to,
indemnify and hold harmless each Holder, each of its officers, directors and
partners, and each person controlling such Holder within the meaning of Section
15 of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Section 2, and each underwriter,
if any, and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
and liabilities (or actions in respect thereof), including settlement of any
litigation, commenced or threatened, to which they may become subject under the
Securities Act, the Exchange Act, or other federal or state law, arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus (preliminary or final),
offering circular or other document or amendments thereto, or arising out of or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or arising
out of any violation by the Company of any federal, state or common law rule or
regulation applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or
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alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Company by an instrument executed
by such Holder, or underwriter expressly for use in connection with such
registration.
(b) Each Holder, severally and not jointly, will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify and hold harmless the Company, each of its directors and officers,
agents and employees, each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the Company
or such underwriter within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers, directors and partners and each
person controlling such Holder within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof to which they may become subject under the
Securities Act, the Exchange Act, or other federal or state law) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus (preliminary or
final), offering circular or other document or amendments thereto, or rising out
of or based on any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, and will
reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument executed by such Holder expressly for
use in connection with such registration; provided, however, that the
obligations of such Holders hereunder shall be limited to an amount equal to the
net proceeds to each such Holder from the sale of such Registrable Securities or
Founder's Stock as contemplated herein and shall be proportionate to such
Holder's relative fault.
(c) Each party entitled to indemnification under this
Section 2.9 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall deliver written notice to the Indemnifying Party of
commencement thereof. The Indemnifying Party, at its sole option, may
participate in or assume the defense of any such claim or any litigation
resulting therefrom with counsel reasonably satisfactory to the Indemnified
Party, and the Indemnified Party may participate in such defense at Indemnified
Party's expense. The failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 2 except to the extent that such failure to give notice shall materially
adversely affect the Indemnifying Party in the defense of any such litigation.
No Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term a release from all liability in respect to such claim or litigation by the
claimant or plaintiff to such Indemnified Party.
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2.10 INFORMATION BY HOLDER. Each Holder whose Registrable
Securities and Founder whose Founder's Stock is included in any registration
shall furnish to the Company such information regarding such Holder or Founder
and the distribution proposed by such Holder or Founder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 2.
2.11 RULE 144 REPORTING. With a view to making available
the benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use all reasonable efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) Furnish to each Holder, so long as such Holder
owns any Registrable Securities, and to the Founder, so long as the Founder owns
any Founder's Stock, written notice of the Company's qualification as a
registrant, as soon as practicable after such qualification; the Company further
shall furnish forthwith upon request a written statement as to its compliance
with the reporting requirements of said Rule 144 (at any time after ninety (90)
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of its
compliance with the Securities Act and the Securities Exchange Act (at any time
after it has become subject to such reporting requirements); the Company shall
provide forthwith upon written request a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as Purchaser may reasonably request in availing itself of any rule or
regulation of the Commission allowing Purchaser to sell any such securities
without registration.
2.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities and related rights granted each Holder
and the Founder under Section 2 may not be assigned except: (i) to a transferee
who acquires more than 25,000 Conversion Shares or Preferred Shares convertible
into more than 25,000 shares of Common Stock from a Holder (a "Permitted
Transferee"), (ii) to a successor entity to a Holder pursuant to a
reorganization or recapitalization of a Holder, (iii) to the partners or
affiliates of a Holder including entities directly or indirectly controlled by,
or directly or indirectly controlling, or under the direct or indirect control
of an entity directly or indirectly controlling an Investor; (iv) to all
investment funds, in whatever form, which are managed directly or indirectly by
an Investor or managed directly or indirectly by an entity, which is controlled
directly or indirectly by, or directly or indirectly controlling, or under the
direct or indirect control of an entity directly or indirectly controlling an
Investor; or (v) from an investment fund to its members upon dissolution. Each
holder agrees to give the Company notice within twenty (20) days following such
assignment and to cause the transferee to agree in writing to be bound by the
provisions hereof.
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2.13 TERMINATION OF REGISTRATION RIGHTS. The registration
rights and related rights granted pursuant to Section 2 shall terminate as to
each Holder or Founder (and permitted transferee under Section 2.12 above) upon
the occurrence of any of the following:
(a) With respect to each individual investor,
following the Company's first registered offering to the public of its Common
Stock, at such time as all Registrable Securities held by such Holder or Founder
or permitted transferee both (i) constitute less than one percent (1%) of the
then outstanding Common Stock of the Company and (ii) can be sold within a given
three (3) month period without compliance with the registration requirements of
the Securities Act pursuant to Rule 144 (or its successor provision); or
(b) Seven (7) years from the date of the Company's
first registered offering of Common Stock to the public.
2.14 "MARKET STAND-OFF" AGREEMENT.
(a) Any Holder or Founder, if required by the Company
and an underwriter of Common Stock (or other securities) of the Company, shall
agree not to sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder or Founder during the period not
to exceed one hundred and eighty (180) days as requested by the managing
underwriter following the effective date of the first registration statement of
the Company filed under the Securities Act. Such agreement shall be in writing
in a form satisfactory to the Company and such underwriter. The Company may
impose a stop-transfer instruction with respect to the shares (or other
securities) subject to the foregoing restriction until the end of such period.
(b) Notwithstanding the foregoing, if the Company's
initial public offering is made on other than a United States market or
exchange, a Holder need not agree to a market stand-off as set forth in Section
2.14(a) above but instead shall execute a letter agreement substantially in the
form attached hereto as EXHIBIT 2.14, if, as of the date hereof and as of the
date of closing of such public offering, a Holder's global, internal policy
prohibits such Holder from executing a market stand-off and market regulations
for the market, on which the offer is made, do not require a market stand-off.
SECTION 3
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
3.1 FINANCIAL INFORMATION. The Company will mail the
reports described in paragraphs (a), (b) and (c) below to (i) each Investor and
Permitted Transferee for so long as such Investor and such Permitted Transferee
holds , or has the right to acquire pursuant to the terms of the Exchange
Agreement, at least 300,000 Conversion Shares, or Preferred Shares convertible
into at least 300,000 Conversion Shares, and (ii) to each Investor who holds or
has the right to acquire pursuant to the Exchange Agreement, shares of Series D
Preferred Stock and, on the date hereof, holds or has the right to acquire
pursuant to the Exchange Agreement at least 300,000 Conversion Shares or
Preferred Shares convertible into at least 300,000 Conversion
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Shares. All Conversion Shares held or acquired by affiliated or related
entities or persons shall be aggregated together for the purpose of
determining the rights of Investors and Permitted Transferee pursuant to this
Section 3.1.
(a) As soon as practicable after the end of each
fiscal year, and in any event within ninety (90) days thereafter, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of operations and cash flows of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and audited by independent public accountants of national standing
selected by the Company; and
(b) As soon as practicable after the end of the first
three quarters of each year, and in any event within forty-five (45) days
thereafter, unaudited statements of operations and cash flows for such quarter
and the year to date, and an unaudited balance sheet as of the end of such
quarter, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year-end
audit adjustments, setting forth in each case in comparative form the figures
for the same period for the previous fiscal year, all in reasonable detail and
signed by the principal financial or accounting officer of the Company; and
(c) As soon as practicable at the end of each month
unaudited monthly financial statements and annual budgets all in reasonable
detail including revenue, expenses liabilities, cash flow statements and balance
sheet.
3.2 INSPECTION. The Company shall permit (i) each
Investor or Permitted Transferee, its attorney or its other representatives, for
so long as such Investor or such Permitted Transferee is a holder of, or has the
right to acquire pursuant to the terms of the Exchange Agreement, at least
300,000 Conversion Shares or Preferred Shares convertible into at least 300,000
Conversion Shares and (ii) to each Investor who holds or has the right to
acquire pursuant to the Exchange Agreement, shares of Series D Preferred Stock
and, on the date hereof, holds or has the right to acquire pursuant to the
Exchange Agreement at least 300,000 Conversion Shares or Preferred Shares
convertible into at least 300,000 Conversion Shares, respectively, to visit and
inspect the Company's properties, to examine the Company's books of account and
other records, to make copies or extracts therefrom and to discuss the Company's
affairs, finances and accounts with its officers, management employees and
independent accountants, all at such reasonable times and as often as such
Investor may reasonably request; provided, however, that the Company shall not
be obligated pursuant to this Section 3.2 to provide trade secret or proprietary
information or to provide information to any person who the Company reasonably
believes is a competitor of the Company. All Conversion shares held or acquired
by affiliated or related entities or persons shall be aggregated together for
the purpose of determining the rights of Investors and Permitted Transferee
pursuant to this Section 3.2.
3.3 RESERVATION OF COMMON STOCK. The Company will at all
times reserve and keep available, solely for issuance and delivery upon the
conversion of the Preferred Stock, all shares of Common Stock issuable from time
to time upon such conversion.
14
<PAGE>
3.4 EMPLOYMENT, CONFIDENTIAL INFORMATION AND INVENTIONS
ASSIGNMENT AGREEMENT. The Company shall require all employees and consultants to
execute and deliver an Employment, Confidential Information and Inventions
Assignment Agreement in substantially the form attached to the Purchase
Agreement
3.5 USE OF PROCEEDS. The Company agrees to use the
proceeds from this financing for the strategic business of the Company pursuant
to the guidelines as set forth in the information memo previously provided to
Purchaser and Purchaser's counsel.
3.6 KEY-MAN INSURANCE. Within 60 days of the Closing the
Company shall use its best efforts to provide key-man life insurance on the life
of Philippe Pouletty in the amount of $5 million and to maintain such key-man
life insurance, provided the Board of Directors of the Company determines that
the annual premium is reasonable.
3.7 TERMINATION OF COVENANTS. The covenants set forth in
Section 3 shall terminate at such time as the Company is required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended.
SECTION 4
RIGHT OF FIRST REFUSAL
4.1 GRANT OF RIGHT. The Company hereby grants to each
Investor who holds, or has the right to acquire pursuant to the terms of the
Exchange Agreement, Conversion or Preferred Shares the right of first refusal to
purchase up to such Investor's Pro Rata Share (as hereinafter defined) of the
New Securities (as defined in Section 4.2) which the Company may, from time to
time, propose to sell and issue. The Investors may purchase said New Securities
on the same terms and at the same price at which the Company proposes to sell
the New Securities. The "Pro Rata Share" of each Investor, for purposes of this
right of first refusal, is the ratio that (x) the sum of the number of shares of
Common Stock which such Investor holds (or has the right to acquire pursuant to
the Exchange Agreement) plus the number of shares of Common Stock issuable upon
conversion of the Preferred Shares which Investor then holds (or has the right
to acquire pursuant to the Exchange Agreement) bears to (y) the sum of the total
number of shares of Common Stock then outstanding (including the number of
shares of Common Stock issuable upon conversion of then outstanding Preferred
Shares, but excluding any shares of Common Stock issuable upon exercise of
outstanding options, warrants or other rights) plus the number of shares of
Common Stock issuable upon conversion of the Series D Preferred Stock which is
issuable upon exchange of the capital stock of DAS S.A.S. pursuant to the
Exchange Agreement.
4.2 NEW SECURITIES. "New Securities" shall mean any capital
stock of the Company, whether now authorized or not, and any rights, options or
warrants to purchase said capital stock, and securities of any type whatsoever
that are, or may become, convertible into said capital stock; provided, however,
that "New Securities" does not include (i) securities offered pursuant to a
registration statement filed under the Securities Act, (ii) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets or other reorganization, (iii)
securities issued pursuant to any
15
<PAGE>
convertible securities, options or warrants outstanding on the date hereof,
(iv) shares of Common Stock (or options therefor) hereafter issued or
issuable to officers, directors, employees or consultants of the Company
pursuant to any employee or consultant stock offering, plan or arrangement
approved by the Board of Directors of the Company, (v) securities issued to
vendors or customers of the Company approved by the Board of Directors and
(vi) shares issued to a strategic corporate partner if approved by the Board
of Directors.
4.3 NOTICE. In the event the Company proposes to undertake an
issuance of New Securities, it shall give to the Investors written notice (the
"Notice") of its intention, describing the type of New Securities, number of
shares, the price, the terms upon which the Company proposes to issue the same,
and a statement as to the number of days from receipt of such Notice within
which the Investors must respond to such Notice. The Investor shall have thirty
(30) days from the date of such Notice to purchase up to its Pro Rata Share of
the New Securities for the price and upon the terms specified in the Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased and forwarding payment for such New Securities to the
Company if immediate payment is required by such terms, or in any event no later
than thirty (30) days after the date of receipt of the Notice.
4.4 SALE AFTER NOTICE. In the event the Investors fail to
exercise in full the right of first refusal within said thirty (30) day period,
the Company shall have sixty (60) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within thirty (30 days from the date of said agreement) to
sell the New Securities respecting which the Investors' rights were not
exercised, at a price and upon general terms no more favorable than specified in
the Notice. In the event the Company has not sold the New Securities within said
sixty (60) day period (or sold and issued New Securities in accordance with the
foregoing within thirty (30) days from the date of said agreement), the Company
shall not thereafter issue or sell any New Securities without first offering
such securities to the Investors in the manner provided above.
4.5 ASSIGNMENT. The right of first refusal granted under this
Section 4 is assignable by the Investor to any transferee of a minimum of 25,000
shares of Common Stock (including any shares of Common Stock into which shares
of Preferred Stock then held by it are convertible).
4.6 TERMINATION. The rights of Investors under this Section 4
shall terminate upon the earlier of (i) with respect to each Investor, that
point in time when such Investor owns less than 25,000 shares of Common Stock
(including any shares of Common Stock into which shares of Preferred Shares then
held by it are convertible), (ii) the closing of the initial underwritten public
offering of the Common Stock, or (iii) the occurrence of the merger or
consolidation of the Company into, or the sale of all or substantially all of
the Company's assets to another corporation, unless the shareholders of the
Company shall own at least 51% of the capital stock of such other corporation
immediately after such merger, consolidation or sale.
16
<PAGE>
SECTION 5
MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California.
5.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
5.3 ENTIRE AGREEMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject matter hereof.
5.4 AMENDMENT. Any term of this Agreement may be amended, and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of at least sixty-seven
percent (67%) of the then-outstanding Registrable Securities (including, for
purposes of this Section 5.4, Registrable Securities issuable upon exchange of
the capital stock of DAS S.A.S pursuant to the Exchange Agreement) provided,
however, that the rights granted the Founder under this Agreement may not be
adversely affected without the consent of such Founder. For purposes of the
foregoing clause, the granting of additional registration rights by the Company
to any holder or prospective holder of the Company's shares shall not be deemed
to adversely affect the rights granted Founder under this Agreement. Any
amendment or waiver effected in accordance with this Section 5.4 shall be
binding upon all Holders of Registrable Securities of the Company.
5.5 NOTICES. Whenever any party hereto desires or is required
to give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be deemed to have been validly
served, given or delivered (i) upon personal delivery to the party to be
notified, (b) when sent by confirmed telecopy or other facsimile if sent during
normal business hours of the recipient; if not, then on the next business day,
or (c) upon receipt if delivered by FedEx or other internationally recognized
overnight courier or delivery service, with written verification of such
delivery; in each case, addressed as indicated on the signature pages hereof. If
sent by telecopy and other facsimile transmission, a conformed copy of such
notice shall be sent by FedEx or other internationally recognized overnight
courier or delivery service, specifying the earliest possible delivery (in the
manner provided above) to the addressee. Any party may change its address for
such communications by giving notice thereof to the other parties in conformity
with this Section. Nothing contained in this Section or otherwise in this
Agreement shall excuse any party from giving oral telephonic notice when prompt
notification is appropriate, but any oral telephonic notice which is so given
shall not satisfy the requirement of written notice as specified in this
Section.
5.6 DELAY OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Restricted Securities upon
any breach or default of the Company under this Agreement, shall impair any such
right, power or remedy of such holder nor
17
<PAGE>
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring.
Any waiver, permit, consent or approval of any kind or character on the part
of any holder of any breach or default under this Agreement, or any waiver on
the part of any holder of any provisions or conditions of this Agreement,
must be in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either under this Agreement, or by law
or otherwise afforded to any holder, shall be cumulative and not alternative.
5.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which together shall constitute one instrument,
and each of which may be executed by less than all of the parties to this
Agreement.
5.8 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
5.9 AGGREGATION OF STOCK.. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
5.10 TERMINATION OF PRIOR AGREEMENT. The Prior Agreement is
hereby terminated and superseded in its entirety by this Agreement.
18
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
DRUGABUSE SCIENCES, INC.
a California corporation
By: /s/ Stanley A. Kaplan
--------------------------------
Name: Stanley A. Kaplan, Ph.D.
Title: President and CEO
FOUNDER:
/s/ Philippe Pouletty
--------------------------------
Philippe Pouletty
Address: 25 Oak Hill Drive
Woodside, CA 94062
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
INVESTORS:
/s/ B. Weiss
-----------------------------
BRANCO WEISS
Address: B.W. Hallwylstrasse 71
CH-8036, Zurich, Switzerland
/s/ Carlo Salvi
-----------------------------
CARLO SALVI
Address: c/o Alco Chemical
Via San Salvatore
CH-6902, Lugano, Switzerland
CDC INNOVATION
By: /s/ Raffy Kazandijan
-------------------------
Raffy Kazandijan
Title: General Manager
-----------------------
Address: Tour Maine - Montparnasse
33 Avenue du Maine - B.P. 180
75755 Paris Cedex 15 France
FINANCIERE DE BRIENNE
By: /s/ Edwige Avice
--------------------------
Print Name: Edwige Avice
Title: President
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
Address: 2 Place Rio de Janeiro - B.P. 1808
75362 Paris Cedex 08 France
GORDON W. RUSSELL, TTE RUSSELL
1988 REVOCABLE TRUST, U/A
11/17/1988
By: /s/ Gordon W. Russell
--------------------------
Print Name: Gordon W. Russell
------------------
Title: Trustee
----------------------
Address: Sequoia Capital
3000 Sand Hill Road, Suite 280, Building 4
Menlo Park, California 94025
/s/ G W Russell
-----------------------------
GORDON W. RUSSELL
Address: Sequoia Capital
3000 Sand Hill Road, Suite 280, Building 4
Menlo Park, California 94025
NOMURA INTERNATIONAL PLC
By: /s/ Kozo Yamazoe
-------------------------
Print Name: Kozo Yamazoe
Title:
---------------------
Address: Nomura House
1 St. Martin's-le-Grand
London EC1A 4NP, England
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
PARNIB BELGIE N.V.
By: /s/ Piet Serrure
--------------------------
Print Name: Piet Serrure
Title: Managing Director
Address: Uitbreidingstraat 10/16
2600 Antwerpen, Belgium
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
PARTECH ENTITIES:
AXA US GROWTH FUND
By: /s/ Vincent Worms
------------------------------
Print Name: Vincent Worms
Title: Managing Member
----------------------------
Address: 50 California Street, Suite 3200
San Francisco, California 94111
PARALLEL CAPITAL I LLC
By: /s/ Vincent Worms
-------------------------------
Print Name: Vincent Worms
Title: Managing Member
----------------------------
Address: 50 California Street, Suite 3200
San Francisco, California 94111
PARALLEL CAPITAL II LLC
By: /s/ Vincent Worms
-------------------------------
Print Name: Vincent Worms
Title: Managing Member
----------------------------
Address: 50 California Street, Suite 3200
San Francisco, California 94111
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
MULTINVEST LIMITED
By: /s/ Vincent Worms
-----------------------------
Print Name: Vincent Worms
Title: General Partner
---------------------------
Address: 50 California Street, Suite 3200
San Francisco, California 94111
TRADEINVEST LIMITED
By: /s/ Vincent Worms
-----------------------------
Print Name: Vincent Worms
Title: Advisor
---------------------------
Address: 50 California Street, Suite 3200
San Francisco, California 94111
PARVEST EUROPE INVESTMENT II C.V.
By: /s/ Vincent Worms
-----------------------------
Print Name: Vincent Worms
Title: General Partner
---------------------------
Address: 50 California Street, Suite 3200
San Francisco, California 94111
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
PARVEST U.S. PARTNERS II C.V.
By: /s/ Vincent Worms
-----------------------------
Print Name: Vincent Worms
Title: General Partner
----------------------------
Address: 50 California Street, Suite 3200
San Francisco, California 94111
/s/ Vincent Worms
-----------------------------
VINCENT WORMS
Address: 50 California Street, Suite 3200
San Francisco, California 94111
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
AURIGA GESTION
AURIGA VENTURES FCPR
By: /s/ Bernard Daugeras
-----------------------------
Print Name: Bernard Daugeras
Title: Duly Mandated
---------------------------
Address: 18, avenue Matignon
75008 Paris, France
JP MORGAN (SUISSE) S.A.
By: /s/ Jurg Egli /s/ Gian Legoratto
---------------------------------------------
Print Name: Jurg Egli Gian Legoratto
-------------------------------------
Title: Vice President Associate
------------------------------------------
Address: Post Office Box 5160
1211 Geneva 11, Switzerland
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
/s/ Eligio Barrios
--------------------------------------------------
ELIGIO BARRIOS
Address: c/o Alco Chemicals
Via San Salvatore
CH-6902 Lugano, Switzerland
/s/ Elizabeth Greetham
--------------------------------------------------
ELIZABETH GREETHAM
Address: Bye-Ways
4 Tuckers Town Road
St. Georges Parish
Bermuda HS02
/s/ Philippe Pouletty
--------------------------------------------------
PHILIPPE POULETTY
Address: 25 Oakhill Drive
Woodside, California 94062
/s/ Jeff Craig
--------------------------------------------------
JEFF CRAIG
Address: 46 Green Street
Huntington, New York 11743
/s/ Christopher Knowlton
--------------------------------------------------
CHRISTOPHER KNOWLTON
Address: c/o Knowlton Brothers, Inc.
530 Fifth Avenue, 26th Floor
New York, New York 10036
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
[pk]9999<PAGE>
/s/ Winthrop Knowlton
--------------------------------------------------
WINTHROP KNOWLTON
Address: c/o Knowlton Brothers, Inc.
530 Fifth Avenue, 26th Floor
New York, New York 10036
/s/ Raymond Tomasello
--------------------------------------------------
RAYMOND TOMASELLO
Address: 824 Eldorado Drive
Sonoma, California 95476
/s/ Joanne C. Knight
--------------------------------------------------
JOANNE C. KNIGHT
Address: 793 View Street
Mountain View, California 94041
/s/ Marshall Smith
--------------------------------------------------
MARSHALL A. SMITH
Address: 26535 Weston Drive
Los Altos, California 94022
3i GROUP PLC
By: /s/ Nomos - duly mandated
--------------------------------------------------
Print Name: Clement Cordier
Title: Directeur General Adjoint
Address: 91 Waterloo Road
London SE1 8XP
United Kingdom
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
ABN-AMRO VENTURE FRANCE
FRANCE INNOVATION 1 fcpi
By: /s/ Dominique Agrech
----------------------------------------
Print Name: Dominique Agrech
Title: Duly mandated
--------------------------------------
Address: 23, rue Balzac
75008 Paris, France
FRANCE INNOVATION 2 FCPI
By: /s/ Dominique Agrech
----------------------------------------
Print Name: Dominique Agrech
Title: Duly mandated
--------------------------------------
Address: 23, rue Balzac
75008 Paris, France
CAPITAL INVESTMENTS BELGIE N.V.
By:
----------------------------------------
Print Name: Fred Phillips
Title:
--------------------------------------
Address: AMB Amro
P.O. Box 283
1000 EA Amsterdam, Netherlands
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
EDMOND DE ROTHSCHILD ASSET MANAGEMENT
ACTYS II FCPR
By: /s/ Pierre-Yves Poirier
----------------------------------------
Print Name: Pierre-Yves Poirier
Title: duly mandated
--------------------------------------
Address: 47 rue du Faubourg Saint Honore
75008 Paris, France
CROISSANCE DISCOVERY FCPR
By: /s/ Pierre-Yves Poirier
----------------------------------------
Print Name: Pierre-Yves Poirier
Title: duly mandated
--------------------------------------
Address: 47 rue du Faubourg Saint Honore
75008 Paris, France
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
SOCIETE GENERAL ASSET MANAGEMENT
SGAM INNOVATION 1
By:
-------------------------------------------
Print Name: Philippe Collas
Title: President
Address: 2, Place de la Coupole
92078 Paris La defense, France
SOGE INNOVATION
By:
-------------------------------------------
Print Name: Philippe Collas
Title: President
Address: 2, Place de la Coupole
92078 Paris La defense, France
--------------------------------------------------
AVRAM GOLDSTEIN
Address: 735 Dolores Street
Stanford, California 94305-8427
/s/ JEAN-PAUL MOISAN
--------------------------------------------------
JEAN-PAUL MOISAN, M.D.
Address: 19 Les Hauts
44115 Basse Goulaine, France
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
JACQUES POULETTY
--------------------------------------------------
Address: 5 Quai aux Fleurs
Paris 75004, France
--------------------------------------------------
JEAN FRANCOIS POULETTY
Address: 60 Grande Rue Charles de Gaulle
94 360 Bry Sur Marne, France
ALAIN & ARMELLE GILBERT
/s/ Alain Gilbert
--------------------------------------------------
ALAIN GILBERT
Address: 15 Route de la Faisanderie
78110 Le Vesinet, France
UMB BANK, TRUSTEE FOR THE
BROBECK PHLEGER & HARRISON LLP
RETIREMENT SAVINGS PLAN
FBO EDWARD M. LEONARD
By:
---------------------------------------------
Print Name:
-------------------------------------
Title:
------------------------------------------
Address: Attn. Melissa Whited
UMB Bank of Kansas City
1010 Grand Boulevard
Kansas City, MO 64141
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
----------------------------------------------
BERTRAM ROWLAND
Address: 1420 Southdown Road
Hillsborough, CA 94010
PIERRE R. AND CHRISTINE E. LAMOND TRUST 11/22/85
By: /s/ Pierre Lamond
-------------------------------------------
Print Name: Pierre R. Lamond
Title: Trustee
Address: 1420 Southdown Road
Hillsborough, CA 94010
SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
EXHIBIT A
FOUNDER
Philippe Pouletty
SERIES A INVESTORS
Parvest U.S. Partners II C.V.
Parvest Europe Investment II C.V.
Tradeinvest Limited
Multinvest Limited
Pierre R. & Christine E. Lamond Trust 11/22/85
Gordon Russell, TTE Russell 1988 Revocable Trust, U/A 11/17/1988
Branco Weiss
SERIES B INVESTORS
CDC Innovation
Parvest U.S. Partners II C.V.
Parvest Europe Investment II C.V.
Multinvest Limited
Tradeinvest Limited
Financiere de Brienne
Pierre R. and Christine E. Lamond Trust 11/22/1985
Gordon W. Russell, TTE Russell
1988 Revocable Trust, U/A 11/17/1988
Bertram Rowland
Philippe and Christine Pouletty
Jean Francois Pouletty
Jacques Pouletty
Branco Weiss
Brobeck Investment Company V, L.P.
UMB Bank, Trustee for the Brobeck, Phleger & Harrison LLP
Retirement Savings Plan
FBO Edward M. Leonard
Prithipal Singh and Rajindar Kaur Singh Trust
UDT April 7, 1986
Marc P. Clein
Maryvonne Hiance
Jean-Paul Moisan
Jean-Paul Soulillou
Marshall A. Smith
Joanne C. Knight
David Bellet
Edwin Ullman Revocable Trust
Jean Francois Fourt
David Rubinfein
E-1
<PAGE>
SERIES C INVESTORS
Branco Weiss
Carlo Salvi
CDC Innovation
Chris Knowlton
Claudia L. Smith
Dwight E. Lee
Edward M. Leonard
Elizabeth Greetham
Financiere De Brienne
Gordon Russell, TTE Russell
1988 Revocable Trust, U/A 11/17/1988
Jacques Pouletty
Jean-Francois Pouletty
Jeff Craig
Joanne C. Knight
Marc P. Clein
Marshall A. Smith
Maryvonne Hiance
Partech Entities:
Parvest U.S. Partners Ii C.V.
Parvest Europe Investment Ii C.V.
Multinvest Limited
Tradeinvest Limited
Philippe and Christine Pouletty
Pierre R. & Christine E. Lamond Trust 11/22/85
Raymond Tomasello
Sam Tomasello
Stanley Knowlton
UMB Bank, Trustee For The Brobeck Phleger & Harrison LLP
Retirement Savings Plan
FBO Edward M. Leonard
Winthrop Knowlton
Eligio Barrios
E-2
<PAGE>
EXHIBIT B
SERIES D INVESTORS
Branco Weiss
Carlo Salvi
CDC Innovation
Financiere De Brienne
Gordon Russell, TTE Russell
1988 Revocable Trust, U/A 11/17/1988
Pierre R. & Christine E. Lamond Trust 11/22/85
Nomura International Plc
Parnib Belgie N.V.
Partech Entities:
Axa US Growth Fund
Parallel Capital I LLC
Parallel Capital II LLC
Eligio Barrios
Elizabeth Greetham
Philippe Pouletty
Jeff Craig
Chris Knowlton
Winthrop Knowlton
Raymond Tomasello
Joanne C. Knight
Marshall A. Smith
JP Morgan (Suisse) S.A.
Avram Goldstein or Dora B. Goldstein,
Trustee Goldstein Family Revocable Trust (01/03/83)
Jean-Paul Moisan, M.D.
Jacques Pouletty
Jean Francois Pouletty
Alain & Armelle Gilbert
Auriga Gestion
Auriga Ventures FCPR
3i Group Plc
ABN-Amro Venture France
France Innovation 1 FCPI
France Innovation 2 FCPI
ABN-AMRO Capital Investments (Belgie) N.V.
Edmond de Rothschild Asset Management
Actys II FCPR
Croissance Discovery FCPR
Societe Generale Asset Management
FCPI SGAM Innovation 1
FCPI SOGE Innovation
E-3
<PAGE>
EXHIBIT 2.14
STANDARD COMFORT LETTER PROVIDED TO SPONSOR
PRIVATE & CONFIDENTIAL
Dear
- - ("__" or "the Company")
I refer to our conversation concerning the intentions of 3i Group Plc ("3i")
with regard to its shareholding in __ following it's flotation.
As you are aware, our policy is not to enter into any commitment to retain such
shares for any particular period. 3i has considerable experience of being a
significant minority shareholder in newly floated companies, and as such, I
believe you can rely on 3i's reputation and commercial sense not to disrupt the
market by indiscriminate sales. It is obvious in no-one's interest for any such
disruption to occur.
In line with our policy in such circumstances, we agree to advise you prior to
any sales by us during the next six* months, and will normally deal through the
Company's broker. However, 3i will not consider itself precluded from dealing
through other brokers if they are bidding for stock.
Yours sincerely,
FOR AND ON BEHALF OF 3i GROUP PLC
* or lesser period related to the publication of interim or preliminary results
E-4
<PAGE>
Exhibit 10.2
DRUGABUSE SCIENCES, INC.
1994 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means DrugAbuse Sciences, Inc.
(g) "CONSULTANT" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services
and is compensated for such services, and any director of the Company whether
compensated for such services or not, provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means
that the employment or consulting relationship with the Company or any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of: (i) any leave of
absence approved by the Company, including sick leave, military leave, or any
other personal leave; provided, however, that for purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract (including certain Company
policies) or statute; provided, further, that on the ninety-first (91st) day of
any such leave (where reemployment is not guaranteed by contract or statute) the
Optionee's Incentive Stock Option shall cease to be treated as an Incentive
Stock Option and will be treated for tax
<PAGE>
purposes as a Nonstatutory Stock Option; or (ii) transfers between locations
of the Company or between the Company, its Parent, its Subsidiaries or its
successor.
(i) "EMPLOYEE" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported, as quoted on such exchange or system for the last market trading day
prior to the time of determination) as reported in THE WALL STREET JOURNAL or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(n) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "OPTION" means a stock option granted pursuant to the
Plan.
(p) "OPTIONED STOCK" means the Common Stock subject to an
Option or a Stock Purchase Right.
(q) "OPTIONEE" means an Employee or Consultant who receives an
Option or Stock Purchase Right.
(r) "PARENT" means a "parent corporation", whether now or here
after existing, as defined in Section 424(e) of the Code.
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(s) "PLAN" means this 1994 Stock Plan.
(t) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(u) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(v) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 below.
(w) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 265,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon
which the Company becomes subject to the Exchange Act, the Plan shall be
administered by the Board or a committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE
COMPANY BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS. With respect to grants of Options or Stock Purchase Rights to
Employees who are also officers or directors of the Company, the Plan shall be
administered by (A) the Board if the Board may administer the Plan in compliance
with Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3") with respect to a plan intended to qualify thereunder as a
discretionary plan, or (B) a committee designated by the Board to administer the
Plan, which committee shall be constituted in such a manner as to permit the
Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended
to qualify thereunder as a discretionary plan.
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<PAGE>
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND
OTHER EMPLOYEES. With respect to grants of Options or Stock Purchase Rights to
Employees or Consultants who are neither directors nor officers of the Company,
the Plan shall be administered by (A) the Board or (B) a committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any stock exchange upon
which the Common Stock is listed, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(f) instead of
Common Stock;
(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted;
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<PAGE>
(ix) determine the terms and restrictions applicable
to Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights; and
(x) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock Purchase
Rights.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment relationship with the Company, nor shall
it interfere in any way with his or her right or the Company's right to
terminate his or her employment relationship at any time, with or without cause.
(e) Upon the Company or a successor corporation issuing any
class of common equity securities required to be registered under Section 12 of
the Securities Exchange Act of 1934, as amended, or upon the Plan being assumed
by a corporation having a class of common equity securities required to be
registered under Section 12 of the Securities Exchange Act, the following
limitations shall apply to grants of Options and Stock Purchase Rights to
Employees:
(i) No Employee shall be granted, in any fiscal year
of the Company, Options and Stock Purchase Rights to purchase more than 100,000
Shares.
(ii) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12(a).
(iii) If an Option or Stock Purchase Right is
cancelled (other than in connection with a transaction described in Section 12),
the cancelled Option or Stock Purchase
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<PAGE>
Right will be counted against the limit set forth in Section 5(e)(i). For
this purpose, if the exercise price of an Option or Stock Purchase Right is
reduced, the transaction will be treated as a cancellation of the Option or
Stock Purchase Right and the grant of a new Option or Stock Purchase Right.
6. TERM OF PLAN. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company, as described in Section 18 of the Plan. It
shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term
stated in the Option Agreement; provided, however, that the term shall be no
more than ten (10) years from the date of grant thereof. However, in the case
of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist
6
<PAGE>
entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which
(x) in the case of Shares acquired upon exercise of an Option, have been
owned by the Optionee for more than six months on the date of surrender, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, (5)
delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price, or (6) any
combination of the foregoing methods of payment. In making its determination
as to the type of consideration to accept, the Board shall consider if
acceptance of such consideration may be reasonably expected to benefit the
Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER.
Any Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Board, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board, consist
of any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING
RELATIONSHIP. In the event of termination of an Optionee's Continuous Status
as an Employee or Consultant with the Company (but not in the event of an
Optionee's change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a
Nonstatutory Stock Option on the ninety-first (91st) day following such
change of status) or from Consultant to Employee), such Optionee may, but
only within such period of time as is determined by the Administrator, of at
least thirty (30) days, with such determination in the case of an Incentive
Stock Option not exceeding three (3) months after the date of such
termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise his or her Option
to the extent that Optionee was entitled to exercise it at the date of
7
<PAGE>
such termination. To the extent that Optionee was not entitled to exercise
the Option at the date of such termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event of
termination of an Optionee's consulting relationship or Continuous Status as
an Employee as a result of his or her disability, Optionee may, but only
within six (6) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination; provided, however, that if such
disability is not a "disability" as such term is defined in Section 22(e)(3)
of the Code, in the case of an Incentive Stock Option such Incentive Stock
Option shall automatically convert to a Nonstatutory Stock Option on the day
three months and one day following such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of termination,
or if Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent that the Optionee was entitled
to exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert
to the Plan. If, after death, the Optionee's estate or a person who acquired
the right to exercise the Option by bequest or inheritance does not exercise
the Option within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(e) RULE 16b-3. Options granted to persons subject to
Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall
contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any
time offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
8
<PAGE>
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be
issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time
within which such person must accept such offer, which shall in no event
exceed thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted
by execution of a Restricted Stock purchase agreement in the form determined
by the Administrator. Shares purchased pursuant to the grant of a Stock
Purchase Right shall be referred to herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator
determines otherwise, the Restricted Stock purchase agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or Disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock purchase agreement shall be the original
price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall
lapse at such rate as the Administrator may determine, but at a minimum rate
of 20% per year.
(c) OTHER PROVISIONS. The Restricted Stock purchase
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its
sole discretion. In addition, the provisions of Restricted Stock purchase
agreements need not be the same with respect to each purchaser.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase
Right is exercised, the purchaser shall have the rights equivalent to those
of a shareholder, and shall be a shareholder when his or her purchase is
entered upon the records of the duly authorized transfer agent of the
Company. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Stock Purchase Right is exercised,
except as provided in Section 12 of the Plan.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the number of shares of Common
Stock covered by each outstanding Option or Stock Purchase Right, and the
number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options or Stock Purchase Rights have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option or Stock Purchase Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Stock
Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common
9
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Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, the Board shall notify
the Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option or Stock Purchase
Right will terminate immediately prior to the consummation of such proposed
action.
(c) MERGER. In the event of a merger of the Company
with or into another corporation, the Option or Stock Purchase Right shall be
assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor
corporation. If, in such event, the Option or Stock Purchase Right is not
assumed or substituted, the Option or Stock Purchase Right shall terminate as
of the date of the closing of the merger. For the purposes of this paragraph,
the Option or Stock Purchase Right shall be considered assumed if, following
the merger, the option or right confers the right to purchase, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right immediately
prior to the merger, the consideration (whether stock, cash, or other
securities or property) received in the merger by holders of Common Stock for
each Share held on the effective date of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger was not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received
upon the exercise of the Option or Stock Purchase Right, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in
the merger.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The
date of grant of an Option or Stock Purchase Right shall, for all purposes,
be the date on which the Administrator makes the determination granting such
Option or Stock Purchase Right, or such other date as is determined by the
Board. Notice of the determination shall be given to each Employee or
Consultant to whom an Option or Stock Purchase Right is so granted within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any
time amend, alter, suspend or discontinue the Plan, but no amendment,
alteration, suspension or discontinuation shall be made which would impair
the rights of any Optionee under any grant theretofore made, without his or
her consent. In addition, to the extent necessary and desirable to comply
with Rule 16b-3 under the Exchange Act or with Section 422 of the Code (or
any other applicable law
10
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or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such
amendment or termination of the Plan shall not affect Options or Stock
Purchase Rights already granted, and such Options and Stock Purchase Rights
shall remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be
issued pursuant to the exercise of an Option or Stock Purchase Right unless
the exercise of such Option or Stock Purchase Right and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933,
as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel
for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock
Purchase Right, the Company may require the person exercising such Option or
Stock Purchase Right to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
16. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not have
been obtained.
17. AGREEMENTS. Options and Stock Purchase Rights shall be
evidenced by written agreements in such form as the Board shall approve from
time to time.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be
subject to approval by the shareholders of the Company within twelve (12)
months before or after the date the Plan is adopted. Such shareholder
approval shall be obtained in the degree and manner required under applicable
state and federal law and the rules of any stock exchange upon which the
Common Stock is listed.
19. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall
provide to each Optionee and to each individual who acquired Shares pursuant
to the Plan, not less frequently than annually during the period such
Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and, in the case of an individual who acquired Shares pursuant
to
11
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the Plan, during the period such individual owns such Shares, copies of
annual financial statements. The Company shall not be required to provide
such statements to key employees whose duties in connection with the Company
assure their access to equivalent information.
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Exhibit 10.3
DRUGABUSE SCIENCES, INC.
1999 STOCK PLAN A
ADOPTED ON DECEMBER 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE NO.
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<S> <C> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE...............................................1
SECTION 2. ADMINISTRATION..........................................................1
(a) Committees of the Board of Directors..............................................1
(b) Authority of the Board of Directors...............................................1
SECTION 3. ELIGIBILITY.............................................................1
(a) General Rule......................................................................1
(b) Ten-Percent Shareholders..........................................................1
SECTION 4. STOCK SUBJECT TO PLAN...................................................2
(a) Basic Limitation..................................................................2
(b) Additional Shares.................................................................2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.................................2
(a) Stock Purchase Agreement..........................................................2
(b) Duration of Offers and Nontransferability of Rights...............................2
(c) Purchase Price....................................................................2
(d) Withholding Taxes.................................................................3
(e) Restrictions on Transfer of Shares and Minimum Vesting............................3
(f) Accelerated Vesting...............................................................3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.........................................3
(a) Stock Option Agreement............................................................3
(b) Number of Shares..................................................................3
(c) Exercise Price....................................................................3
(d) Withholding Taxes.................................................................4
(e) Exercisability....................................................................4
(f) Accelerated Exercisability........................................................4
(g) Basic Term........................................................................4
(h) Nontransferability................................................................4
(i) Termination of Service (Except by Death)..........................................4
(j) Leaves of Absence.................................................................5
(k) Death of Optionee.................................................................5
(l) No Rights as a Shareholder........................................................5
(m) Modification, Extension and Assumption of Options.................................6
(n) Restrictions on Transfer of Shares and Minimum Vesting............................6
(o) Accelerated Vesting...............................................................6
i
<PAGE>
SECTION 7. PAYMENT FOR SHARES......................................................6
(a) General Rule......................................................................6
(b) Surrender of Stock................................................................7
(c) Services Rendered.................................................................7
(d) Promissory Note...................................................................7
(e) Exercise/Sale.....................................................................7
(f) Exercise/Pledge...................................................................7
SECTION 8. ADJUSTMENT OF SHARES....................................................7
(a) General...........................................................................7
(b) Mergers and Consolidations........................................................8
(c) Reservation of Rights.............................................................8
SECTION 9. SECURITIES LAWS REQUIREMENTS............................................8
(a) General...........................................................................8
(b) Financial Reports.................................................................8
SECTION 10. NO RETENTION RIGHTS.....................................................9
SECTION 11. DURATION AND AMENDMENTS.................................................9
(a) Term of the Plan..................................................................9
(b) Right to Amend or Terminate the Plan..............................................9
(c) Effect of Amendment or Termination................................................9
SECTION 12. DEFINITIONS.............................................................9
SECTION 13. EXECUTION..............................................................12
</TABLE>
<PAGE>
DRUGABUSE SCIENCES, INC. 1999 STOCK PLAN A
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an
opportunity to acquire a proprietary interest in the success of the Company,
or to increase such interest, by purchasing Shares of the Company's Stock.
The Plan provides both for the direct award or sale of Shares and for the
grant of Options to purchase Shares. Options granted under the Plan may
include Nonstatutory Options as well as ISOs intended to qualify under
Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of two
or more members of the Board of Directors who have been appointed by the
Board of Directors. Each Committee shall have such authority and be
responsible for such functions as the Board of Directors has assigned to it.
If no Committee has been appointed, the entire Board of Directors shall
administer the Plan. Any reference to the Board of Directors in the Plan
shall be construed as a reference to the Committee (if any) to whom the Board
of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion
to take any actions it deems necessary or advisable for the administration of
the Plan. All decisions, interpretations and other actions of the Board of
Directors shall be final and binding on all Purchasers, all Optionees and all
persons deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Options or the direct award or sale of
Shares. Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for
designation as an Optionee or Purchaser unless (i) the Exercise Price is at
least 110% of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price (if any) is at least 100% of the Fair Market Value of a Share
and (iii) in the case of an ISO, such ISO by its terms is not exercisable
after the expiration of five years from the date of grant. For purposes of
this Subsection (b), in determining stock ownership, the attribution rules of
Section 424(d) of the Code shall be applied.
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SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 4,000,000 Shares, subject to adjustment pursuant to
Section 8. The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during
the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated,
the Shares allocable to the unexercised portion of such Option or other right
shall again be available for the purposes of the Plan. In the event that
Shares issued under the Plan are reacquired by the Company pursuant to any
forfeiture provision, right of repurchase or right of first refusal, such
Shares shall again be available for the purposes of the Plan, except that the
aggregate number of Shares which may be issued upon the exercise of ISOs
shall in no event exceed 4,000,000 Shares (subject to adjustment pursuant to
Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may
be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Board of Directors deems appropriate for inclusion in
a Stock Purchase Agreement. The provisions of the various Stock Purchase
Agreements entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of
such right was communicated to the Purchaser by the Company. Such right shall
not be transferable and shall be exercisable only by the Purchaser to whom
such right was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under
the Plan shall not be less than 85% of the Fair Market Value of such Shares,
and a higher percentage may be required by Section 3(b). Subject to the
preceding sentence, the Purchase Price shall be determined by the Board of
Directors at its sole discretion. The Purchase Price shall be payable in a
form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
2
<PAGE>
(e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any
Shares awarded or sold under the Plan shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and
other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Purchase Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally. In the case of a Purchaser who is not an officer of the
Company, an Outside Director or a Consultant, any right to repurchase the
Purchaser's Shares at the original Purchase Price (if any) upon termination
of the Purchaser's Service shall lapse at least as rapidly as 20% per year
over the five-year period commencing on the date of the award or sale of the
Shares. Any such right may be exercised only within 90 days after the
termination of the Purchaser's Service for cash or for cancellation of
indebtedness incurred in purchasing the Shares.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase
Agreement provides otherwise, any right to repurchase a Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's
Service shall lapse and all of such Shares shall become vested if (i) the
Company is subject to a Change in Control before the Purchaser's Service
terminates and (ii) the repurchase right is not assigned to the entity that
employs the Purchaser immediately after the Change in Control or to its
parent or subsidiary.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions
of the Plan and may be subject to any other terms and conditions which are
not inconsistent with the Plan and which the Board of Directors deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the
various Stock Option Agreements entered into under the Plan need not be
identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of
the Fair Market Value of a Share on the date of grant, and a higher
percentage may be required by Section 3(b). The Exercise Price of a
Nonstatutory Option shall not be less than 85% of the Fair Market Value of a
Share on the date of grant, and a higher percentage may be required by
Section 3(b). Subject to the preceding two sentences, the Exercise Price
under any Option shall be determined by the Board of Directors at its sole
discretion. The Exercise Price shall be payable in a form described in
Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such exercise.
The Optionee shall also make such arrangements as the Board of Directors may
require
3
<PAGE>
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with the disposition of Shares
acquired by exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. In
the case of an Optionee who is not an officer of the Company, an Outside
Director or a Consultant, an Option shall become exercisable at least as
rapidly as 20% per year over the five-year period commencing on the date of
the grant. Subject to the preceding sentence, the exercisability provisions
of any Stock Option Agreement shall be determined by the Board of Directors
at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control
before the Optionee's Service terminates, (ii) such Options do not remain
outstanding, (iii) such Options are not assumed by the surviving corporation
or its parent and (iv) the surviving corporation or its parent does not
substitute options with substantially the same terms for such Options.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of
the Option. The term shall not exceed 10 years from the date of grant, and a
shorter term may be required by Section 3(b). Subject to the preceding
sentence, the Board of Directors at its sole discretion shall determine when
an Option is to expire.
(h) NONTRANSFERABILITY. No Option shall be transferable by the
Optionee other than by beneficiary designation, will or the laws of descent
and distribution. An Option may be exercised during the lifetime of the
Optionee only by the Optionee or by the Optionee's guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
(i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's
Service terminates for any reason other than the Optionee's death, then the
Optionee's Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g)
above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability, or such later
date as the Board of Directors may determine; or
(iii) The date twelve months after the termination of the
Optionee's Service by reason of Disability, or such later date as the
Board of Directors may determine.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only
to the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall
lapse
4
<PAGE>
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of
the Optionee's Options, all or part of such Options may be exercised (prior
to expiration) by the executors or administrators of the Optionee's estate or
by any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated
(or became exercisable as a result of the termination) and the underlying
Shares had vested before the Optionee's Service terminated (or vested as a
result of the termination).
(j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if
continued crediting of Service for this purpose is expressly required by the
terms of such leave or by applicable law (as determined by the Company).
(k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g)
above; or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired
such Options directly from the Optionee by beneficiary designation, bequest
or inheritance, but only to the extent that such Options had become
exercisable before the Optionee's death or became exercisable as a result of
the death. The balance of such Options shall lapse when the Optionee dies.
(l) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to
receive such Shares by filing a notice of exercise and paying the Exercise
Price pursuant to the terms of such Option.
(m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Optionee, impair the Optionee's
rights or increase the Optionee's obligations under such Option.
(n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any
Shares issued upon exercise of an Option shall be subject to such special
forfeiture conditions, rights of repurchase, rights of first refusal and
other transfer restrictions as the Board of Directors may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
5
<PAGE>
shall apply in addition to any restrictions that may apply to holders of
Shares generally. In the case of an Optionee who is not an officer of the
Company, an Outside Director or a Consultant:
(i) Any right to repurchase the Optionee's Shares at the
original Exercise Price upon termination of the Optionee's Service
shall lapse at least as rapidly as 20% per year over the five-year
period commencing on the date of the option grant;
(ii) Any such right may be exercised only for cash or for
cancellation of indebtedness incurred in purchasing the Shares; and
(iii) Any such right may be exercised only within 90 days
after the later of (A) the termination of the Optionee's Service or (B)
the date of the option exercise.
(o) ACCELERATED VESTING. Unless the applicable Stock Option
Agreement provides otherwise, any right to repurchase an Optionee's Shares at
the original Exercise Price upon termination of the Optionee's Service shall
lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control before the Optionee's Service terminates and
(ii) the repurchase right is not assigned to the entity that employs the
Optionee immediately after the Change in Control or to its parent or
subsidiary.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at
the time when such Shares are purchased, except as otherwise provided in this
Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement
so provides, all or any part of the Exercise Price may be paid by
surrendering, or attesting to the ownership of, Shares that are already owned
by the Optionee. Such Shares shall be surrendered to the Company in good form
for transfer and shall be valued at their Fair Market Value on the date when
the Option is exercised. The Optionee shall not surrender, or attest to the
ownership of, Shares in payment of the Exercise Price if such action would
cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, all or a portion of the Exercise Price
or Purchase Price (as the case may be) of Shares issued under the Plan may be
paid with a full-recourse promissory note. The Shares shall be pledged as
security for payment of the principal amount of the promissory note and
interest thereon. The interest rate payable under the terms of the promissory
note shall not be less than the minimum rate (if any) required to avoid the
imputation of additional interest
6
<PAGE>
under the Code. Subject to the foregoing, the Board of Directors (at its sole
discretion) shall specify the term, interest rate, amortization requirements
(if any) and other provisions of such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell Shares and
to deliver all or part of the sales proceeds to the Company in payment of all
or part of the Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and
any withholding taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock,
a declaration of a dividend payable in Shares, a declaration of an
extraordinary dividend payable in a form other than Shares in an amount that
has a material effect on the Fair Market Value of the Stock, a combination or
consolidation of the outstanding Stock into a lesser number of Shares, a
recapitalization, a spin-off, a reclassification or a similar occurrence, the
Board of Directors shall make appropriate adjustments in one or more of (i)
the number of Shares available for future grants under Section 4, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise
Price under each outstanding Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement, without the
Optionees' consent, may provide for:
(i) The continuation of such outstanding Options by the
Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options
by the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its
parent of options with substantially the same terms for such
outstanding Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision
or consolidation of shares of stock of any class, (ii) the payment of any
dividend or (iii) any other increase or decrease in the
7
<PAGE>
number of shares of stock of any class. Any issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or Exercise Price of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of
its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) GENERAL. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder,
state securities laws and regulations, and the regulations of any stock
exchange or other securities market on which the Company's securities may
then be traded.
(b) FINANCIAL REPORTS. The Company each year shall furnish to
Optionees, Purchasers and shareholders who have received Stock under the Plan
its balance sheet and income statement, unless such Optionees, Purchasers or
shareholders are key Employees whose duties with the Company assure them
access to equivalent information. Such balance sheet and income statement
need not be audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Company (or any Parent or Subsidiary employing
or retaining the Purchaser or Optionee) or of the Purchaser or Optionee,
which rights are hereby expressly reserved by each, to terminate his or her
Service at any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to
the approval of the Company's shareholders. In the event that the
shareholders fail to approve the Plan within 12 months after its adoption by
the Board of Directors, any grants of Options or sales or awards of Shares
that have already occurred shall be rescinded, and no additional grants,
sales or awards shall be made thereafter under the Plan. The Plan shall
terminate automatically 10 years after its adoption by the Board of Directors
and may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason;
provided, however, that any amendment of the Plan which increases the number
of Shares available for issuance under the Plan (except as provided in
Section 8), or which materially changes the class of persons who are
8
<PAGE>
eligible for the grant of ISOs, shall be subject to the approval of the
Company's shareholders. Shareholder approval shall not be required for any
other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if persons who were not shareholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (A) the continuing or surviving entity and (B)
any direct or indirect parent corporation of such continuing or
surviving entity; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(e) "COMPANY" shall mean DrugAbuse Sciences, Inc., a California
corporation.
(f) "CONSULTANT" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.
(g) "DISABILITY" shall mean that the Optionee is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment.
(h) "EMPLOYEE" shall mean any individual who is a common-law
employee of the Company, a Parent or a Subsidiary.
9
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(i) "EXERCISE PRICE" shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the Board of
Directors in the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination
shall be conclusive and binding on all persons.
(k) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(l) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(m) "OPTION" shall mean an ISO or Nonstatutory Option granted under
the Plan and entitling the holder to purchase Shares.
(n) "OPTIONEE" shall mean an individual who holds an Option.
(o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.
(p) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent
on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
(q) "PLAN" shall mean this DrugAbuse Sciences, Inc. 1999 Stock Plan
A.
(r) "PURCHASE PRICE" shall mean the consideration for which one
Share may be acquired under the Plan (other than upon exercise of an Option),
as specified by the Board of Directors.
(s) "PURCHASER" shall mean an individual to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).
(t) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(u) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(v) "STOCK" shall mean the Common Stock of the Company.
(w) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
10
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(x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such
Shares.
(y) "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same.
DRUGABUSE SCIENCES, INC.
By:
-----------------------------
Title:
--------------------------
11
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Exhibit 10.4
DRUGABUSE SCIENCES, INC.
1999 STOCK PLAN B
ADOPTED ON DECEMBER 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE NO.
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<S> <C> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE................................................1
SECTION 2. ADMINISTRATION...........................................................1
(a) Committees of the Board of Directors........................................1
(b) Authority of the Board of Directors.........................................1
SECTION 3. ELIGIBILITY..............................................................1
(a) General Rule................................................................1
(b) Ten-Percent Shareholders....................................................1
SECTION 4. STOCK SUBJECT TO PLAN....................................................2
(a) Basic Limitation............................................................2
(b) Additional Shares...........................................................2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES..................................2
(a) Stock Purchase Agreement....................................................2
(b) Duration of Offers and Nontransferability of Rights.........................2
(c) Purchase Price..............................................................2
(d) Withholding Taxes...........................................................3
(e) Restrictions on Transfer of Shares..........................................3
(f) Accelerated Vesting.........................................................3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS..........................................3
(a) Stock Option Agreement......................................................3
(b) Number of Shares............................................................3
(c) Exercise Price..............................................................3
(d) Withholding Taxes...........................................................3
(e) Exercisability..............................................................4
(f) Accelerated Exercisability..................................................4
(g) Basic Term..................................................................4
(h) Nontransferability..........................................................4
(i) No Rights as a Shareholder..................................................4
(j) Modification, Extension and Assumption of Options...........................4
(k) Restrictions on Transfer of Shares..........................................5
(l) Accelerated Vesting.........................................................5
SECTION 7. PAYMENT FOR SHARES.......................................................5
(a) General Rule................................................................5
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(b) Surrender of Stock..........................................................5
(c) Services Rendered...........................................................5
(d) Promissory Note.............................................................5
(e) Exercise/Sale...............................................................6
(f) Exercise/Pledge.............................................................6
SECTION 8. ADJUSTMENT OF SHARES.....................................................6
(a) General.....................................................................6
(b) Mergers and Consolidations..................................................6
(c) Reservation of Rights.......................................................7
SECTION 9. SECURITIES LAWS REQUIREMENTS.............................................7
SECTION 10. NO RETENTION RIGHTS.....................................................7
SECTION 11. DURATION AND AMENDMENTS.................................................7
(a) Term of the Plan............................................................7
(b) Right to Amend or Terminate the Plan........................................7
(c) Effect of Amendment or Termination..........................................8
SECTION 12. DEFINITIONS.............................................................8
SECTION 13. EXECUTION..............................................................10
</TABLE>
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DRUGABUSE SCIENCES, INC. 1999 STOCK PLAN B
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an
opportunity to acquire a proprietary interest in the success of the Company,
or to increase such interest, by purchasing Shares of the Company's Stock.
The Plan provides both for the direct award or sale of Shares and for the
grant of Options to purchase Shares. Options granted under the Plan may
include Nonstatutory Options as well as ISOs intended to qualify under
Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of one
or more members of the Board of Directors who have been appointed by the
Board of Directors. Each Committee shall have such authority and be
responsible for such functions as the Board of Directors has assigned to it.
If no Committee has been appointed, the entire Board of Directors shall
administer the Plan. Any reference to the Board of Directors in the Plan
shall be construed as a reference to the Committee (if any) to whom the Board
of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion
to take any actions it deems necessary or advisable for the administration of
the Plan. All decisions, interpretations and other actions of the Board of
Directors shall be final and binding on all Purchasers, all Optionees and all
persons deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Options or the direct award or sale of
Shares. Only Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries shall not be eligible for the
grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair
Market Value of a Share on the date of grant and (ii) such ISO by its terms
is not exercisable after the expiration of five years from the date of grant.
For purposes of this Subsection (b), in determining stock ownership, the
attribution rules of Section 424(d) of the Code shall be applied.
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SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be
authorized but unissued Shares or treasury Shares. The aggregate number of
Shares that may be issued under the Plan (upon exercise of Options or other
rights to acquire Shares) shall not exceed 8,000,000 Shares, subject to
adjustment pursuant to Section 8. The number of Shares that are subject to
Options or other rights outstanding at any time under the Plan shall not
exceed the number of Shares that then remain available for issuance under the
Plan. The Company, during the term of the Plan, shall at all times reserve
and keep available sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or
other right for any reason expires or is canceled or otherwise terminated,
the Shares allocable to the unexercised portion of such Option or other right
shall again be available for the purposes of the Plan. In the event that
Shares issued under the Plan are reacquired by the Company pursuant to any
forfeiture provision, right of repurchase or right of first refusal, such
Shares shall again be available for the purposes of the Plan, except that the
aggregate number of Shares which may be issued upon the exercise of ISOs
shall in no event exceed 8,000,000 Shares (subject to adjustment pursuant to
Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may
be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Board of Directors deems appropriate for inclusion in
a Stock Purchase Agreement. The provisions of the various Stock Purchase
Agreements entered into under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of
such right was communicated to the Purchaser by the Company. Such right shall
not be transferable and shall be exercisable only by the Purchaser to whom
such right was granted.
(c) PURCHASE PRICE. The Purchase Price of Shares to be offered under
the Plan, if newly issued, shall not be less than the par value of such
Shares. Subject to the preceding sentence, the Purchase Price shall be
determined by the Board of Directors at its sole discretion. The Purchase
Price shall be payable in a form described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
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<PAGE>
(e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold
under the Plan shall be subject to such special forfeiture conditions, rights
of repurchase, rights of first refusal and other transfer restrictions as the
Board of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase
Agreement provides otherwise, any right to repurchase a Purchaser's Shares at
the original Purchase Price (if any) upon termination of the Purchaser's
Service shall lapse and all of such Shares shall become vested if (i) the
Company is subject to a Change in Control before the Purchaser's Service
terminates and (ii) the repurchase right is not assigned to the entity that
employs the Purchaser immediately after the Change in Control or to its
parent or subsidiary. A Stock Purchase Agreement may also provide for
accelerated vesting in the event of the Optionee's death or disability or
other events.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions
of the Plan and may be subject to any other terms and conditions which are
not inconsistent with the Plan and which the Board of Directors deems
appropriate for inclusion in a Stock Option Agreement. The provisions of the
various Stock Option Agreements entered into under the Plan need not be
identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of
the Fair Market Value of a Share on the date of grant, and a higher
percentage may be required by Section 3(b). The Exercise Price of a
Nonstatutory Option to purchase newly issued Shares shall not be less than
the par value of such Shares. Subject to the preceding two sentences, the
Exercise Price under an Option shall be determined by the Board of Directors
at its sole discretion. The Exercise Price shall be payable in a form
described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such exercise.
The Optionee shall also make such arrangements as the Board of Directors may
require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with the disposition
of Shares acquired by exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
exercisability provisions of a Stock Option Agreement shall be determined by
the Board of Directors at its sole discretion.
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<PAGE>
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if (i) the Company is subject to a Change in Control
before the Optionee's Service terminates, (ii) such Options do not remain
outstanding, (iii) such Options are not assumed by the surviving corporation
or its parent and (iv) the surviving corporation or its parent does not
substitute options with substantially the same terms for such Options. A
Stock Option Agreement may also provide for accelerated exercisability in the
event of the Optionee's death, disability or retirement or other events.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of
the Option. The term shall not exceed 10 years from the date of grant, and in
the case of an ISO a shorter term may be required by Section 3(b). Subject to
the preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire. A Stock Option Agreement may provide
for expiration prior to the end of its term in the event of the termination
of the Optionee's Service or death.
(h) NONTRANSFERABILITY. No Option shall be transferable by the
Optionee other than by beneficiary designation, will or the laws of descent
and distribution. An Option may be exercised during the lifetime of the
Optionee only by the Optionee or by the Optionee's guardian or legal
representative. No Option or interest therein may be transferred, assigned,
pledged or hypothecated by the Optionee during the Optionee's lifetime,
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
(i) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to
receive such Shares by filing a notice of exercise and paying the Exercise
Price pursuant to the terms of such Option.
(j) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of
an Option shall, without the consent of the Optionee, impair the Optionee's
rights or increase the Optionee's obligations under such Option.
(k) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon
exercise of an Option shall be subject to such special forfeiture conditions,
rights of repurchase, rights of first refusal and other transfer restrictions
as the Board of Directors may determine. Such restrictions shall be set forth
in the applicable Stock Option Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.
(l) ACCELERATED VESTING. Unless the applicable Stock Option
Agreement provides otherwise, any right to repurchase an Optionee's Shares at
the original Exercise Price upon termination of the Optionee's Service shall
lapse and all of such Shares shall become vested if (i) the Company is
subject to a Change in Control before the Optionee's Service terminates and
(ii) the repurchase right is not assigned to the entity that employs the
Optionee immediately after
4
<PAGE>
the Change in Control or to its parent or subsidiary. A Stock Option
Agreement may also provide for accelerated vesting in the event of the
Optionee's death or disability or other events.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at
the time when such Shares are purchased, except as otherwise provided in this
Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement
so provides, all or any part of the Exercise Price may be paid by
surrendering, or attesting to the ownership of, Shares that are already owned
by the Optionee. Such Shares shall be surrendered to the Company in good form
for transfer and shall be valued at their Fair Market Value on the date when
the Option is exercised. The Optionee shall not surrender, or attest to the
ownership of, Shares in payment of the Exercise Price if such action would
cause the Company to recognize compensation expense (or additional
compensation expense) with respect to the Option for financial reporting
purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, all or a portion of the Exercise Price
or Purchase Price (as the case may be) of Shares issued under the Plan may be
paid with a full-recourse promissory note. The Shares shall be pledged as
security for payment of the principal amount of the promissory note and
interest thereon. The interest rate payable under the terms of the promissory
note shall not be less than the minimum rate (if any) required to avoid the
imputation of additional interest under the Code. Subject to the foregoing,
the Board of Directors (at its sole discretion) shall specify the term,
interest rate, amortization requirements (if any) and other provisions of
such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to a securities broker approved by the Company to sell Shares and
to deliver all or part of the sales proceeds to the Company in payment of all
or part of the Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part
by the delivery (on a form prescribed by the Company) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the
Company, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of all or part of the Exercise Price and
any withholding taxes.
5
<PAGE>
SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock,
a declaration of a dividend payable in Shares, a declaration of an
extraordinary dividend payable in a form other than Shares in an amount that
has a material effect on the Fair Market Value of the Stock, a combination or
consolidation of the outstanding Stock into a lesser number of Shares, a
recapitalization, a spin-off, a reclassification or a similar occurrence, the
Board of Directors shall make appropriate adjustments in one or more of (i)
the number of Shares available for future grants under Section 4, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise
Price under each outstanding Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement, without the
Optionees' consent, may provide for:
(i) The continuation of such outstanding Options by the
Company (if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options
by the surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its
parent of options with substantially the same terms for such
outstanding Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision
or consolidation of shares of stock of any class, (ii) the payment of any
dividend or (iii) any other increase or decrease in the number of shares of
stock of any class. Any issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or
assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of
1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
6
<PAGE>
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service
for any period of specific duration or interfere with or otherwise restrict
in any way the rights of the Company (or any Parent or Subsidiary employing
or retaining the Purchaser or Optionee) or of the Purchaser or Optionee,
which rights are hereby expressly reserved by each, to terminate his or her
Service at any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to
the approval of the Company's shareholders. In the event that the
shareholders fail to approve the Plan within 12 months after its adoption
by the Board of Directors, any grants of Options or sales or awards of Shares
that have already occurred shall be rescinded, and no additional grants,
sales or awards shall be made thereafter under the Plan. The Plan shall
terminate automatically 10 years after its adoption by the Board of Directors
and may be terminated on any earlier date pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason;
provided, however, that any amendment of the Plan which increases the number
of Shares available for issuance under the Plan (except as provided in
Section 8), or which materially changes the class of persons who are eligible
for the grant of ISOs, shall be subject to the approval of the Company's
shareholders. Shareholder approval shall not be required for any other
amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the
Company with or into another entity or any other corporate
reorganization, if persons who were not shareholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (A) the continuing or surviving entity and (B)
any direct or indirect parent corporation of such continuing or
surviving entity; or
7
<PAGE>
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(d) "COMPANY" shall mean DrugAbuse Sciences, Inc., a California
corporation.
(e) "CONSULTANT" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor,
excluding Employees and Outside Directors.
(f) "EMPLOYEE" shall mean any individual who is a common-law
employee of the Company, a Parent or a Subsidiary.
(g) "EXERCISE PRICE" shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the Board of
Directors in the applicable Stock Option Agreement.
(h) "FAIR MARKET VALUE" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination
shall be conclusive and binding on all persons.
(i) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(j) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(k) "OPTION" shall mean an ISO or Nonstatutory Option granted under
the Plan and entitling the holder to purchase Shares.
(l) "OPTIONEE" shall mean an individual who holds an Option.
(m) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.
(n) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a
8
<PAGE>
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
(o) "PLAN" shall mean this DrugAbuse Sciences, Inc. 1999 Stock Plan
B.
(p) "PURCHASE PRICE" shall mean the consideration for which one
Share may be acquired under the Plan (other than upon exercise of an Option),
as specified by the Board of Directors.
(q) "PURCHASER" shall mean an individual to whom the Board of
Directors has offered the right to acquire Shares under the Plan (other than
upon exercise of an Option).
(r) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(s) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).
(t) "STOCK" shall mean the Common Stock of the Company.
(u) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(v) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such
Shares.
(w) "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that
attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
9
<PAGE>
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the
Company has caused its authorized officer to execute the same.
DRUGABUSE SCIENCES, INC.
By:
----------------------------
Title:
--------------------------
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Exhibit 10.8
SUBLEASE AGREEMENT
I. DEFINED TERMS:
BASE RENT MONTHLY: $4,500.00 (1,500 square feet @
$3.00 per rentable square foot)
BUILDING: 1430 O'Brien Drive, Menlo Park, CA
EFFECTIVE DATE: OCTOBER 1, 1998
EXPIRATION DATE: SEPTEMBER 30, 2000
LANDLORD: Menlo Business Park, Joint Venture, a
California general partnership
LEASABLE SQUARE FEET: 1,500 square feet
MASTER LEASE: That certain Lease dated March 21, 1988 as amended on
March 23, 1992, June 23, 1993 and April 10, 1997
between Menlo Business Park as Landlord, and ETAK,
Inc., as Tenant.
PERMITTED USES: General Office
PREMISES: That portion of Building 7 along with the
non-exclusive use of a pro-rata share of parking
spaces as shown on Exhibit "A" together with
shared use of the Common Areas
COMMENCEMENT DATE: OCTOBER 1, 1998
SUBLESSEE: Drug Abuse Sciences, Inc.
SUBLESSEE'S ADDRESS: 1430 O'Brien Drive, Suite E
Menlo Park, CA 94025
SUBLESSOR: ETAK, Inc.
SUBLESSOR'S ADDRESS: 1605 Adams Drive
Menlo Park, CA 94025
TERM: Twenty-four (24) months
EXHIBITS: EXHIBIT "A" - Premises
EXHIBIT "B" - Master Lease
EXHIBIT "C" - Landlord's Consent
<PAGE>
THIS SUBLEASE AGREEMENT ("SUBLEASE") is entered into as of the
Effective Date by and between Sublessor and Sublessee.
THE PARTIES ENTER this Sublease on the basis of the following facts,
understandings and intentions:
A. Sublessor is presently a lessee of the Premises in the Building
pursuant to the Master Lease by and between Landlord and Sublessor. A copy of
the Master Lease with all exhibits and addenda thereto, is attached hereto as
EXHIBIT "B".
B. Sublessor desires to sublease a portion of the Premises to Sublessee
and Sublessee desires to sublease a portion of the Premises ("SUBLEASE
PREMISES") from Sublessor on all of the terms, covenants and conditions
hereinafter set forth.
C. All of the terms and definitions in the Definitions Section are
incorporated herein by this reference.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants and promises
of the parties, the parties hereto agree as follows:
1. SUBLEASE. Sublessor shall sublease to Sublessee, and Sublessee shall
sublease from Sublessor the Premises for the Term upon all of the terms,
covenants and conditions herein contained. In addition, Sublessor shall lease to
Sublessee, and Sublessee shall lease from Sublessor, any and all permanent
improvements ("IMPROVEMENTS") on the Premises constructed and/or owned by
Sublessor or Landlord, upon all of the terms, covenants and conditions herein
contained. As used herein, "PREMISES" shall include the Sublease Premises and
the Improvements.
1.1 ACCESS. Sublessee and Sublessee's employees, agent,
contractors and suppliers shall have the right at any time after the
Commencement Date to enter the Premises, at their sole risk. Sublessee shall
provide Sublessor, before such entry, with certificates of the insurance
required of Sublessee pursuant to the terms of this Sublease.
2. CONDITION OF PREMISES. As of the Effective Date, Sublessee
acknowledges that Sublessee shall have conducted Sublessee's own investigation
of the Premises and the physical condition thereof, including accessibility and
location of utilities, improvements, existence of hazardous materials, including
but not limited to asbestos, asbestos containing materials, polychlorinated
biphenyls (PCB) and earthquake preparedness, which in Sublessee's judgment
affect or influence Sublessee's use of the Premises and Sublessee's willingness
to enter this Sublease. Sublessee recognizes that Sublessor would not sublease
the Premises except on an "as is" basis (except painting and cleaning of carpet)
and acknowledges that Sublessor has made no representations of any kind in
connection with improvements or physical conditions on, or bearing on, the use
of the Premises. Sublessee shall rely solely on Sublessee's own inspection and
examination of such items and not on any representations of Sublessor, express
or implied. Sublessee further recognizes and agrees that neither Sublessor nor
Landlord shall be required to perform any work of construction, alteration or
maintenance of or to the Premises; provided, however, Sublessor shall deliver
the Premises to Sublessee in broom clean condition and in the same arrangement
and condition as the Premises now is, except that Sublessor shall remove on
2
<PAGE>
or before the Commencement Date all of Sublessor's furnishings (except those
furnishings noted in Addendum One) located on the Premises and shall repair
wall damage, touch up paint and shampoo carpets.
*Sublessee hereby acknowledges that the Premises is accessible only through a
ground floor entrance and that Premises is not accessible by elevator or other
handicapped accessible means.
3. SUBLEASE SUBJECT TO MASTER LEASE.
3.1 INCLUSIONS. It is expressly understood, acknowledged and
agreed by Sublessee that all of the other terms, conditions and covenants of
this Sublease shall be those stated in the Master Lease except as excluded in
Section 3.2 herein, modified as appropriate in the circumstances so as to make
such Articles, and any Sections contained therein, applicable only to the
subleasing hereunder by Sublessor of the particular Premises covered hereby.
Sublessee shall assume, be subject to, be bound by and comply with all of said
Articles and Sections of the Master Lease with respect to the Premises and shall
satisfy all applicable terms and conditions of the Master Lease for the benefit
of both Sublessor and Landlord, it being understood and agreed that wherever in
the Master Lease the word "Tenant" appears; for the purposes of this Sublease,
the word "Sublessee" shall be substituted, and wherever the word "Landlord"
appears, for the purpose of this Sublease, the word "Sublessor" shall be
substituted; and that upon the breach of any of said terms, conditions or
covenants of the Master Lease by Sublessee or upon the failure of Sublessee to
pay Rent or comply with any of the provisions of this Sublease, Sublessor may
exercise any and all rights and remedies granted to Landlord by the Master
Lease. In the event of any conflict between this Sublease and the Master Lease,
the terms of this Sublease shall control. It is further understood and agreed
that Sublessor has no duty or obligation to Sublessee under the aforesaid
Articles and Sections of the Master Lease other than to maintain the Master
Lease in full force and effect during the Term of this Sublease; provided,
however, that Sublessor shall not be liable to Sublessee for any earlier
termination of the Master Lease which is not due to the fault of Sublessor.
Whenever the provisions of the Master Lease incorporated as provisions of this
Sublease require the written consent to Landlord, said provisions shall be
construed to require the written consent of both Landlord and Sublessor.
Sublessee hereby acknowledges that it has read and is familiar with all the
terms of the Master Lease, and agrees that this Sublease is subordinate and
subject to the Master Lease and that any termination thereof without the fault
of Sublessor shall likewise terminate this Sublease.
3.2 EXCLUSIONS. The terms and provisions of the following
Sections and portions of the Master Lease are not incorporated into this
Sublease:
(i) As to the Master Lease: Sections 3 (definitions
of Commencement Date, Monthly Rent, Premises, Tenant's Proportionate Share of
Building Expenses, Tenant's Proportionate Share of Project Expenses and Term;
5.a; 7; 11.a; 16; 17.c; 19; 26; and 32.
3.3 TIME FOR NOTICE. The time limits provided for in the
provisions of the Master Lease for the giving of notice, making of demands,
performance of any act, condition or covenant, or the exercise of any right,
remedy or option, are amended for the purposes of this Sublease by lengthening
or shortening the same in each instance by five (5) days, as appropriate, so
that notices may be given, demands made, or any act, condition or covenant
performed, or any
3
<PAGE>
right, remedy or option hereunder exercised, by Sublessor or Sublessee, as
the case may be, within the time limit relating thereto contained in the
Master Lease. If the Master Lease allows only five (5) days or less for
Sublessor to perform any act, or to undertake to perform such act, or to
correct any failure relating to the Premises or this Sublease, then Sublessee
shall nevertheless be allowed three (3) days to perform such act, undertake
such act and/or correct such failure.
4. LANDLORD'S OBLIGATIONS. It shall be the obligation of Landlord to
(i) provide all services to be provided by Landlord under the terms of the
Master Lease and (ii) to satisfy all obligations and covenants of Landlord made
in the Master Lease. Sublessee acknowledges that Sublessor shall be under no
obligation to provide any such services or satisfy any such obligations or
covenants; provided, however, Sublessor, upon written notice by Sublessee, shall
diligently attempt to enforce all obligations of Landlord under the Master
Lease.
5. RENT.
5.1 BASE RENT. Upon execution hereof, Sublessee shall deliver
the first MONTHS Base Rent to Sublessor, to be applied against Sublessee's
obligation for Base Rent for the month of OCTOBER, 1998. Sublessee shall pay to
Sublessor the Base Rent in advance on the first day of each month of the Term,
commencing on the Commencement Date. In the event the first day of the Term
shall not be the first day of a calendar month or the last day of the Term is
not the last day of the calendar month, the Base Rent shall be appropriately
prorated based on a thirty (30) day month. All installments of Base Rent shall
be delivered to Sublessor's Address, or at such other place as may be designated
in writing from time to time by Sublessor, in lawful money of the United States
and without deduction or offset for any cause whatsoever.
5.2 BUILDING EXPENSES AND PROJECT EXPENSES. Sublessor shall be
responsible for all costs and expenses of every kind and nature which may be
imposed, pursuant to the Master Lease including, but not limited to, additional
rent, operating costs, and tax costs, all as defined in the Master Lease.
4
<PAGE>
6. USE. The Premises is to be used for the Permitted Uses, and for no
other purpose or business without the prior written consent of Landlord and
Sublessor. In no event shall the Premises be used for a purpose or use
prohibited by the Master Lease.
7. REPAIRS AND MAINTENANCE. Sublessor shall be responsible for
maintaining the Buildings in good operation condition and repair and for
providing the following services and utilities: garbage collection, HVAC
maintenance and repair, and general building maintenance. Sublessee shall, at
Sublessee's sole expense, repair any area damaged by Sublessee, Sublessee's
agents, employees and visitors. Sublessee acknowledges that Sublessor is under
no duty to make repairs or improvements to the Premises, other than those
specifically listed in Addendum One, and Sublessee hereby waives any right it
may have at law or in equity to enforce the same. Notwithstanding the foregoing,
to the extent Landlord is obligated under the Master Lease to make any repairs
in or to the Premises, Sublessor, upon written notice by Sublessee, shall
diligently attempt to enforce such obligation of Landlord.
8. ASSIGNMENT. Sublessee shall not assign this Sublease or further
sublet any portion of the Premises, or mortgage, pledge, hypothecate, license,
or in any manner transfer its interest in the Premises or this Sublease.
9. DAMAGE AND DESTRUCTION.
9.1 TERMINATION OF MASTER LEASE. If the Premises is damaged or
destroyed and Landlord or Sublessor exercises any option either may have to
terminate the Master Lease, if any, this Sublease shall terminate as of the date
of the termination of the Master Lease.
9.2 CONTINUATION OF SUBLEASE. If the Master Lease is not
terminated following any damage or destruction as provided above, this Sublease
shall remain in full force and effect. Sublessee shall be obligated to repair
the Premises to substantially the condition it was in prior to such damage or
destruction to the extent that insurance proceeds exist to cover the cost of
such repairs, provided, however, (i) that Sublessor shall diligently enforce any
obligation of Landlord to rebuild the Premises in accordance with the Master
Lease; and (ii) Sublessor shall make available to Sublessee insurance proceeds
Sublessor receives as a result of such damage or destruction limited to
Sublessee's actual out of pocket expenses.
10. EMINENT DOMAIN.
10.1 TOTAL CONDEMNATION. If all of the Premises is condemned
by eminent domain, inversely condemned or sold in lieu of condemnation, for any
public or a quasi-public use or purpose ("CONDEMNED" or "CONDEMNATION"), this
Sublease shall terminate as of the date of title vesting in such proceeding, and
Base Rent shall be adjusted to the date of termination.
10.2 PARTIAL CONDEMNATION. If any portion of the Premises is
Condemned, and Sublessor exercises any option to terminate the Master Lease,
this Sublease shall automatically terminate as of the date of the termination of
the Master Lease. If this Sublease is not terminated following any such
Condemnation, this Sublease shall remain in full force and effect and Sublessor
shall promptly restore the Premises to the extent of any Condemnation proceeds
recovered by Sublessor and, in addition, Sublessor shall diligently enforce any
rights under the Master Lease to require Landlord to rebuild the Premises. Base
Rent shall be equitably adjusted
5
<PAGE>
to take into account interference with Sublessee's ability to conduct its
operations on the Premises as a result of the Premises being Condemned.
Sublessee hereby waives the provisions of California Code of Civil Procedure
Section 1265.130 permitting a court of law to terminate this Sublease.
10.3 SUBLESSEE'S AWARD. Subject to the provisions of the
Master Lease, Sublessee shall have the right to recover from the condemning
authority, but not from Sublessor, such compensation as may be separately
awarded to Sublessee in connection with costs and removing Sublessee's
merchandise, furniture, fixtures, leasehold improvements and equipment to a new
location.
11. INSURANCE. All insurance policies required to be carried by
Sublessee, pursuant to the Master Lease, shall contain a provision whereby
Sublessor and Landlord are each named as additional insureds under such
policies.
12. END OF TERM. At least two months prior to the expiration of the
Sublease, Sublessor and Sublessee shall determine whether Sublessee, or the
Landlord intends to require restoration, repair, or removal of any items
installed, modified, or damaged by Sublessee during the Term. If such
restoration or repair is required, Sublessee shall promptly and diligently
undertake such action and complete such work to Sublessor's reasonable
satisfaction of or before the Expiration Date. Upon the expiration of the Term
or sooner termination of this Sublease, Sublessee shall return the Premises to
Sublessee broom clean, in substantially the same condition as existed on the
Commencement Date, reasonable wear and tear excepted.
13. SECURITY. Sublessee acknowledges that Sublessor has no obligation
or responsibility to Sublessee, under this Sublease, for security for the
Premises. Sublessee shall take all necessary and appropriate measures to
safeguard the Premises.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Sublease contains all of the
covenants, conditions and agreements between the parties concerning the
Premises, and shall supersede all prior correspondence, agreements and
understandings concerning the Premises, both oral and written. No addition or
modification of any term or provision of this Sublease shall be effective
unless set forth in writing and signed by both Sublessor and Sublessee.
14.2 CAPTIONS. All captions and headings in this Sublease
are for the purposes of reference and convenience and shall not limit or expand
the provisions of this Sublease.
14.3 LANDLORD'S CONSENT. This Sublease is conditioned upon
Landlord's written approval of this Sublease on or before the Commencement
Date. If Landlord refuses to consent to this Sublease, this Sublease shall
terminate and neither party shall have any continuing obligation to the other
with respect to the Premises.
14.4 AUTHORITY. Each person executing this Sublease on
behalf of a party hereto represents and warrants that he or she is authorized
and empowered to do so and to thereby bind the party on whose behalf he or she
is authorized and empowered to do so and to thereby bind the party on whose
behalf he or she is signing.
6
<PAGE>
14.5 ATTORNEYS' FEES. In the event either party shall
bring any action or proceeding for damages or for an alleged breach of any
provision of this Sublease to recover rents, or to enforce, protect or
establish any right or remedy hereunder, the prevailing party shall be entitled
to recover reasonable attorneys' fees and court costs as part of such action or
proceeding.
14.6 BROKER. Each party hereto represents to the other
that it has not had any dealings with a broker in connection with this Sublease
other than Tarlton Properties, Inc. Each party indemnifies the other and agrees
to hold the other party harmless from and against any and all liabilities or
expenses, including attorneys' fees and costs, arising out of or in connection
with claims made by any broker for commissions or fees resulting from this
Sublease.
15. HOLDING OVER. Unless an agreement for a Sublease extension has
been reached and subject to Sublessor's and Landlord's prior approval of any
holdover, such holdover shall be on a month to month basis terminable by either
party upon thirty days (30) written notice to the other. In such event, Base
Rent shall be increased to one hundred twenty five percent (125%) of the Base
Rent payable during the last month of the subleased Term. If Sublessor or
Landlord does not approve holdover, Sublessee shall be in violation of the
Sublease if Sublessee has not vacated the Subleased Premises at the end of the
Term in the manner required by the Sublease.
16. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor the sum
of Nine Thousand dollars ($9,000.00) as a Security Deposit for the full and
faithful performance of every provision of this Sublease to be performed by
Sublessee. If Sublessee defaults with respect to any provision of this
Sublease, Sublessor may apply all or any part of the Security Deposit for the
payment of any Rent or other sum in default, the repair of such damage to the
Premises or the payment of any other amount which the Sublessor may spend or
become obligated to spend as outlined in Section 7 of the Lease.
IN WITNESS WHEREOF, the parties hereto have executed two (2) or more
copies of this Sublease, effective as of the Effective Date.
Sublessor Sublessee
ETAK, Inc. Drug Abuse Sciences, Inc.
By: /s/ Louis F. Corrado By: /s/ Stanley A. Kaplan
-------------------------------- --------------------------
Print Name: Louis F. Corrado Stanley A. Kaplan
Its: Director, HR & General Affairs Its: President & CEO
---------------------------------- ------------------
7
<PAGE>
EXHIBIT A
PREMISES
MENLO BUSINESS PARK BUILDING #7
SKETCH OF PROPERTY.
8
<PAGE>
EXHIBIT B
MENLO BUSINESS PARK
STANDARD FORM LEASE
by and between
MENLO BUSINESS PARK and PATRICIAN ASSOCIATES, INC.
("Landlord")
and
ETAK, INC.
("Tenant")
9
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LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH Page
- --------- -----
<S> <C>
1. PARTIES...............................................................3
2. PREMISES..............................................................3
3. DEFINITIONS...........................................................3
(a) Alterations.................................................3
(b) Anticipated Commencement Date...............................3
(c) Building....................................................3
(d) Building Expenses...........................................3
(e) CC&R's......................................................4
(f) City........................................................4
(g) Commencement Date...........................................4
(h) County......................................................4
(i) HVAC........................................................4
(j) Interest Rate...............................................4
(k) Landlord's Agents...........................................4
(l) Lot 7.......................................................4
(m) Monthly Rent................................................4
(n) Outside Area................................................4
(o) Premises....................................................4
(p) Project.....................................................4
(q) Common Area Expenses........................................4
(r) Real Property Taxes.........................................5
(s) Reference Rate..............................................5
(t) Rent........................................................5
(u) Security Deposit............................................5
(v) Sublease....................................................5
(w) Subrent.....................................................5
(x) Subtenant...................................................5
(y) Tenant Improvements.........................................5
(z) Tenant Improvement Amounts..................................5
(aa) Tenant's Personal Property.................................6
(bb) Tenant's Proportionate Share of Building Expenses..........6
(cc) Tenant's Proportionate Share of Common Area Expenses.......6
(dd) Term.......................................................6
(ee) Termination Date...........................................6
4. LEASE TERM............................................................6
(a) Term........................................................6
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C>
(b) Commencement Date...........................................6
(c) Commencement Date Memorandum................................6
(d) Tenant Delays...............................................6
(e) Early Entry.................................................7
(f) Termination.................................................7
(g) Options to Extend...........................................7
5. RENT..................................................................8
(a) Monthly Rent................................................8
(b) Adjustments.................................................8
(c) Additional Rent.............................................9
(d) Prorations..................................................9
6. INTEREST AND LATE PAYMENT CHARGES.....................................9
7. SECURITY DEPOSIT.....................................................10
8. HOLDING OVER.........................................................10
9. TENANT IMPROVEMENTS..................................................11
10. CONDITION OF PREMISES...............................................11
11. USE OF THE PREMISES.................................................12
(a) Tenant's Use...............................................12
(b) CC&R's.....................................................12
(c) Compliance.................................................12
12. QUIET ENJOYMENT.....................................................13
13. ALTERATIONS.........................................................13
(a) Permitted Alterations......................................13
(b) Notice.....................................................14
14. SURRENDER OF THE PREMISES...........................................15
15. REAL AND PERSONAL PROPERTY TAXES....................................15
(a) Payment by Tenant..........................................15
(b) Tax on Improvements........................................16
(c) Proration..................................................16
(d) Payment on Expiration of Term..............................16
(e) Personal Property Taxes....................................16
(f) Failure to Pay.............................................16
16. UTILITIES AND SERVICES..............................................16
17. BUILDING EXPENSES...................................................17
(a) Definition.................................................17
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<PAGE>
(b) Payment....................................................18
(c) Tenant's Repairs and Maintenance...........................18
(d) Landlord's Repairs and Maintenance.........................18
(e) Waiver and Landlord Liability for Repairs..................19
18. COMMON AREA EXPENSES................................................19
(a) Common Areas...............................................19
(b) Use of Common Areas........................................19
(c) Specific Provisions re: Vehicle Parking....................20
(d) Maintenance of Common Areas................................20
(e) Tenant's Share and Payment.................................21
19. PARKING.............................................................21
20. [THIS PARAGRAPH INTENTIONALLY LEFT BLANK]...........................21
21. [THIS PARAGRAPH INTENTIONALLY LEFT BLANK]...........................21
22. LANDLORD'S RIGHT TO ENTER THE PREMISES..............................21
23. SIGNS...............................................................22
24. INSURANCE...........................................................22
(a) Indemnification............................................22
(b) Tenant's Insurance.........................................23
(c) Land Insurance.............................................23
(d) Deductibles................................................24
(e) Certificates...............................................24
(f) Increased Coverage.........................................24
(g) Co-Insurer.................................................24
(h) Insurance Requirements.....................................24
(i) Landlord's Disclaimer......................................25
(j) Failure to Pay.............................................25
25. WAIVED OF SUBROGATION...............................................25
26. DAMAGE OR DESTRUCTION...............................................25
(a) Landlord's Obligation to Rebuild...........................25
(b) Landlord's Right to Terminate..............................25
(c) Limited Obligation to Repair...............................26
(d) Abatement of Rent..........................................26
(e) Uninsured Casualty.........................................27
27. CONDEMNATION........................................................27
(a) Total Taking -Termination..................................27
(b) Partial Taking.............................................27
(c) No Apportionment of Award..................................28
(d) Temporary Taking...........................................28
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<PAGE>
(e) Sale Under Threat of Condemnation..........................28
28. ASSIGNMENT AND SUBLETTING...........................................28
(a) Landlord's Consent.........................................28
(b) Sublease Form..............................................29
(c) No Waiver..................................................29
(d) Information to be Furnished................................29
(e) Landlord's Alternatives....................................29
(f) Proration..................................................30
(g) Executed Original..........................................30
(h) Transfer to Purchaser......................................30
(i) Tenant Affiliates..........................................30
29. DEFAULT.............................................................31
(a) Tenant's Default...........................................31
(b) Remedies...................................................32
(c) Landlord's Default.........................................33
30. SUBORDINATION.......................................................34
31. NOTICES.............................................................34
32. ATTORNEYS'FEES......................................................35
33. ESTOPPEL CERTIFICATE................................................35
34. TRANSFER OF THE PREMISES BY LANDLORD................................36
35. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS......................36
36. TENANT'S REMEDY.....................................................36
37. MORTGAGE PROTECTION.................................................36
38. BROKERS.............................................................36
39. ACCEPTANCE..........................................................37
40. RECORDING...........................................................37
41. [THIS PARAGRAPH INTENTIONALLY LEFT BLANK]...........................37
42. MODIFICATIONS FOR LENDER............................................37
43. SEWER FEES..........................................................37
44. GENERAL.............................................................37
(a) Captions...................................................37
(b) Executed Copy..............................................37
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(c) Time.......................................................37
(d) Separability...............................................38
(e) Choice of Law..............................................38
(f) Gender; Singular, Plural...................................38
(g) Binding Effect.............................................38
(h) Waiver.....................................................38
(i) Entire Agreement...........................................38
(j) Authority..................................................38
(k) Contingency................................................39
(l) Release....................................................39
(m) Exhibits...................................................39
(n) Lease Summary..............................................39
</TABLE>
v
<PAGE>
LEASE SUMMARY
Lease Date: March 21, 1988
Landlord: Menlo Business Park and Patrician Associates, Inc.
For Menlo 12121 Wilshire Blvd.
Business Park: Suite 512
Los Angeles, California 90025
Attn: John O. Lewis
With a copy to: The Lewis & Tarlton Company
P.O. Box 1212
Los Altos, California 94023
Attn: Lorrin C. Tarlton
For Patrician Bankers Life Building
Associates, Inc.: Fifth Floor
711 High Street
Des Moines, Iowa 50307
Address of Tenant:
Prior to 1455 Adams Drive
Commencement Date: Menlo Park, California
After Commencement 1430 O'Brien Drive, Suite A
Date: Menlo Park, California
Contact: Matt Pitchon Telephone: (415) 328-3825
Premises: Approximately 25,775 sq. ft. of Building No. 7
(consisting of 18,222 sq. ft. on the ground floor
and 7,553 sq. ft. on the mezzanine level)
Building Address: 1430 O'Brien Drive, Suite A
Menlo Park, California
Square Footage of Building No. 7: 63,390 sq. ft.
Square Footage of all leasable Lots within the Project: 2,060,693
Tenant's Percentage Share of Common
Area Expenses: 25.775 = 40.66%
------
63,390
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Tenant's Percentage Share
of Project Expenses: 153,594 x 40.66% = 3.03%
----------------
2,060,693
Anticipated Commencement Date: May 15, 1988
Term: Thirty-Six (36) months, with one (1) 2-year option
to extend
Monthly Rent: $16,622.64/month, triple net, with annual CPI
adjustments
Security Deposit: $30,000.00
Signage: One monument sign in common with other tenants of
Building No. 7, per Menlo Park Signage Ordinance; one
(1) identification sign to be painted, at Tenant's
sole expense, on the glass frontage of the Premises.
2
<PAGE>
LEASE
1. PARTIES. THIS LEASE (the "Lease"), dated ____________________
____________________, 1988, is entered into by and between MENLO BUSINESS PARK,
a California general partnership, whose address is 12121 Wilshire Boulevard,
Suite 512, Los Angeles, California 90025, and PATRICIAN ASSOCIATES, INC., a
California corporation, whose address is Fifth Floor, Bankers Life Building, 711
High Street, Des Moines, Iowa 50307 ("Landlord") and ETAK, INC., a California
corporation, whose address is 1455 Adams Drive, Menlo Park, California
("Tenant").
2. PREMISES. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord those certain premises (the "Premises") consisting of
25,775 square feet of combined ground floor and mezzanine space in that certain
building ("Building") commonly known as 1430 O'Brien Drive containing a total
area of approximately 63,390 square feet, all as shown on EXHIBIT "A-1" attached
hereto, together with the right to use in common with the other tenants of the
Building the driveways and walkways for access thereto. Tenant shall have the
right to use the parking areas described in Paragraph 19 and shown on EXHIBIT
"A-1" hereto, and the Common Areas located within the Outside Areas of the
Project, as such terms are hereinafter defined, subject to the terms of this
Lease. Upon the Commencement Date (as hereinafter defined) or as soon thereafter
as is practicable, Landlord's engineer or architect shall enter the Premises for
the purpose of re-measuring the Premises. Upon completion of said
re-measurement, said engineer shall deliver to Landlord and Tenant certificates
which, for the purposes of this Lease, shall conclusively establish the area (in
square feet) of the Premises, at which time, Tenant's Proportionate Share of
Building Expenses (as hereinafter defined), Tenant's Proportionate Share of
Common Area Expenses (as hereinafter defined) and Tenant's proportionate share
of parking spaces contained in Lot 7 (as hereinafter defined) shall be adjusted
to reflect the findings of said engineer or architect.
3. DEFINITIONS. The following terms shall have the following
meanings in this Lease:
(a) "ALTERATIONS" shall mean any alterations,
decorations, additions or improvements made in, on or about the
Building or the Premises after the Commencement Date, including, but
not limited to, lighting, heating, ventilating, air conditioning and
electrical fixtures, pipes and conduits, partitioning, wall coverings,
cabinetry, carpeting and/or other floor covering, ceiling tile,
fixtures and carpentry installations.
(b) "ANTICIPATED COMMENCEMENT DATE" shall be May 15,
1988.
(c) "BUILDING" shall mean that certain building of
approximately sixty-three thousand three hundred ninety (63,390) square
feet the address of which is 1430 O'Brien Drive, Menlo Park,
California.
(d) "BUILDING EXPENSES" shall mean those expenses related
to the Building as defined by Paragraph 17 of this Lease.
3
<PAGE>
(e) "CC&R'S" shall mean those certain covenants,
conditions and restrictions recorded August 14, 1985, as Instrument No.
85082618, Records of San Mateo County, California, as the same are
amended from time to time.
(f) "CITY" shall mean the City of Menlo Park, State of
California.
(g) "COMMENCEMENT DATE" shall mean the first day of the
Lease as determined in accordance with Paragraph 4(b).
(h) "COUNTY" shall mean the County of San Mateo, State of
California.
(i) "HVAC" shall mean the heating, ventilating and air
conditioning system serving the Building.
(j) "INTEREST RATE" shall mean the "Reference Rate"
described below, but in no event greater than the maximum rate of
interest permitted by law.
(k) "LANDLORD'S AGENTS" shall mean Landlord's authorized
agents, contractors, partners, subsidiaries, directors, officers and
employees.
(l) "LOT 7" shall mean the legal lot containing 153,594
square feet of land area upon which the Building is situated.
(m) "MONTHLY RENT" shall mean the rent payable pursuant
to Paragraph 5(a), as adjusted from time to time pursuant to the terms
of this Lease.
(n) "OUTSIDE AREA" shall mean all areas and facilities
within the Project exclusive of the Premises and other portions of the
Project leased exclusively to other tenants. The Outside Area includes,
but is not limited to, striped parking areas, access and perimeter
roads, sidewalks, landscaped areas and similar areas and facilities.
Tenant's use of the Outside Areas shall be subject to the reasonable
rules and regulations established by Landlord from time to time.
(o) "PREMISES" shall mean the 25,775 square foot portion
of the Building (consisting of 18,222 square feet on the ground floor
and 7,553 square feet on the mezzanine level) for the exclusive use of
Tenant, as shown on EXHIBIT "A-1" hereto and non-exclusive access
rights to the Building and the use of 71 of the 177 parking spaces on
Lot 7.
(p) "PROJECT" shall mean that certain real Property, and
all improvements thereon, including the Building, other buildings, if
any, and related improvements, as shown on EXHIBIT "A-2" hereto.
(q) "COMMON AREA EXPENSES" shall mean those expenses
related to the Project as set forth in Paragraph 18 of this Lease.
4
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(r) "REAL PROPERTY TAXES" shall mean any form of tax,
assessment, license, fee, rent tax, levy, penalty (if a result of
Tenant's delinquency), real property or other tax (other than
Landlord's federal and state net income, gross receipts, estate,
succession, inheritance, or franchise taxes), now or hereafter imposed
by any authority having the direct or indirect power to tax or by any
city, county, state or federal government or any improvement district
or other district or division thereof, whether such tax or any portion
thereof: (i) is determined by the area of the Premises or any part
thereof or the rent and other sums payable hereunder by Tenant or by
other tenants of the Project, including, but not limited to, any gross
income or excise tax levied by any of the foregoing authorities with
respect to receipt of such rent or other sums due under this Lease;
(ii) is levied or assessed in lieu of, in substitution for, or in
addition to, existing or additional taxes with respect to the Project
or the Premises whether or not now customary or within the
contemplation of the parties; or (iii) is based upon any legal or
equitable interest of Landlord in the Project or the Premises or any
part thereof.
(s) "REFERENCE RATE" shall mean two percent (2%) above
the rate of interest as publicly announced by Wells Fargo Bank for
ninety (90) day unsecured loans to corporate borrowers with the highest
credit standing.
(t) "RENT" shall mean Monthly Rent plus the Additional
Rent defined in Paragraph 5(c).
(u) "SECURITY DEPOSIT" shall mean that amount held by
Landlord pursuant to Paragraph 7.
(v) "SUBLEASE" shall mean any transfer, sublease,
assignment, license or concession agreement, encumbrance or
hypothecation of this Lease or the Tenant's interest in the Lease or in
and to all or any portion of the Premises. If Tenant is a partnership,
a withdrawal or change of partners owning more than a fifty percent
(50%) interest in such partnership, or if Tenant is a privately held
corporation, any transfer of more than fifty percent (50%) of its
outstanding stock, shall constitute a transfer herein.
(w) "SUBRENT" shall mean consideration of any kind
received, or to be received, by Tenant from a Subtenant as a result of
its sublease.
(x) "SUBTENANT" shall mean the person or entity with whom
a Sublease agreement is proposed to be or is made.
(y) "TENANT IMPROVEMENTS" shall mean those certain
improvements to the Premises to be constructed pursuant to EXHIBIT "B".
(z) "TENANT IMPROVEMENT AMOUNTS" shall mean the
Additional Rent paid by Tenant to Landlord in order to compensate
Landlord for the cost of additional Tenant Improvements.
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(aa) "TENANT'S PERSONAL PROPERTY" shall mean Tenant's
removable trade fixtures, furniture, equipment and other personal
property in the Premises.
(bb) "TENANT'S PROPORTIONATE SHARE OF BUILDING EXPENSES"
shall mean the square footage of the Premises (25,775) divided by the
square footage of the Building (63,390) which equals 40.66%.
(cc) "TENANT'S PROPORTIONATE SHARE OF COMMON AREA
EXPENSES" shall mean the square footage of Lot 7 (153,594) times 40.66%
(62,451.3204) divided by the square footage of the leaseable Lots in
the Project (2,060,693) which equals 3.03%.
(dd) "TERM" shall mean the term of this Lease set forth in
Paragraph 4(a) as it may be extended pursuant to Paragraph 4(g) below.
(ee) "TERMINATION DATE" shall mean the date upon which
this Lease shall terminate pursuant to the terms of this Lease.
4. LEASE TERM.
(a) TERM. The Term of this Lease shall be for a
period of thirty-six (36) months from the Commencement Date.
(b) COMMENCEMENT DATE. The Commencement Date of
this Lease shall be the earliest occurring of the following dates:
(i) The date by which (A) the City has
approved the Tenant Improvements constructed pursuant to
EXHIBIT "B" in accordance with its building code, as evidenced
by its written approval of such Tenant Improvements in
accordance with the building permits issued for such Tenant
Improvements, and (B) the architect supervising the
construction of the Tenant Improvements has certified in
writing to Tenant and Landlord that Tenant Improvements
described in EXHIBIT "B" have been substantially completed in
accordance with the Plans approved by the parties; or
(ii) The date Tenant commences occupancy
of the Premises, for the purpose of commencing its business
therein in the ordinary course, with the written consent of
Landlord.
(c) COMMENCEMENT DATE MEMORANDUM. When the actual
Commencement Date is determined, the parties shall execute a
Commencement Date Memorandum setting forth such date in the form shown
in EXHIBIT "C".
(d) TENANT DELAYS. If the Commencement Date has been
delayed beyond the Anticipated Commencement Date due to "Tenant Delays"
as described in EXHIBIT "B", then Tenant shall pay to Landlord on the
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Commencement Date the sum calculated pursuant to the provisions of said
EXHIBIT "B".
(e) EARLY ENTRY. If Tenant is permitted to enter the
Premises prior to the Commencement Date for the purpose of inspection
of the work in progress, or for the fixturing of the Premises or for
any other purpose permitted in writing by Landlord, such early entry
shall be at Tenant's sole risk and subject to all the terms and
provisions set forth in Paragraph 12 of EXHIBIT "B".
(f) TERMINATION.
(i) Subject to delays due to causes beyond the
reasonable control of Landlord, Landlord shall use reasonable
speed and diligence in the construction of the Tenant
Improvements and shall use its commercially reasonable best
efforts to have the Premises ready for Tenant's occupancy on
or before the Anticipated Commencement Date; provided,
however, that nothing contained in this Lease shall be
construed to create a liability on the part of Landlord for
its failure, due to any cause other than the gross negligence
or willful misconduct of Landlord, to have the Premises ready
for occupancy on said date, as extended pursuant to the
provisions of Subparagraph 4(f)(ii) below.
(ii) Except as extended for the period of time
equal to any "Tenant Delays" as described in Subparagraph (d)
above, if the Commencement Date shall not have occurred before
six (6) months from the date hereof, either party, at its
option, and at no fault to the terminating party, may
terminate this Lease by giving thirty (30) days written notice
of its election to so terminate to the other party. If this
option is exercised by either party, this Lease shall be of no
further force or effect, and neither party shall have any
right or claim against the other except with respect to claims
of gross negligence or willful misconduct. Both parties hereby
agree to cooperate in good faith and with due diligence in
order to avoid the termination contemplated by this
Subparagraph 4(f)(ii), including the permission by Landlord to
allow Tenant to enter upon and occupy, on a reasonable rental
proration, those portions of the Premises which are complete
and which Tenant may occupy pursuant to applicable law.
(g) OPTIONS TO EXTEND. Landlord hereby grants Tenant one
(1) option (the "Option") to extend the Term for a period of two (2)
years (the "Extension Term"). The Option must be exercised, if at all,
by written notice from Tenant to Landlord delivered at least four (4)
months (or earlier if practicable) prior to the expiration of the
initial Term. All of the terms and conditions of this Lease shall
remain in effect during the Extension Term except for Monthly Rent,
which shall be as set forth below in Paragraph 5. Notwithstanding the
foregoing, Tenant shall not be permitted to exercise the Option if, on
the date of such exercise Tenant either (i) is in default under this
Lease or (ii) has elected to have the Mezzanine improved as set forth
in
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EXHIBIT "B". Notwithstanding anything contained in this Lease to the
contrary, in the event Tenant elects to have the Mezzanine
improved as set forth in EXHIBIT "B", Tenant's right to
exercise the Option shall thereupon cease and Landlord and Tenant
hereby agree that the Term of this Lease shall terminate three (3)
years from the date upon which such "Mezzanine improvements" are
completed.
5. RENT.
(a) MONTHLY RENT. Tenant shall pay to Landlord,
in lawful money of the United States, for each calendar month of the
Term, Monthly Rent in the amount of Sixteen Thousand Six Hundred
Twenty-Two and 64/100 Dollars ($16,622.64), subject to the adjustment
as provided in Paragraph 5(b) below, in advance, on the first day of
each calendar month of the Term, without abatement, deduction, claim,
offset, prior notice or demand. Tenant shall pay to Landlord Sixteen
Thousand Six Hundred Twenty-Two and 64/100 Dollars ($16,622.64), which
amount represents Monthly Rent payable for the first month of the Term
on or prior to the date of Tenant's occupancy of the Premises.
(b) ADJUSTMENTS.
(i) The Monthly Rent as set forth
hereinabove shall be increased effective on the yearly
anniversary of the Commencement Date of each year during the
Term of this Lease or the Extension Term, as the case may be,
in accordance with the percentage increase, if any, in the
Consumer Price Index - Urban Wage Earners and Clerical Works
(San Francisco-Oakland Area; Base: 1982-84=100) ("Index"), as
published by the United States Department of Labor, Bureau of
Labor Statistics. The Index for the month next preceding the
yearly anniversary of the Commencement Date of this Lease or
the Extension Term, as the case may be, shall be compared with
the Index for the like month of the previous year and the
Monthly Rent shall be increased and paid thereafter in
accordance with the percentage increase, if any, between such
Indices. In no event, however, shall the percentage increase
in any year during the Term of this Lease or the Extension
Term, as the case may be, be less than four percent (4%) or
greater than eight percent (8%) of the Monthly Rent in effect
for the immediately preceding year of the Term or the
Extension Term, as the case may be. Should said Bureau
discontinue the publication of the above Index, or publish the
same less frequently, or vary the method of calculation of
same, or alter the same in some other manner, then Landlord
shall adopt, at its sole discretion, a substitute index or
substitute procedure which reasonably reflects and monitors
comparable consumer prices.
(ii) In the event the "Costs" (as such term is
defined in Paragraph 5 of EXHIBIT "B") of designing and
constructing the Tenant Improvements exceed the Improvement
Allowance (as such term is
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defined in EXHIBIT "B") and all or any portion of such
excess is attributable to Tenant's "Changes in Plans" (as
provided in EXHIBIT "B"), the Monthly Rent shall be
increased by an amount equal to One and Five-Tenths Cent
($.015) multiplied by the dollar difference between the
Improvement Allowance and the final "Costs" of the Tenant
Improvements.
(iii) In the event Tenant elects to have the
"mezzanine space" contained in the Premises improved as
provided in EXHIBIT "B", the Monthly Rent shall be increased,
upon completion of such improvements, by an amount
equal to One and Five-Tenths Cent ($.015) multiplied by the
cost of designing and constructing said improvements. If the
cost of said improvements exceeds One Hundred Eighty-Eight
Thousand Eight Hundred Twenty-Five Dollars ($188,825.00),
Tenant shall pay to Landlord within thirty (30) days of
invoice, that portion of the actual cost that exceeds One
Hundred Eighty-Eight Thousand Eight Hundred Twenty-Five
Dollars ($188,825.00).
(c) ADDITIONAL RENT. All amounts required to be paid by
Tenant under this Lease (exclusive of Monthly Rent), including, without
limitation, Real Property Taxes payable pursuant to Paragraph 15
hereof, repair and maintenance charges payable pursuant to Paragraph 17
hereof and insurance premiums payable pursuant to Paragraph 24 hereof
shall constitute Additional Rent.
(d) PRORATIONS. If the Commencement Date is not the first
(1st) day of a month, or if the Termination Date of this Lease is not
the last day of a month, a prorated installment of Monthly Rent shall
be paid for the fractional month during which this Lease commences or
terminates.
6. INTEREST AND LATE PAYMENT CHARGES. In the event Tenant fails
to make any payment to Landlord when due, such payment shall accrue interest
from the date such payment was due, until paid, at the Interest Rate, as defined
in Paragraph 3(i) above. In addition, Tenant acknowledges that late payment by
Tenant to Landlord of Rent and other charges provided for under this Lease will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of such costs being extremely difficult or impracticable to fix. Such costs
include, but are not limited to, processing and accounting charges, and late
charges that may be imposed on Landlord by the terms of any encumbrance and
notes secured by any encumbrance covering the Premises, or late charges and
penalties due to late payment of Real Property Takes due on the Premises.
Therefore, if any installment of Rent or any other charge due from Tenant is not
received by Landlord within ten (10) days after receipt of written notice that
such payment is due (the "Grace Period"), then, commencing with the second such
occurrence, Tenant shall pay to Landlord an additional sum equa1 to six percent
(6%) of the amount overdue as a late charge for every month or portion thereof
that the Rent or other charges remain unpaid. The parties agree that this late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of the late payment by Tenant. Acceptance of any late charge
shall not constitute a waiver by Landlord of Tenants default with respect to the
overdue amount, and shall not prevent Landlord from exercising any of the other
rights and remedies available to Landlord for any
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other breach of Tenant under this Lease. Notwithstanding the foregoing, upon
the fifth (5th) occurrence during the Term of this Lease of Tenant's failure
to pay Monthly Rent or Additional Rent within ten (10) days after the date
when due, Landlord may condition its acceptance of future Rent upon a
requirement that Tenant concurrently execute an amendment to this Lease which
provides that Monthly Rent for the next twelve (12) months of the Term of
this Lease shall be made in quarterly installments, in advance, in an amount
equal to the sum of the Monthly Rent amounts payable during such three (3)
month period.
INITIALS:
-------------------- -------------------------
Landlord Tenant
7. SECURITY DEPOSIT.
(a) Landlord and Tenant hereby acknowledge that
the sum of Thirty Thousand Dollars ($30,000.00) held by Landlord as a
security deposit for the full and faithful performance of that certain
lease agreement by and between Landlord and Tenant, dated August 14,
1985, encumbering that certain building located at 1455 Adams Drive,
Menlo Park, California ("Building 15") (the "Building 15 Lease") shall
be held by Landlord as a Security Deposit for the full and faithful
performance of every provision of this Lease to be performed by Tenant.
If Tenant defaults with respect to any provision of this Lease,
Landlord may apply all or any part of the Security Deposit for the
payment of any Rent or other sum in default, the repair of such damage
to the Premises or the payment of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which Landlord mar
suffer by reason of Tenants default to the full extent permitted by
law. If any portion of the Security Deposit is so applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash
with Landlord in an amount sufficient to restore the Security Deposit
to its original amount, and Tenant's failure to do so shall be a
default under this Lease. Landlord shall not be required to keep the
Security Deposit separate from its general funds and Tenant shall not
be entitled to interest on the Security Deposit. If Tenant is not
otherwise in default, the Security Deposit or any balance thereof shall
be returned to Tenant within thirty (30) days of the Termination Date.
8. HOLDING OVER. In the event Tenant remains in
possession of all or any part of the Premises after the Termination Date, such
possession shall constitute a month-to-month tenancy only and shall not
constitute a renewal or extension for any further term. In such event, Monthly
Rent shall be increased to an amount equal to (a) one hundred fifty percent
(150%) of the Monthly Rent payable during the last month of the Term, as
extended, if such hold-over was without the written consent of Landlord, or (b)
one hundred fifteen percent (115%) of the Monthly Rent payable during the last
month of the Term, as extended, if such hold-over was with the written consent
of Landlord. In either event, Tenant shall also pay any other sums due hereunder
in the amount and at the times specified in this Lease. Such month-to-month
tenancy shall be subject to every other term, covenant and condition contained
herein.
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9. TENANT IMPROVEMENTS. The Tenant Improvements to the
Premises shall be constructed in accordance with the Plans and with the terms of
the Work Letter Agreement attached hereto as EXHIBIT "B".
10. CONDITION OF PREMISES.
(a) Within ten (10) days after the completion of
the Tenant Improvements, Tenant shall conduct a walk-through inspection
of the Premises with Landlord and complete a punch-list of items
needing correction or additional work; which punch-list shall be
approved in writing by Landlord and Tenant. Other than latent defects
and the items specified in the punch-list, by taking possession of the
Premises, Tenant shall be deemed to have accepted the Premises in a
good, clean and completed condition and repair. The punch-list shall
not include any damage to the Premises caused by Tenant's move-in;
which damage shall be repaired or corrected by Tenant, at its expense.
Tenant acknowledges that, other than as specifically set forth in the
Lease, neither Landlord nor Landlord's Agents has made any
representations or warranties as to the suitability or fitness of the
Premises for the conduct of Tenant's business or for any other purpose,
and that neither Landlord nor Landlord's Agents has agreed to undertake
any Alterations or construct any Tenant Improvements or other
improvements to the Premises except as expressly provided in this
Lease. If Tenant fails to submit a punch-list to Landlord within such
ten (10) day period, it shall be deemed that there are no items other
than latent defects needing additional work or repair. Landlord's
contractor shall complete all Landlord approved punch-list items within
thirty (30) days after the walk-through inspection or as soon as
practicable thereafter.
(b) Landlord warrants to Tenant that the
Premises, in its state existing on the date that the Lease Term
commences, but without regard to the use for which Tenant will use the
Premises, does not violate any covenants or restrictions of record, or
any applicable building code, regulation or ordinance in effect on the
Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of Landlord, after
written notice from Tenant, to rectify promptly, at Landlord's sole
cost and expense, any such violation.
(c) Landlord hereby assigns to Tenant all
rights, remedies and benefits of all warranties Landlord may have from
or against any contractor, subcontractor, supplier or manufacturer with
regard to defects in the material or workmanship of the Premises,
including, without limitation, the Building, Tenant Improvements and
Alterations. By taking possession of and accepting the Premises, Tenant
shall not be deemed to have waived any right or warranty concerning any
defect in the material or workmanship of the Premises.
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11. USE OF THE PREMISES.
(a) TENANT'S USE. Tenant shall use the Premises solely
for office, research and development, and manufacturing purposes, and
for uses related thereto. Use of the Outside Area of the Project shall
be nonexclusive, except for walkways, parking spaces and other areas
appurtenant to the Building designed for the exclusive use of the
occupants thereof.
(b) CC&R'S. Tenant agrees that this Lease is subject and
subordinate to the CC&R's. Tenant acknowledges that it has read the
CC&R's and knows the contents thereof. Throughout the Term, Tenant
shall faithfully and timely perform all acts required of tenants
generally in Menlo Business Park, and subject to Landlord's obligation
to perform under such CC&Rs with respect to the Outside Areas, and
Tenant shall otherwise comply with the CC&R's and any modification or
amendments thereof, including the payment by Tenant of any periodic or
special dues or assessments charged against the Premises. Tenant hereby
specifically agrees to comply with the provisions of the CC&R's and the
City of Menlo Park regulations prohibiting parking on the streets and
the storage of materials in the parking areas surrounding the Building.
Tenant shall hold Landlord, Landlord's Agents and Premises harmless and
indemnify Landlord and Landlord's Agents against any loss, expense,
damage, attorneys' fees and costs or liability arising out of or in
connection with the failure of Tenant to so perform or comply with the
CC&R's.
(c) COMPLIANCE.
(i) Tenant shall not use the Premises or suffer
or permit anything to be done in or about the Premises which
will in any way conflict with any law, statute, zoning
restriction, ordinance or governmental law, rule, regulation
or requirement of any duly constituted public authority having
jurisdiction over the Premises now in force or which may
hereafter be in force, or the requirements of the Board of
Fire Underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or
occupancy of the Premises. Tenant shall not commit any public
or private nuisance or any other act or thing which might or
would disturb the quiet enjoyment of any other tenant of
Landlord or any occupant of nearby property. Tenant shall
place no loads upon the floors, walls or ceilings in excess of
the maximum designed load specified by Landlord or which may
damage the Building or Outside Areas, nor place any harmful
liquids in the drainage systems, nor dump or store waste
materials, refuse or other materials or allow such to remain
outside the Building proper, except in the enclosed trash
areas constructed for such purpose.
(ii) In particular, Tenant, at its sole cost,
shall comply with all laws relating to the storage, use and
disposal of hazardous, toxic or radioactive matter, including
those materials identified in
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Sections 66680 through 66685 of Title 22 of the
California Administrative Code, Division 4, Chapter 30
("Title 22") as amended from time to time
(collectively "Toxic Materials". Landlord hereby acknowledges
that Tenant presently uses and shall continue to use small
amounts of cleaning solvents ("Cleaning Solvents") from time
to time in the ordinary course of its business and that Tenant
intends to store of said Cleaning Solvents on the Premises.
Tenant agrees that it shall, at its sole cost, comply with all
laws (present and future) that relate to the storage, use and
disposal of all such Cleaning Solvents at all times during the
term of this Lease. Tenant shall be solely responsible for and
shall defend, indemnify and hold Landlord and Landlord's
Agents harmless from and against all claims, costs and
liabilities, including attorneys' fees and costs, arising out
of or in connection with its storage, use and disposal of
Toxic Materials and said Cleaning Solvents. Tenant shall
further be solely responsible for and shall defend, indemnify
and hold Landlord, Landlord's Agents and the Premises harmless
from and against all claims, costs, and liabilities, including
attorneys' fees and costs, arising out of or in connection
with the removal, clean-up and restoration work and materials
necessary to return the Premises and any other property of
whatever nature to their condition existing prior to the
appearance of the Toxic Materials and said Cleaning Solvents
on the Premises. Tenant's obligations hereunder shall survive
the termination of this Lease.
(iii) Tenant shall, at its own cost and expense,
promptly and properly observe and comply with, including the
making by Tenant of any Alteration to the Premises, all
present and future orders, regulations, directions, rules,
laws, ordinances, and requirements of all governmental
authorities (including, without limitation, state, municipal,
county and federal governments and their departments, bureaus,
boards and officials) arising from the use or occupancy of, or
applicable to, the Premises or privileges appurtenant to or in
connection with the enjoyment of the Premises; provided,
however, that if such compliance is not due to a specific use
of the Premises made by Tenant, as opposed to use of such
facilities generally, then Landlord shall, at its cost and
expense, effect any such compliance and shall amortize the
cost of such compliance over the longest available period,
consistent with generally accepted accounting principles, with
Tenant paying for its share of such cost to the extent of the
period of such amortization falling within the Term of this
Lease.
12. QUIET ENJOYMENT. Landlord covenants that Tenant, upon
performing the terms, conditions and covenants of this Lease, shall have quiet
and peaceful possession of the Premises as against any person claiming the same
by, through or under Landlord.
13. ALTERATIONS.
(a) PERMITTED ALTERATIONS. After the
Commencement Date, Tenant shall not make or permit any Alterations in,
on or about the Premises,
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except for non-structural Alterations costing Five Thousand Dollars
($5,000.00) or less per Alteration, without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld. All alterations shall be construed pursuant to
plans and specifications approved in writing by Landlord.
Notwithstanding the foregoing Tenant shall not, without the prior
written consent of Landlord, make any:
(i) Alterations to the exterior of the Building
or the Outside Areas;
(ii) Alterations to or penetrations of the
structural portions of the Building including, without
limitation, the roof, or which will interfere with the proper
functioning of any mechanical facilities or equipment located
in the Building or Project; and
(iii) Alterations visible from outside the
Building to which Landlord may withhold consent based on
wholly aesthetic grounds.
All Alterations shall be installed at Tenant's sole expense, in
compliance with all applicable laws and the CC&R's, by a licensed
contractor. The work shall be done in a good and workmanlike manner
conforming in quality and design with the Premises existing as of the
Commencement Date, and shall not diminish the value of either the
Building or the Project. Tenant shall, if required by Landlord, obtain
and pay for, at its own expense, a completion and indemnity bond, the
form and amount of which shall be subject to the approval of Landlord.
All Alterations made by Tenant, unless otherwise agreed in writing by
Landlord upon approval thereof, shall be and become the property of
Landlord upon the installation thereof and shall not be deemed Tenant's
Personal Property; provided, however, that Landlord may, at its option,
require that Tenant, upon the termination of this Lease, at Tenant's
expense, remove any or all nonstructural Alterations installed by
Tenant and return the Building to its condition as of the Commencement
Date of this Lease, normal wear and tear excepted. Notwithstanding any
other provision of this Lease, Tenant shall be solely responsible for
the maintenance and repair of any and all Alterations made by it to the
Premises.
(b) NOTICE. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might result
in any claim of lien prior to the commencement of such work and
Landlord may post and record a Notice of Nonresponsibility or other
notice Landlord deems proper. Tenant shall not permit any mechanic's,
materialmen's or other liens to be filed against the property of which
the Premises are a part relative to work performed by or on behalf of
Tenant, nor against Tenant's leasehold interest in the Premises. If
Tenant fails to remove any lien(s) filed against the Premises or all or
any portion of the Project in connection with any work performed or any
work claimed to have been performed by or at the direction of Tenant
within thirty (30) days from the date of the lien filing(s), then
Landlord may remove such liens(s) at
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Tenant's expense and Tenant shall reimburse Landlord for all
costs incurred by Landlord in connection with the removal of the
lien(s), which amount shall be deemed Additional Rent, and shall
include, without limitation, all sums disbursed, incurred or
deposited by Landlord, including Landlord's costs, expenses
and attorneys' fees with interest thereon at the Interest Rate.
14. SURRENDER OF THE PREMISES. Upon the expiration or
earlier termination of this Lease, Tenant shall surrender the Premises to
Landlord in its condition existing as of the Commencement Date, normal wear and
tear and acts of God excepted, with all interior walls in good repair, all
carpets shampooed and cleaned, all floors cleaned and waxed, and the HVAC
equipment in working condition, all to the reasonable satisfaction of Landlord.
Tenant shall remove from the Premises all of Tenant's Alterations which Landlord
requires Tenant to remove pursuant to Paragraph 13 above and all Tenant's
Personal Property, and shall repair any damage and perform any restoration work
caused by such removal; provided, however, that if Tenant is then in default
after all applicable grace periods, Tenant shall not be entitled to remove
Tenant's Personal Property except as specified by written notice delivered by
Landlord to Tenant and except as to the rights granted to holders of secured
interest in such property perfected prior to the date of this Lease, and except
as permitted by Landlord pursuant to executed Landlord lien waivers. If Tenant
fails to remove such Alterations and Tenant's Personal Property which Tenant is
authorized and obligated to remove pursuant to the above, and such failure
continues after the termination of this Lease, Landlord may retain such property
and all rights of Tenant with respect to it shall cease, or Landlord may place
all or any portion of such property in public storage for Tenant's account.
Tenant shall pay to Landlord, upon demand pursuant to California Civil Code
Sections 1980-1991, inclusive, the costs of removal of any such Alterations and
Tenant's Personal Property and storage and transportation costs of same, and the
cost of repairing and restoring the Premises, together with interest at the
Interest Rate from the date of expenditure by Landlord. If the Premises are not
so surrendered at the termination of this Lease, Tenant hereby agrees to
indemnify Landlord and its Agents against all loss or liability resulting from
delay by Tenant in so surrendering the Premises, including, without limitation,
any claims made by any succeeding tenant, losses to Landlord due to lost
opportunities to lease to succeeding tenants, and attorneys' fees and costs.
15. REAL AND PERSONAL PROPERTY TAXES.
(a) PAYMENT BY TENANT. Tenant shall pay, as Additional
Rent, Tenant's pro rata share of all Real Property Taxes levied against
the Building or Lot 7 during the Term as they shall respectively become
due and payable. Landlord agrees to forward to Tenant copies of all
notice and tax bills pertaining to the Premises upon receipt. If Tenant
shall fail to pay Tenant's pro rata share of Real Property Taxes prior
to any penalty or delinquency, Landlord shall have the right but not
the obligation to: (i) pay the same, in which case Tenant shall
immediately repay such amount to Landlord including interest at the
Interest Rate from the date paid by Landlord until the date of payment
by Tenant; and (ii) exercise any and all remedies available to Landlord
pursuant to Paragraph 29. Tenant may contest the amount or validity of
any Real Property Taxes by appropriate proceeding, provided that Tenant
shall promptly pay such taxes unless such proceeding shall operate to
prevent or stay the collection of the tax so
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contested. Landlord shall join in any such proceeding if any law shall
so require, provided that Tenant shall indemnify Landlord against any
liability, cost or expense in connection therewith, including, without
limitation, attorney's fees and costs. Notwithstanding anything in the
foregoing to the contrary, however, Tenant shall not be responsible
for the amount of any increase in Real Property Taxes (excluding any
such increase due to the normal yearly reassessment) in excess of
120% of the Real Property Taxes for the prior assessment prior
arising as a result of a transfer by Landlord of the Premises.
(b) TAX ON IMPROVEMENTS. Tenant shall pay any increase in
Real Property Taxes attributable to any and all Alterations and Tenant
Improvements of any kind whatsoever placed in, on or about the Premises
for the benefit of, at the request of, or by Tenant.
(c) PRORATION. Tenant's liability to pay Real Property
Taxes shall be prorated on the basis of a 365-day year to account for
any fractional portion of a fiscal tax year included at the
commencement or expiration of the Term. With respect to any assessments
which may be levied against or upon the Premises, or which under the
laws then in force may be evidenced by improvements or other bonds or
may be paid in annual installments, only the amount of such annual
installment (with appropriate proration for any partial year) and
interest due thereon shall be included within the computation of the
annual Real Property Taxes levied against the Premises.
(d) PAYMENT ON EXPIRATION OF TERM. If this Lease
terminates on a date earlier than the end of a fiscal tax year,
Landlord shall deliver to Tenant a statement setting forth the amount
of Real Property Taxes to be paid by Tenant prorated to the date of
termination. Tenant shall pay to Landlord such prorated amount within
fifteen (15) days of Tenant's receipt of the statement.
(e) PERSONAL PROPERTY TAXES. Tenant shall pay prior to
delinquency all taxes assessed or levied against Tenant's Personal
Property in, on or about the Premises. When possible, Tenant shall
cause its Personal Property to be assessed and billed separately from
the real or personal property of Landlord.
(f) FAILURE TO PAY. Tenant's failure to pay any of the
charges required to be paid under this paragraph shall constitute a
material default under this Lease.
16. UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly all charges for water, gas, electricity, telephone, refuse
pickup, janitorial service, telephone service and all other utilities, materials
and services furnished directly to or used by Tenant in, on or about the
Premises during the Term, together with any taxes thereon. Landlord shall cause
the gas and electricity service to the Premises to be separately metered. The
cost of installing such meters shall be deducted from the Improvement Allowance
(as such term is defined in EXHIBIT "B"). Water service charges shall be
reasonably pro rated to Tenant. Landlord shall not be liable in damages or
otherwise for any failure or interruption of any utility
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service or other service furnished to the Premises; provided, however, that
if due to Landlord's negligent acts or willful misconduct such service is
interrupted and Tenant is unable for more than two consecutive business days
to use the Premises, then Monthly Rent shall be abated, commencing with the
date of such interruption, until such service is restored. No such failure or
interruption shall entitle Tenant to terminate this Lease or otherwise to
withhold or abate Rent or other sums due hereunder. Notwithstanding the
foregoing, however, Landlord shall provide a security guard, with an
automobile containing a cellular telephone, for the Project on a twenty-four
(24) hour per day, seven (7) day per week basis.
17. BUILDING EXPENSES.
(a) DEFINITION. Tenant shall pay from time to time during
the term of this Lease (but not more frequently than monthly), within
thirty (30) days of presentation of invoice therefor from Landlord,
Tenant's Proportionate Share of Building Expenses, which in this Lease
shall mean and refer to the "Costs of Operation and Maintenance" of the
Building. "Costs of Operation and Maintenance" as used in this Lease
shall be deemed to mean and refer to those expenses incurred by
Landlord with respect to the operation and maintenance of the Building
and Lot 7 which, in accordance with generally accepted accounting
principles consistently applied to the operation, maintenance and
security of a first class light manufacturing/research and development
building, are properly chargeable to the operation and maintenance of
the Building and Lot 7, which costs shall include without limitation,
repair and maintenance to the roof and the exterior walls of the
Building, landscape services, heating, ventilation and air conditioning
maintenance contracts, supplies, compensation and all fringe benefits,
worker's compensation insurance premiums and payroll taxes paid to, for
or with respect to all persons engaged in the operating, maintaining or
cleaning of the Building or Lot 7, costs of Building security, rental
of personal property used in such maintenance, the insurance required
to be carried by Landlord with respect to the Building as set forth in
this Lease, and all other charges directly related to the operation and
maintenance of the Building and Lot 7, or which are more economically
handled by Landlord. Regardless of the actual percentage of occupancy
of the Building, for purposes of this Paragraph 17, the Costs of
Operation and Maintenance will be calculated as though the Building
were fully occupied. Costs of Operation and Maintenance shall
specifically exclude any leasing commissions, advertising and promotion
expenditures, legal and auditing fees (other than reasonable legal and
auditing fees necessarily incurred in connection with the maintenance
and operation of the Building and Lot 7, but not with respect to the
leasing or improving of the Building or the resolution of disputes with
any tenants of the Building), depreciation of the Building, interest on
debt, expenses incurred by Landlord on behalf of or for the benefit of
other tenants, all expenses for which Landlord is compensated pursuant
to the provisions of this Lease or through proceeds from insurance or a
third party, costs of capital improvements and equipment (except for
"cost saving" capital improvements or equipment; which, for the
purposes of this Lease, shall mean capital improvements or equipment
(amortized over the useful life of said capital improvement or
equipment) where the present value of the projected
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savings in the "Cost of Operation and Maintenance" of the Building
exceeds the present value of the projected costs of said capital
improvement or equipment) and all costs incurred by Landlord due to the
violation by Landlord of any law regulation or ordinance, the CC&Rs,
any mortgage, deed of trust or ground lease covering the Building or
any provision of this Lease or any other lease relating to the
Building. Landlord hereby agrees that all Building Expenses shall be
fully audited and shall be available for inspection by Tenant
throughout the Term on an "open book" basis.
(b) PAYMENT. Tenant's payment of Tenant's Proportionate
Share of Building Expenses shall constitute Additional Rent payable by
Tenant under this Lease. In addition thereto, Tenant shall pay all of
any costs incurred by Landlord as a direct result of Tenant's
disproportionate use of the Building or Lot 7.
(c) TENANT'S REPAIRS AND MAINTENANCE. In addition to the
payments to be made by Tenant pursuant to the provisions set forth
above, Tenant shall, at Tenant's sole costs and expense, keep and
maintain the Premises, including without limitation, all floors,
subfloors, floor coverings, windows, ceilings, interior walls,
fixtures, doors, electrical and lighting equipment, plumbing, heating,
air conditioning, ventilating systems and immediate loading areas
within the Premises and Tenant's signs, in all respects in good repair
and in clean and safe condition, reasonable wear and tear excepted, and
if impractical to repair then the foregoing items shall be replaced.
Tenant shall, at Tenant's sole cost and expense, immediately upon
breakage, replace all glass in the Premises that may be broken during
the Term with glass at least equal to the specification and quality of
the glass so replaced. If Tenant fails to fulfill its obligations
hereunder, Landlord shall have the option, after five (5) days written
notice to Tenant, to assume any or all of the foregoing maintenance and
repair responsibilities; provided, however, that if Tenant notifies
Landlord within such five (5) day period of its intention to assume its
maintenance and repair responsibilities, Landlord shall allow Tenant a
maximum of thirty (30) days within which to make such repairs. If at
the end of such thirty (30) day period, Tenant has failed to complete
said repairs, Landlord shall have the right to enter the Premises,
effectuate the repairs and require Tenant to reimburse Landlord, as
Additional Rent, for the cost of all such services, together with an
accounting and management services fee of five percent (5%) of the cost
of such services.
(d) LANDLORD'S REPAIRS AND MAINTENANCE. Subject to the
provisions of Paragraphs 17(c), 26 and 27, Landlord hereby agrees to
maintain and repair, when necessary, at its sole cost, the structural
components of the Building (including the utility systems located
within such structural components); which structural components include
only the foundations, bearing and exterior walls (excluding glass and
doors) and the roof (excluding skylights, if any) of the Building.
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(e) WAIVER AND LANDLORD LIABILITY FOR REPAIRS. Tenant
waives the provisions of Sections 1941 and 1942 of the California Civil
Code and any similar or successor law regarding Tenant's right to make
repairs and deduct the expenses of such repairs from the Rent due under
this Lease. Further, Landlord shall not be liable for any failure to
make any repair or to perform any maintenance unless such failure shall
persist for an unreasonable time after written notice of the need for
such repair or maintenance is given to Landlord by Tenant. Except as
provided in Paragraphs 16 and 26(d), there shall be no abatement of
rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any
repairs, alterations or improvements in or to any portion of the
Premises or in or to fixtures, appurtenances and equipment therein.
18. COMMON AREA EXPENSES.
(a) COMMON AREAS. As used in this Lease, "Common
Areas. shall mean the Recreational Area depicted on EXHIBIT "A-2", the
Streetscape, which is a ten-foot strip of planted area located
throughout the Project, and all other areas within the Project which
are available for the common use of tenants of the Project and which
are not leased or held for the exclusive use of Tenant or other tenants
including, but not limited to, sidewalks, access roads, landscaping and
planted areas. Landlord may from to time change the size, location,
nature and use of any of the Common Areas, including converting Common
Areas into leasable areas, constructing additional parking facilities
(including parking structures) in the Common Areas, and increasing or
decreasing Common Area land and/or facilities, and Tenant's
Proportionate Share of Common Area Expenses will be appropriately
amended, to the extent that the square footage of the land in the
Project available for lease is changed from the total set forth in
EXHIBIT "A-2" of this Lease, which total is 2,060,693 square feet,
based upon which total square footage Tenant's Proportionate Share of
Common Area Expenses is calculated (153,594 square feet [which is the
land area for Building No. 7] multiplied by 40.66% [which is Tenant's
Proportionate Share of Building Expenses] divided by 2,060,693 equals
3.03%). Tenant acknowledges that the exercise by Landlord of its right
to change the size, location, nature and use of the Common Areas may
result in occasional inconvenience to Tenant from time to time. Such
activities and changes shall be expressly permitted so long as they do
not materially adversely affect Tenant's access to or use of the
Premises.
(b) USE OF COMMON AREAS. Tenant shall have the
nonexclusive right (in common with other tenants and all others to whom
Landlord has granted or may grant such rights) to use the Common Areas
for the purposes intended, subject to such reasonable rules and
regulations as Landlord may establish from time to time. Tenant shall
abide by such rules and regulations and shall use its best effort to
cause others who use the Common Areas with Tenant's express or implied
permission to abide by Landlord's rules and regulations. At any time,
Landlord may close any Common Areas to perform any acts in and to the
Common Areas as, in Landlord's judgment, may be desirable to improve
the
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Project; provided that such action does not materially adversely
interfere with Tenant's access to or use of the Premises. Tenant shall
not, at any time, interfere with the rights of Landlord, other tenants,
or any other person entitled to use the Common Areas.
(c) SPECIFIC PROVISIONS RE: VEHICLE PARKING. Tenant shall
not cause large trucks or other large vehicles to be parked within the
Project or on the adjacent public streets. Temporary parking of large
delivery vehicles in the Project may be permitted by the rules and
regulations established by Landlord. Vehicles shall be parked only in
striped parking spaces on Lot 7 and not in driveways, loading areas or
other locations not specifically designated for parking. If Tenant
parks more vehicles in its parking areas than the number set forth
pursuant to Paragraph 19 below, such conduct shall be a material breach
of the Lease. In addition to Landlord's other remedies under the Lease,
Tenant shall pay a reasonable daily charge for each such additional
vehicle.
(d) MAINTENANCE OF COMMON AREAS. Notwithstanding anything
in this Lease to the contrary, Landlord shall maintain the Common Areas
in good order, condition and repair and shall operate the Project, in
Landlord's sole discretion, as a first class industrial/commercial real
property development. Tenant shall pay Tenant's Proportionate Share of
Common Area Expenses, which shall include all costs incurred by
Landlord for the operation and maintenance of the Common Areas. Common
Area Expenses include, but are not limited to, costs and expenses for
the following: gardening and landscaping; utilities, water and sewage
charges; maintenance of signs (other than Tenant's signs or signs of
any other tenant of the Project); premiums for liability, property
damage, fire and other types of casualty insurance on the Common Areas,
and Worker's Compensation Insurance; compensation and all fringe
benefits and payroll taxes paid to, for or with respect to all persons
engaged in the operating, maintaining, or cleaning of the Common Area;
all Real Property Taxes and assessments levied on or attributable to
the Common Areas and all Common Area improvements; all personal
property taxes levied on or attributable to personal property used in
connection with the Common Areas; straight line depreciation on
personal property owned by Landlord which is consumed in the operation
or maintenance of the Common Areas; rental or lease payments paid by
Landlord for rented or leased personal property used in the operation
or maintenance of the Common Areas; fees for required licenses and
permits; repairing, resurfacing, repaving, maintaining, painting,
lighting, cleaning, refuse removal, security and similar items;
reserves for roof replacement and exterior painting and other
appropriate reserves; a fee for Landlord's supervision of the Common
Areas in the amount of five percent (5%) of the total of all other
Common Area costs for the calendar year; and other charges directly
related to the operation and maintenance of the Common Area which are
more economically handled by Landlord. Landlord may cause any or all of
such services to be provided by third parties. Common Area costs shall
not include depreciation of real property which forms part of the
Common Areas and all items which are specifically excluded from the
Building Expenses as set forth in Paragraph 17(a) above. Regardless of
actual occupancy
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of the Project, for the purpose of this Paragraph, the
costs for the operation and maintenance of the Common Areas will be
computed as though the Project were 100% leased and occupied (but in no
event shall such calculation result in a profit to Landlord or any
third party).
(e) TENANT'S SHARE AND PAYMENT. Tenant shall pay Tenant's
Proportionate Share of Common Area Expenses, in advance, in monthly
installments on the first day of each month during the Lease Term
(prorated for any fractional month). Landlord may adjust such estimates
at any time and from time to time based upon Landlord's experience and
reasonable anticipation of costs. Such adjustments shall be effective
as of the next rent payment date after notice to Tenant. Within thirty
(30) days after the end of each calendar year of the Lease Term,
Landlord shall deliver to Tenant a statement prepared in accordance
with generally accepted accounting principles setting forth, in
reasonable detail, the actual Common Area Expenses paid or incurred by
Landlord during the preceding calendar year and Tenant's pro rata
share. Upon receipt of such statement, there shall be an adjustment
between Landlord and Tenant with payment to or credit given by Landlord
(as the case may be) so that Landlord shall receive the entire amount
of Tenant's share of such costs and expenses for such period. Any
changes in the Common Area costs and/or the aggregate area leased or
held for lease for the exclusive use of all tenants of the Project
during the Lease Term shall be effective on the first day of the month
after such change occurs. Landlord hereby grants Tenant the right to
inspect all Common Area Expenses on an "open book" basis throughout the
Term.
19. PARKING. Tenant understands and acknowledges that a portion of
Lot 7 contains parking spaces which shall be reserved for the benefit of other
tenants of the Building, if any. Landlord hereby grants to Tenant during the
term of this Lease, the right, to use seventy-one (71) parking spaces, which
amount represents Tenant's pro rata share of one hundred seventy-seven (177)
available parking spaces located on Lot 7, which are highlighted on EXHIBIT
"A-1" to this Lease. Landlord hereby agrees that five (5) of the seventy-one
(71) spaces granted to Tenant hereunder shall be located in front of the
Building at the entrance of the Premises and shall be designated "reserved for
Etak, Inc." Landlord retains the right to improve, alter, modify and relocate
such parking areas and to regulate access to and the use of the parking areas;
provided, however, that Landlord shall not reduce the overall number of parking
spaces located on Lot 7.
20. [THIS PARAGRAPH INTENTIONALLY LEFT BLANK]
21. [THIS PARAGRAPH INTENTIONALLY LEFT BLANK]
22. LANDLORD'S RIGHT TO ENTER THE PREMISES. Tenant shall permit
Landlord and Landlord's Agents to enter the Premises at all reasonable times
with reasonable notice, except for emergencies in which case no notice shall be
required, to inspect the same, to post Notices of Nonresponsibility and similar
notices and signs indicating the availability of Premises for sale, to show the
Premises to interested parties such as prospective lenders and purchasers, to
make necessary Alterations or repairs, to discharge Tenant's obligations
hereunder when Tenant has
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failed to do so within a reasonable time after written notice from Landlord,
and at any reasonable time after one hundred and eighty (180) days prior to
the expiration of the Term, to place upon the Premises a reasonable sign,
after consultation with Tenant, indicating the availability of the Premises
for sale and/or lease and to show the Premises to prospective tenants and
purchasers. Any sign respecting the sale or lease of the Premises shall, if
requested by Tenant and if accurate, contain appropriate language to inform
the public that Tenant is not going out of business. The above rights are
subject to reasonable security regulations of Tenant, and to the requirement
that Landlord shall at all times act in a manner to cause the least possible
interference with Tenant's business.
23. SIGNS. Tenant shall have the right to use Tenant's pro rata
share of one of two monument signs already constructed at the center driveway
entrance to the Building. In addition Tenant shall be entitled to design and
install, subject to Landlord's approval (which approval shall not be
unreasonably withheld), a tenant identification sign on the glass frontage of
the Premises. Tenant shall have no right to maintain Tenant identification signs
in any other location in, on or about the Building and shall not display or
erect any signs, displays or other advertising materials that are visible from
the exterior of the Building. The size, design, color and other physical aspects
of permitted sign(s) shall be subject to the Landlord's written approval prior
to installation, which shall not be unreasonably withheld. The cost of the
sign(s), including the installation, maintenance and removal thereof shall be at
Tenant's sole cost and expense; provided, however, that if Landlord decides to
install signs with concrete monument bases, Landlord shall pay the cost of such
bases and Tenant shall be responsible only for the payment of that portion of
the cost of such signs expended to identify Tenant. If Tenant fails to maintain
its sign(s), or if Tenant fails to remove same upon termination of this Lease,
Landlord may do so at Tenant's expense. Tenant shall reimburse Landlord for all
costs incurred by Landlord to effect such removal, which amounts shall be deemed
Additional Rent.
24. INSURANCE.
(a) INDEMNIFICATION. Tenant hereby agrees to defend,
indemnify and hold harmless Landlord and Landlord's Agents from and
against any all damage, loss, liability and expense including, without
limitation, reasonable attorneys' fees and legal costs incurred
directly or by reason of any claim, suit or judgment brought by or on
behalf of any person or persons for damage, loss or expense due to, but
not limited to, bodily injury or property damage sustained by such
person or persons which arise out of, are occasioned by or are in any
way attributable to the use or occupancy of the Premises by, or the
acts or omissions of, the Tenant, its agents, employees or any
contractors brought onto the Premises by Tenant. Tenant and Landlord
agree that the obligations of Tenant and Landlord herein shall survive
the termination of this Lease. Notwithstanding the foregoing and the
provisions of Paragraph 24(h) below, Tenant shall not be required to
defend, save harmless and indemnify Landlord or Landlord's Agents from
any liability for injury, loss, accident or damage to any person or
property resulting from the negligent acts or omissions or the willful
misconduct of Landlord or those of its agents, contractors, servants,
employees or licensees, in connection with Landlord's activities on the
Premises, and Landlord hereby indemnifies and agrees to hold Tenant
harmless from any and all damages
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arising directly out of such negligence or such willful misconduct;
provided that such exclusion from Tenant's indemnity and such agreement
by Landlord to so indemnify and hold Tenant harmless are not intended
to and shall not relieve any insurance carrier of its obligations under
policies required to be carried by Tenant pursuant to the provisions of
this Lease to the extent that such policies cover the results of such
negligence or such willful misconduct.
(b) TENANT'S INSURANCE. Tenant agrees to maintain in full
force and effect at all times during the Term, at its own expense, for
the protection of Tenant and Landlord, as their interests may appear,
policies of insurance issued by a reasonable carrier or carriers
acceptable to Landlord which afford the following coverages:
(i) Comprehensive general liability insurance
including blanket contractual liability, broad form property
damage, personal injury, completed operations, products
liability, and fire damage: not less than Two Million Dollars
($2,000,000.00) with a combined single limit for both bodily
injury and property damage and naming (if such is the custom
in the industry in general for such properties) Landlord as an
additional insured.
(ii) "All Risk" property insurance (including,
without limitation, Replacement Cost, vandalism, malicious
mischief, inflation, sprinkler leakage, and boiler and
machinery (e.g., HVAC and other mechanical) coverage
endorsements) in the Premises including, without limitation,
the Tenant Improvements, Alterations and Tenant's Personal
Property located on or in the Premises, which shall be in a
form providing coverage comparable to the coverage provided in
the standard ISO All-Risk form and in an amount equal to the
full amount of the replacement cost, as the same may from time
to time increase as a result of inflation. The insurance
policy or policies shall name Landlord as an additional named
insured and shall include a lender's loss payable endorsement
in favor of Landlord's lender (Form 438 BFU Endorsement).
(iii) Rent abatement insurance (as a rider to the
"All Risk" policy described above) covering those risks
referred to in subparagraph (ii) above in an amount equal to
the Rent and taxes (and any other sums payable under the
Lease) for a period of at least twelve (12) months from the
date of loss.
(c) LANDLAND'S INSURANCE. Landlord covenants and agrees
that throughout the Term, it will insure the Building (excluding any
property with respect to which Tenant is obligated to insure pursuant
to the provisions of Subparagraph 24(b) above), against damage by fire
and standard extended coverage perils insurance in such reasonable
amounts with such reasonable deductibles as would be carried by a
prudent owner of a similar building in Northern California, but in no
event less than ninety percent (90%) of full
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replacement value of the Building, with rental abatement endorsements
covering rent, insurance and taxes payable with respect to the
Building for a 12-month period. Landlord may, but shall not be
obliged to, take out and carry any other form or forms of insurance
as it or the mortgagees of Landlord may reasonably determine
advisable. Notwithstanding any contribution by Tenant to the cost
of insurance premiums, with respect to the Building or any alterations
of the Premises, as provided herein, Tenant acknowledges that it has
no right to receive any proceeds from any such insurance policies
carried by Landlord, although Landlord shall use such proceeds in the
repair and reconstruction of the Building and the Premises unless the
provisions of Subparagraph 24(b) above shall apply. Landlord will not
carry insurance of any kind on Tenant's furniture or furnishings, or
on any fixtures, equipment, improvements or appurtenances of Tenant
under this Lease; and Landlord shall not be obligated to repair any
damage thereto or replace the same.
(d) DEDUCTIBLES. Any policy of insurance required to be
maintained by Tenant pursuant to this Lease containing a deductible in
excess of Five Thousand Dollars ($5,000) must be approved in writing by
Landlord prior to the issuance of such policies, it being understood
and agreed that Tenant shall be solely responsible for the payment of
any such deductible.
(e) CERTIFICATES. Tenant shall deliver within fifteen
(15) days following the Commencement Date and thereafter at least ten
(10) days prior to expiration of each such policy, certificates of
insurance evidencing the above coverage with limits not less than those
specified above. The certificates shall expressly provide that the
interest of Landlord therein shall not be affected by any breach of
Tenant of any policy provision for which such certificates evidence
coverage.
(f) INCREASED COVERAGE. Upon demand, Tenant shall provide
Landlord, at Tenant's expense, such other insurance as Landlord or
Landlord's lender may reasonably require and as may be typically
required in the industry for similar properties, to afford Landlord and
Landlord's lender adequate protection.
(g) CO-INSURER. If, on account of the failure of Tenant
to comply with the foregoing provisions, Landlord is adjudged a
co-insurer by its insurance carrier, then any loss or damage Landlord
shall sustain by reason thereof, including attorneys' fees and costs,
shall be borne by Tenant and shall be immediately paid by Tenant upon
receipt of a bill therefor and evidence of such loss.
(h) INSURANCE REQUIREMENTS. All such insurance (i) shall
be in a form satisfactory to Landlord and its lender and shall be
carried with companies that have a general policyholder's rating of not
less than "A" and a financial rating of not less than Class "X" in the
most current edition of Best's Insurance Reports, (ii) shall provide
that such policies shall not be subject to material alteration or
cancellation except after at least thirty (30) days' prior written
notice
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to Landlord, and (iii) shall be primary as to Landlord. If
Tenant fails to procure and maintain the insurance required hereunder,
Landlord may, but shall not be required to, order such insurance at
Tenant's expense and Tenant shall reimburse Landlord for all costs
incurred by Landlord with respect thereto. Tenant's reimbursement to
Landlord for such amounts shall be deemed Additional Rent, and shall
include all sums disbursed, incurred or deposited by Landlord including
Landlord's costs, expenses and reasonable attorneys' fees with interest
thereon at the Interest Rate.
(i) LANDLORD'S DISCLAIMER. Except as specifically set
forth elsewhere in this Lease, Landlord and Landlord's Agents shall not
be liable for any loss or damage to persons or property resulting from
fire, explosion, falling plaster, glass, tile or sheet rock, steam,
gas, electricity, water or rain which may leak from any part of the
Premises, or from the pipes, appliances or plumbing works therein or
from the roof, street or subsurface or whatsoever, or from any act or
omission of Tenant or any other tenant of any building of which the
Premises is a part. Tenant shall give prompt written notice to Landlord
in case of a casualty or accident or in the event of repair needed to
the Premises.
(j) FAILURE TO PAY. The failure of Tenant to obtain and
pay for any insurance required to be obtained and paid for by it
hereunder shall be deemed a "material default" under Paragraph 28(a)(i)
of this Lease.
25. WAIVED OF SUBROGATION. Landlord and Tenant each hereby waive
all rights of recovery against the other on account of loss and damage
occasioned to such waiving party for its property or the property of others
under its control to the extent that such loss or damage is insured against
under any insurance policies which may be in force at the time of such loss or
damage. Tenant and Landlord shall, upon obtaining policies of insurance required
hereunder give notice to the insurance carrier that the foregoing mutual waiver
of subrogation is contained in this Lease and Tenant and Landlord shall cause
each insurance policy obtained by such party to provide that the insurance
company waives all right of recovery by way of subrogation against either
Landlord or Tenant in connection with any damage covered by such policy.
26. DAMAGE OR DESTRUCTION.
(a) LANDLORD'S OBLIGATION TO REBUILD. If the Premises are
damaged or destroyed, Landlord shall promptly and diligently repair the
Premises unless it has the right to terminate this Lease as provided in
subparagraph (b) next below and it elects to so terminate.
(b) LANDLORD'S RIGHT TO TERMINATE. Landlord shall have
the right to terminate this Lease following damage to or destruction of
the Premises if any of the following occurs:
(i) insurance proceeds are not available to
Landlord to pay one hundred percent (100%) of the cost to
substantially repair the damaged or destroyed Premises,
excluding and deductible for which
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Tenant shall be responsible pursuant to Paragraph 24(d) above
and excluding any shortfall which Tenant agrees to pay;
(ii) the Premises cannot, pursuant to a
certificate to the parties from Landlord's general contractor
in charge of construction, with reasonable diligence, be
substantially repaired by Landlord within one hundred twenty
(120) days after the date of the damage or destruction;
(iii) the Premises cannot be safely repaired
because of the presence of hazardous factors, including, but
not limited to, active earthquake faults, radiation, chemical
waste and other similar dangers;
(iv) the Premises are destroyed or damaged during
the last twelve (12) months of the Term; or
(v) Tenant is in default under the terms of this
Lease at the time of such damage or destruction.
If Landlord elects to terminate this Lease, and Tenant fails
to agree with Landlord as to its rights to preserve this Lease, then Landlord
shall give Tenant written notice of its election to terminate as soon as
practicably possible, but in any event not later than thirty (30) days after it
has knowledge of such damage or destruction, and this Lease shall terminate
retroactively as of the date of such damage or destruction. If this Lease is
terminated, Landlord shall retain all the insurance proceeds resulting from such
damage, except for those proceeds payable under policies obtained by Tenant
which specifically insure Tenant's Personal Property and such other property
which Tenant had the right to remove upon termination of this Lease. If Landlord
elects not to terminate the Lease, Landlord shall promptly, following the date
of such damage or destruction, commence the process of obtaining necessary
permits and approvals, and shall commence repair of the Premises or the Building
as soon as practicable and thereafter prosecute the same diligently to
completion, in which event this Lease will continue in full force and effect.
All insurance proceeds from insurance required under Paragraph 24, excluding
proceeds for trade fixtures, equipment and other Personal Property of Tenant,
and such other property which Tenant had the right to remove upon termination of
this Lease, shall be disbursed and paid to Landlord. Tenant shall be required to
pay to Landlord the amount of any deductibles payable by Tenant in connection
with any insured casualties, unless the casualty was caused by the negligence or
willful misconduct of Landlord.
(c) LIMITED OBLIGATION TO REPAIR. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the
basic Building and the Tenant Improvements and additional improvements
with respect to which insurance proceeds are available. Landlord shall
make available to Tenant any portion of insurance proceeds it receives
which are allocable to the Alterations constructed by Tenant pursuant
to this Lease provided Tenant is not then in default.
(d) ABATEMENT OF RENT. Rent shall be temporarily abated
proportionately, but only to the extent of any proceeds received by
Landlord from
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rental abatement insurance described in Paragraph 24(b)(iii),
during any period when, by reason of such damage or
destruction, Landlord reasonably determines that there is substantial
interference with Tenant's use of the Premises, having regard to the
extent to which Tenant may be required to discontinue Tenant's use of
the Premises. Such abatement shall commence upon such damage or
destruction and end upon substantial completion by Landlord of the
repair or reconstruction which Landlord is obligated or undertakes to
do. Subject to the indemnity provisions in favor of Tenant set forth in
Paragraph 24(a) above, Tenant shall not be entitled to any compensation
or damages from Landlord for loss of the use of the Premises, damage to
Tenant's Personal Property or any inconvenience occasioned by such
damage, repair or restoration. Landlord shall use reasonable efforts to
minimize interference with Tenant's use and occupancy of the Premises.
Tenant hereby waives the provisions of Section 1932, Subdivision 2, and
Section 1933, Subdivision 4, of the California Civil Code, and the
provisions of any similar law hereinafter enacted.
(e) UNINSURED CASUALTY. Notwithstanding the provisions of
Paragraph 24 of this Lease, Landlord and Tenant hereby agree that each
party shall be obligated to contribute, on a dollar-for-dollar basis, a
sum of up to $25,000 each toward the repair of an uninsured casualty to
the Premises upon presentation of firm estimates of such repair by
Landlord's contractor in charge of construction; provided, however,
that if Landlord's architect or general contractor in charge of
construction certifies to Landlord and Tenant that the estimated cost
of the repair of such uninsured casualty shall be in excess of Fifty
Thousand Dollars ($50,000), then either party may terminate this Lease
upon ten (10) days prior written notice to the other; provided,
however, that within ten (10) days after receipt of such ten (10) day
notice, the party receiving such notice may elect to keep the Lease in
full force and effect by agreeing to pay all of the costs of repair of
such uninsured casualty in excess of Fifty Thousand Dollars ($50,000),
in which event each party shall contribute its Twenty-Five Thousand
Dollars ($25,000) and the party agreeing to pay for the excess shall do
so upon presentation of invoice by Landlord's general contractor in
charge of construction. If neither party elects to terminate as
aforesaid, then the entire cost of repair of such uninsured casualty
shall be borne equally by the parties.
27. CONDEMNATION.
(a) TOTAL TAKING - TERMINATION. If title to all of the
Premises or so much thereof is taken for any public or quasi-public use
under any statute or by right of eminent domain so that reconstruction
of the Premises will not, in Landlord's and Tenant's mutual opinion,
result in the Premises being reasonably suitable for Tenant's continued
occupancy for the uses and purposes contemplated by this Lease, this
Lease shall terminate as of the date possession of the Premises or part
thereof be taken.
(b) PARTIAL TAKING. If any part of the Premises is taken
and the remaining part is reasonably suitable for Tenant's continued
occupancy for the
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purposes and uses permitted by this Lease, as determined
in good faith by Tenant, this Lease shall, as to the part so
taken, terminate as of the date that possession of such part of the
Premises is taken and the Rent and other sums payable hereunder shall
be reduced in the same proportion that the floor area of the portion of
the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the original floor area of the Premises.
Landlord shall, at its own cost and expense, make all necessary repairs
or alterations to the Premises so as to make the portion of the
Premises not taken a complete unit. Rent and other sums payable
hereunder shall be temporarily abated during such restoration period in
proportion to the degree to which Tenant's use of Premises is impaired.
Each party hereby waives the provisions of Section 1265.130 of the
California Code of Civil Procedure allowing either party to petition
the Superior Court to terminate this Lease in the event of a partial
taking of the Building or Premises.
(c) NO APPORTIONMENT OF AWARD. Subject to the last
sentence of this Paragraph 27(c), no award for any partial or entire
taking shall be apportioned, it being agreed and understood that
Landlord shall be entitled to the entire award for any partial or
entire taking. Tenant assigns to Landlord its interest in any award
which may be made in such taking or condemnation, together with any and
all rights of Tenant arising in or to the same or any part thereof.
Nothing contained herein shall be deemed to give Landlord any interest
in or require Tenant to assign to Landlord any separate award made to
Tenant for the taking of Tenant's Personal Property, for the
interruption of Tenant's business, or its moving costs, or for the loss
of its goodwill.
(d) TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to any abatement of
Rent. Any award made to Tenant by reason of such temporary taking shall
belong entirely to Tenant and Landlord shall not be entitled to share
therein. Each party agrees to execute and deliver to the other all
instruments that may be required to effectuate the provisions of this
subparagraph.
(e) SALE UNDER THREAT OF CONDEMNATION. A sale by Landlord
to any authority having the power of eminent domain, either under
threat of condemnation or while condemnation proceedings are pending,
shall be deemed a taking under the power of eminent domain for all
purposes of this Paragraph.
28. ASSIGNMENT AND SUBLETTING.
(a) LANDLORD'S CONSENT. Tenant shall not enter into any
Sublease without Landlord's prior written consent, which consent shall
not be unreasonably withheld. Any attempted or purported Sublease of
the Premises or any portion thereof without Landlord's prior written
consent shall be void and confer no rights upon any third person and,
at Landlord's election, shall terminate this Lease.
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(b) SUBLEASE FORM. Each Sublease to which Landlord has
consented shall be in a form satisfactory to Landlord, and shall be
executed by Tenant and Subtenant. Each Subtenant shall agree in
writing, for the benefit of Landlord, to assume, to be bound by, and to
perform the terms, conditions and covenants of this Lease to be
performed by Tenant. In no event shall Tenant be released from personal
liability for the performance of each term, condition and covenant of
this Lease by reason of Landlord's consent to a Sublease unless
Landlord specifically grants such release in writing.
(c) NO WAIVER. Consent by Landlord to any particular
Sublease shall not be deemed to be a consent to any subsequent
Sublease.
(d) INFORMATION TO BE FURNISHED. If Tenant desires at any
time to sublease the Premises or any portion thereof, it shall first
notify Landlord of its desire to do so and shall submit in writing to
Landlord:
(i) the name of the proposed Subtenant:
(ii) the nature of the proposed Subtenant's
business to be carried on in the Premises;
(iii) the terms and provisions of the proposed
Sublease and a copy of the proposed Sublease agreement
containing a description of the premises proposed to be
sublet; and
(iv) such financial information, including
financial statements, as Landlord may reasonably request
concerning the proposed Subtenant.
(e) LANDLORD'S ALTERNATIVES. As soon as reasonably
possible, but not later than ten (10) days after Landlord's receipt of
the information specified in Paragraph 28(d), Landlord may, by written
notice to Tenant, elect:
(i) to lease for its own account the Premises or
the portion thereof so proposed to be subleased by Tenant,
upon the same terms as those offered to the proposed Subtenant
but on a form acceptable to Landlord;
(ii) (if such proposed sublease area is in excess
of 66 percent of the total floor area of the Premises) to
lease for its own account the Premises or the portion thereof
so proposed to be subleased by Tenant to any person upon any
terms desired by Landlord;
(iii) consent to the Sublease by Tenant; or
(iv) refuse its consent to the Sublease which
shall not be unreasonably withheld.
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If Landlord elects to proceed in accordance with either subparagraph
28(e)(i) or 28(e)(ii), Landlord and Tenant shall enter into a limited release
agreement whereby Tenant is relieved of any liability, including without
limitation, the payment of Rent, with respect to such released portion of the
Premises during the entire term of the Sublease, whether or not the Sublease is
terminated prior to the expiration of its term for any cause whatsoever, other
than the willful act of Tenant. Upon the expiration of the term of the Sublease
between Landlord and the new tenant for such released space; provided the Term
of this Lease has not expired, Landlord shall return possession of the released
space to Tenant in substantially the same condition, normal wear and tear
excepted, it was in when it was released and delivered to Landlord, and Tenant
shall resume all its obligations under this Lease with respect to such space,
including, without limitation, the payment of Rent attributable to such space.
If Landlord proceeds with subparagraph 28(e)(i) or 28(e)(iii) above,
Landlord or Tenant, as the case may be, may thereafter enter into a valid
Sublease of the Premises or portion thereof, upon the terms and conditions and
with the proposed Subtenant set forth in the information furnished by Tenant of
Landlord pursuant to subparagraph 28(d), subject, however, to the condition that
any excess of the Subrent over the Rent required to be paid by Tenant hereunder
shall, in either case, be divided equally between Landlord and Tenant after
first deducting from any such excess Tenant's actual costs (not in excess of
market or "customary" costs), as incurred, of brokerage fees, subtenant
improvements and related subleasing costs (but excluding Tenant's holding or
vacancy costs). Any such Subrent to be paid to Landlord or Tenant pursuant
hereto shall be payable to Landlord or Tenant as and when due and payable by the
Subtenant.
(f) PRORATION. If a portion of the Premises is subleased,
the pro rata share of the Rent attributable to such partial area of the
Premises shall be determined by Landlord by dividing the Rent payable
by Tenant hereunder by the total leasable square footage of the
Premises and multiplying the resulting quotient (the per square foot
rent) by the number of square feet of the Premises which are subleased.
(g) EXECUTED ORIGINAL. No Sublease shall be valid nor
shall any Subtenant take possession of the Premises until a fully
executed original of the Sublease agreement has been delivered to
Landlord.
(h) TRANSFER TO PURCHASER. A transfer of this Lease to a
purchaser of Tenant or substantially all of the assets of Tenant shall
be deemed a Sublease.
(i) TENANT AFFILIATES. Notwithstanding any provision to
the contrary within Paragraph 28 of this Lease, Landlord hereby grants
to Tenant the right to assign this Lease or to sublet all or any
portion of the Premises to any entity controlled by, controlling or
under common ownership with Tenant so long as:
(i) Tenant remains fully liable under the terms
of this Lease,
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(ii) Tenant provides Landlord with prior written
notice of the identity and notice address of such assignee or
subtenant, and
(iii) such assignee or subtenant complies with all
of the terms and conditions of this Lease.
29. DEFAULT.
(a) TENANT'S DEFAULT. At the option of Landlord, a
default under this Lease by Tenant shall exist if any of the following
events shall occur:
(i) If Tenant shall have failed to pay Rent or
any other sum required to be paid hereunder after ten
(10) days written notice that such payment is due; or
(ii) If Tenant shall have failed to cure a
"material non-monetary default" within ten (10) days written
notice of such default from Landlord. For purposes hereof,
"material non-monetary default" shall mean and refer to a
default by Tenant with respect to the provisions of
Paragraph 24 (Insurance), Paragraph 30 (Subordination) or
Paragraph 33 (Estoppel Certificate);
(iii) If Tenant shall have failed to perform any
term, covenant or condition of this Lease except those
requiring the payment of money, and Tenant shall have failed
to cure such breach within thirty (30) days after written
notice from Landlord where such breach could reasonably be
cured within such thirty (30) day period; provided, however,
that where such failure could not reasonably be cured within
the thirty (30) day period, then Tenant shall not be in
default unless it fails to commence such cure within the
thirty (30) day period and diligently thereafter prosecute
the same to completion; or
(iv) If Tenant shall have assigned its assets
for the benefit of its creditors in a bankruptcy or
receivership context; or
(v) If the sequestration or attachment of or
execution on any material part of Tenant's Personal Property
essential to the conduct of Tenant's business shall have
occurred, and Tenant shall have failed to obtain a return or
release of such Personal Property within 90 days thereafter,
or prior to sale pursuant to such sequestration, attachment
or levy, whichever is earlier; or
(vi) If Tenant shall have failed to continuously
or uninterruptedly conduct its business in the Premises, or
shall have abandoned the Premises; or
(vii) If a court shall have made or entered any
decree or order other than under the bankruptcy laws of the
United States adjudging
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Tenant to be insolvent; or approving as properly filed
a petition seeking reorganization of Tenant; or directing the winding
up or liquidation of Tenant and such decree or order shall have
continued for a period of 90 days; or
(b) REMEDIES. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
(i) Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long
as Landlord does not terminate this Lease, and Landlord shall have the
right to collect Rent when due;
(ii) Landlord may terminate Tenant's right to possession
of the Premises at any time by giving written notice to that effect,
and relet the Premises or any part thereof. Tenant shall be liable
immediately to Landlord for all costs Landlord incurs in reletting the
Premises or any part thereof, including, without limitation, broker's
commissions, and expenses of cleaning, redecorating, and further
improving the Premises and like costs. Reletting may be for a period
shorter or longer than the remaining Term of this Lease. Acts of
maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under
this Lease shall not constitute a termination of Tenant's right to
possession. Upon termination, Landlord shall have the right to remove
all of Tenant's Personal Property and store same at Tenant's cost and
to recover from Tenant as damages:
A. The worth at the time of award of any unpaid Rent and
other sums due and payable which had been earned at the time of
termination; plus
B. The worth at the time of award of the amount by which
the unpaid Rent and other sums which would have been payable after
termination until the time of award exceeds the amount of such Rent
loss that Tenant proves could have been reasonably avoided; plus
C. The worth at the time of award of the amount by which
the unpaid Rent and other sums due for the balance of the Term after
the time of award exceeds the amount of such Rent loss that Tenant
proves could be reasonably avoided; plus
D. Any other amounts to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform
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Tenant's obligations under this Lease, or which, in the ordinary
course of things, would be likely to result therefrom, including,
without limitation, any costs or expenses incurred by Landlord: (i) in
retaking possession of the Premises; (ii) in maintaining, repairing,
preserving, restoring, replacing, cleaning, altering or rehabilitating
the Premises or any portion thereof, including such acts for reletting
to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
E. At Landlord's election, such other amounts and
remedies in addition to or in lieu of the foregoing as may be permitted
from time to time by the laws of the State of California including,
without limitation, the remedies provided by California Civil Code
Section 1951.4, as amended from time to time.
The "worth at the time of award" of the amounts referred to in
Paragraphs 29(b)(ii)(A) and 29(b)(ii)(B) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Paragraph 29(b)(ii)(C) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason of any default of Tenant
hereunder; or
(iii) Landlord may, with or without terminating this Lease,
re-enter the Premises and remove all persons and property from the
Premises; such property may be removed and stored in a public warehouse
or elsewhere at the cost of and for the account of Tenant. No re-entry
or taking possession of the Premises by Landlord pursuant to this
subparagraph shall be construed as an election to terminate this Lease
unless a written notice of such intention is given to Tenant.
(c) LANDLORD'S DEFAULT. Landlord shall not be deemed to be
in default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such thirty (30) day period and thereafter
diligently prosecute the same to completion; provided, however, that if such
default by Landlord can be cured by the payment of money, Tenant, at its
election, may spend such money as is reasonably necessary to cure such default
and thereafter invoice Landlord for the amount so spent, which Landlord shall
promptly pay; provided, however, that in no event may Tenant offset or deduct
such invoiced amount from rental payable under this Lease. Notwithstanding
anything herein contained to the
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contrary, Landlord shall immediately cure any default that poses a threat of
injury or damage to the Premises for which Landlord is responsible.
30. SUBORDINATION. Without the necessity of any additional
document being executed by Tenant for the purpose of effecting a subordination,
and at the election of Landlord or any bona fide mortgagee or deed of trust
beneficiary with a lien on all or portion of the Premises or any ground lessor
with respect to the Project and/or Building, this Lease shall be subject and
subordinate at all times to:
(a) all ground leases or underlying leases which may now
exist or hereafter be executed affecting the Building or the land upon
which the Building is situated or both, and
(b) the lien of any mortgage or deed of trust which may
now exist or hereafter be executed in any amount for which the
Building, land, ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination, attorn to and become the Tenant of the
successor in interest to Landlord. Tenant covenants and agrees to execute and
deliver, upon demand by Landlord and in the form requested by Landlord, any
additional documents evidencing the priority or subordination of this Lease with
respect to any such ground leases or underlying leases or the lien of any such
mortgage or deed of trust. Tenant's failure within ten (10) days after actual
receipt of such additional documents by an officer or Tenant, to execute and
deliver such additional documents shall constitute a "material non-monetary
default" hereunder. Notwithstanding any subordination, or any such termination
or foreclosure, Tenant's right to quiet possession of the Premises shall not be
disturbed so long as Tenant is not in default of this Lease and so long as
Tenant shall pay Rent and perform and observe all obligations of Tenant under
this Lease, unless this Lease is otherwise terminated pursuant to its terms.
Landlord will deliver to counsel for the existing or any future first mortgage
lender with a lien encumbering the Building a form of nondisturbance agreement
presented to Landlord by Tenant, and request that such lender either execute
such form, or execute a nondisturbance agreement which provides substantially
the same protections requested by Tenant, and Landlord shall use its
commercially reasonable best efforts to persuade such lender to execute and
return such a qualified nondisturbance agreement to Tenant as soon as reasonably
possible.
31. NOTICES. Any notice or demand required or desired to be given
under this Lease shall be in writing and shall be personally served or in lieu
of personal service may be given by mail. If given by mail, such notice shall be
deemed to have been given when seventy-two (72) hours have elapsed from the time
when such notice was deposited in the United States mail, registered or
certified, and postage prepaid, return receipt requested, addressed to the party
to be served. At the date of execution of this Lease, the addresses of Landlord
and Tenant are as set forth in Paragraph 1; however, for all notices other than
default notices, Tenant may
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deliver a single notice to Landlord at the address for Menlo Business Park,
as set forth in said Paragraph 1. After the Commencement Date, the address of
Tenant shall be the address of the Premises. Either party may change its
address by giving notice of same in accordance with this paragraph.
32. ATTORNEYS' FEES. If either party brings any action or legal
proceeding with respect to an alleged breach of any provision of this Lease, to
recover rent or other sums due, to terminate this Lease or to enforce, protect
or establish any term, condition or covenant of this Lease or the right of
either party hereunder or at law or in equity, the prevailing party shall be
entitled to recover as a part of such action or proceedings, or in a separate
action brought for that purpose, reasonable attorneys' fees and costs.
33. ESTOPPEL CERTIFICATE. Tenant shall within seven (7) days
following written request by Landlord:
(i) Execute and deliver to Landlord estoppel
certificates, in a form prepared by Landlord (a) certifying that this
Lease is unmodified and in full force and effect or, if modified,
stating the nature of such modification and certifying that this Lease,
as so modified, is in full force and effect and the date to which the
Rent and other charges are paid in advance, if any, and (b)
acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of the Landlord or stating the nature of any
uncured defaults; (c) evidencing Tenant's understanding with respect to
the status of the Lease as may be required either by a lender making a
loan to Landlord to be secured by deed of trust or mortgage covering
the Premises or a purchaser of the Premises from Landlord; (d)
certifying the current monthly rent amount and the amount and form of
Security Deposit on deposit with Landlord; and (e) certifying to such
other information as Landlord, mortgagees, prospective mortgagees and
buyers may reasonably request.
Tenant's failure to deliver an estoppel certificate within ten (10)
days after delivery of Landlord's written request therefor to an officer of
Tenant shall be a "material non-monetary default" hereunder and shall be
conclusive upon Tenant (a) that this Lease is in full force and effect, without
modification except as may be represented by Landlord; (b) that there are now no
uncured defaults in Landlord's performance; (c) that no more than one required
rental payment has been paid in advance; and (d) that the other information
requested by Landlord is correct as stated in the form presented by Landlord.
(ii) Deliver to Landlord the current financial statements
of Tenant, and financial statements of the two (2) years prior to the
current financial statement year, with an opinion of a certified public
accountant, including a balance sheet and profit and loss statement for
the most recent prior year, all prepared in accordance with generally
accepted accounting principles consistently applied.
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34. TRANSFER OF THE PREMISES BY LANDLORD. In the event of any
conveyance of the Premises and assignment by Landlord of this Lease, Landlord
shall be and is hereby entirely released from all liability under any and all of
its covenants and obligations contained in or derived from this Lease occurring
after the date of such conveyance and assignment, but only upon a full
assumption by the transferee of all obligations of Landlord under this Lease
from and after the date of such transfer, and Tenant agrees to attorn to any
entity purchasing or otherwise acquiring the Premises.
35. LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant
shall at any time fails to make any payment or perform any other act on its part
to be made or performed under this Lease, Landlord may, but shall not be
obligated to, and without waiving or releasing Tenant from any obligation of
Tenant under this Lease, make such payment or perform such other act to the
extent Landlord may deem desirable and, in connection therewith, pay expenses
and employ counsel. All sums so paid by Landlord and all penalties, interest and
costs in connection therewith shall be due and payable by Tenant on the next day
after such payment by Landlord, together with interest thereon at the Interest
Rate from such date to the date of payment thereof by Tenant to Landlord, plus
collection costs and attorneys' fees. Landlord shall have the same rights and
remedies for the nonpayment thereof as in the case of default in the payment of
Rent.
36. TENANT'S REMEDY. The obligations of Landlord do not constitute
the personal obligation of the individual partners, trustees, directors,
officers or shareholders of Landlord. If Landlord shall fail to perform any
covenant, term, or condition of this Lease upon Landlord's part to be performed,
Tenant shall be required to deliver to Landlord written notice of the same. If,
as a consequence of such default, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest of Landlord in the Building and out of Rent or other income
from such property receivable by Landlord or out of consideration received by
Landlord from the sale or other disposition of all or any part of Landlord's
right, title or interest in the Premises, and neither Landlord nor Landlord's
Agents shall be liable for any deficiency. Nothing contained in this Paragraph
36 shall limit or reduce Tenant's rights to pursue any legal remedies it may
have against third parties, including the general contractor and all
subcontractors who constructed the Building, the Tenant Improvements or any
Alterations.
37. MORTGAGE PROTECTION. In the event of any default on the part
of Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust of mortagee of a mortgage covering the Premises
who has provided Tenant with notice of their interest together with an address
for receiving notice, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or judicial foreclosure, if such should prove
necessary to effect a cure.
38. BROKERS. Each party warrants and represents to the other that
it has had no dealings with any real estate broker, agent or finder in
connection with the negotiation of this Lease or the introduction of the parties
to this transaction, except for the Lewis & Tarlton Company, and that it knows
of no other real estate broker, agent or finder who is or might be
36
<PAGE>
entitled to a commission or fee in connection with this Lease. Further, each
party agrees to indemnify and hold harmless the other party and its Agents
from and against any and all liabilities or expenses, including attorneys'
fees and costs, arising out of or in connection with claims made by any other
broker or individual for commissions or fees resulting from the execution of
this Lease by the indemnifying party. All commissions due Lewis & Tarlton
Company shall be paid by Landlord.
39. ACCEPTANCE. Delivery of this Lease, duly executed by Tenant,
constitutes an offer to lease the Premises, and under no circumstances shall
such delivery be deemed to create an option or reservation to lease the Premises
for the benefit of Tenant. This Lease shall only become effective and binding
upon full execution hereof by Landlord, delivery of a signed copy to Tenant and
the satisfaction of the Contingency set forth in Paragraph 44(k) below. Upon
acceptance of Tenant's offer to lease under the terms hereof Landlord shall be
entitled to retain the Security Deposit and apply same to any damages, costs and
expenses incurred by Landlord in the event of Tenant's failure to satisfy the
provisions of Paragraph 44(k) below.
40. RECORDING. Neither party shall record this Lease nor a short
form memorandum thereof.
41. [THIS PARAGRAPH INTENTIONALLY LEFT BLANK]
42. MODIFICATIONS FOR LENDER. If, in connection with obtaining
financing for the Premises or any portion thereof, Landlord's lender shall
request reasonable modification to this Lease as a condition to such financing,
Tenant shall not unreasonably withhold, delay or defer its consent thereto,
provided such modifications do not in any way adversely affect Tenant's rights
of the peaceful use and possession of the Premises pursuant to the terms of this
Lease.
43. SEWER FEES. Tenant acknowledges that Menlo Business Park Joint
Venture has paid the connection fees for the entire Project. Tenant shall
promptly reimburse Landlord as Additional Rent, upon presentation of invoice,
for payments made by Landlord to Menlo Business Park Joint Venture for the fees
attributable to Tenant's use of the Premises, based upon a formula determined by
the West Bay Sanitary District on the basis of Tenant's use of the Premises and
the number of Tenant's employees therein.
44. GENERAL.
(a) CAPTIONS. The captions and headings used in this
Lease are for the purpose of convenience only and shall not be
construed to limit to extend the meaning of any part of this Lease.
(b) EXECUTED COPY. Any fully executed copy of this Lease
shall be deemed an original for all purposes.
(c) TIME. Time is of the essence for the performance of
each term, condition and covenant of this Lease.
37
<PAGE>
(d) SEPARABILITY. If any one or more of the provisions
contained herein shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease,
but this Lease shall be construed as if such invalid, illegal or
unenforceable provision is not part of the Lease.
(e) CHOICE OF LAW. This Lease shall be construed and
enforced in accordance with the laws of the State of California.
(f) GENDER; SINGULAR, PLURAL. When the contest of this
Lease requires, the neuter gender includes the masculine, the feminine,
a partnership or corporation or joint venture, and the singular
includes the plural.
(g) BINDING EFFECT. The covenants and agreement contained
in this Lease shall be binding on the parties hereto and on their
respective successors and assigns to the extent this Lease is
assignable.
(h) WAIVER. The waiver by Landlord of any breach of any
term, condition or covenant, of this Lease shall not be deemed to be a
waiver of such provision or any subsequent breach of the same or any
other term, condition or covenant of this Lease. The subsequent
acceptance of Rent hereunder by Landlord shall not be deemed to be a
waiver of any preceding breach at the time of acceptance of such
payment. No covenant, term or condition of this Lease shall be deemed
to have been waived by Landlord unless such waiver is in writing signed
by Landlord.
(i) ENTIRE AGREEMENT. This Lease is the entire agreement
between the parties, and there are no agreements or representations
between the parties except as expressed herein. Except as otherwise
provided herein, no subsequent change or addition to this Lease shall
be binding unless in writing and signed by the parties hereto.
(j) AUTHORITY. If Tenant is a corporation or a
partnership, each individual executing this Lease on behalf of said
corporation or partnership, as the case may be, represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf
of said entity in accordance with its corporate bylaws, statement of
partnership or certificate of limited partnership, as the case may be,
and that this Lease is binding upon said entity in accordance with its
terms. Landlord, at its option, may require a copy of such written
authorization to enter into this Lease. The failure of Tenant to
deliver the same to Landlord within seven (7) days of Landlord's
request therefor shall be deemed a default under this Lease. Further,
each individual executing this Lease on behalf of Landlord represents
to Tenant that (i) Landlord is a California general partnership, the
partners of which are the entities identified collectively herein as
Landlord, (ii) such individual has the authority to execute and deliver
this Lease on behalf of the Landlord and on behalf of the entity in
whose name he has signed this Lease, (iii) Landlord has the right,
title and interest necessary to enter into this Lease, and
38
<PAGE>
(iv) on execution hereof, this Lease shall become a binding obligation
of Landlord. Landlord shall provide Tenant with a copy of Landlord's
title insurance policy on request by Tenant. Tenant shall be entitled
to rely, for all purposes, on any notice, waiver or other advice
received from either entity comprising Landlord, any successor or
additional such entity, and from any authorized agent of any such
entity, as having been given with the full authority of Landlord.
(k) CONTINGENCY. Landlord and Tenant hereby agree that
Landlord's obligations and Tenant's rights under this Lease are
expressly conditioned upon Tenant's satisfaction of all its obligations
(past and present) under the Building 15 Lease. In the event Tenant
fails to satisfy all its monetary obligations (past and present) under
the Building 15 Lease as of the Commencement Date, Landlord may, but
shall not be obligated to, terminate all of Tenant's rights hereunder,
in which case, Tenant shall be obligated, upon such termination, to
indemnify Landlord for any and all losses or unreimbursed expenses
incurred by Landlord in connection with this Lease as of such date,
including but not limited to, architects' fees, engineering fees,
appraisers' fees, loan fees and good faith deposits paid by Landlord in
connection with the design and construction of the Tenant Improvements;
and attorneys' fees incurred by Landlord in connection with this Lease.
In the event Tenant satisfies all of its monetary obligations under the
Building 15 Lease on or before the Commencement Date or prior to
Landlord's termination of Tenant's rights hereunder, Tenant shall be
allowed to occupy the Premises, at which point in time, Tenant shall be
relieved of its obligation to pay rent under the Building 15 Lease;
provided that Tenant agrees to diligently pursue the satisfaction of
all its obligations under Paragraphs 12, 14 and 15 of the Building 15
Lease. In the event Tenant fails to satisfy all or said obligations
within thirty (30) days of Tenant's occupancy of the Premises, Landlord
may, but shall not be obligated to, satisfy such obligations itself and
assess all costs of the same, together with a five percent (5%)
management fee against Tenant as Additional Rent; which amount shall
bear interest at the Interest Rate until it is paid by Tenant.
(l) RELEASE. Subject to the provisions of Paragraph 44(k)
above, Landlord and Tenant hereby agree that upon satisfaction by
Tenant of all its obligations (past and present) under the Building 15
Lease, the Building 15 Lease shall be terminated and neither party
shall have any further rights or obligations to the other, except as
set forth in this Lease.
(m) EXHIBITS. All exhibits, amendments, riders and
addenda attached hereto are hereby incorporated herein and made a part
hereof.
(n) LEASE SUMMARY. The Lease Summary attached to this
Lease is intended to provide general information only. In the event of
any inconsistency between the Lease Summary and the specific provisions
of this Lease, the specific provisions of this Lease shall prevail.
39
<PAGE>
THIS SPACE INTENTIONALLY LEFT BLANK
40
<PAGE>
THIS LEASE is effective as of the date the last signatory
necessary to execute the Lease shall have executed this Lease.
TENANT
Dated: MARCH 21, 1988 ETAK, INC., a California corporation,
--------
By: /s/ Matt Pittchon
----------------------
Its: V.P. Finance
------------------
By:
----------------------
Its:
------------------
LANDLORD:
Dated: __________, 198_ MENLO BUSINESS PARK,
a California general partnership,
By: /s/ John O. Lewis
-----------------------
JOHN O. LEWIS
Its: General Partner
By: OLTMANS INVESTMENT COMPANY, a
California limited partnership
Its: General Partner
By: /s/ J. O. Oltmans
---------------------
J. O. OLTMANS, II,
General Partner
By: /s/ R.M.Holmes
--------------------
R. M. HOLMES,
General Partner
PATRICIAN ASSOCIATES, INC.,
a California corporation,
By: /s/ Karen E. Shaff
----------------------
Its: counsel
------------------
By: /s/ R.L. Mays
----------------------
Its:
------------------
<PAGE>
EXHIBIT A-1
SKETCH AND PLAN OF PROPERTY
<PAGE>
EXHIBIT A-2
MASTER PLAN AND SKETCH
<PAGE>
EXHIBIT B TO MASTER LEASE
WORK LETTER AGREEMENT
Tenant and Landlord are executing simultaneously with this Work Letter
Agreement a lease (the "Lease-) of even date herewith covering certain Premises
described in Paragraph 2 of the Lease. This Work Letter Agreement is
incorporated into said Lease as Exhibit "B" thereto. In consideration of the
mutual covenants contained in the Lease, Tenant and Landlord hereby agree that
the Premises shall be improved as set forth herein.
1. BASE BUILDING. Landlord and Tenant understand and acknowledge
that this Work Letter Agreement relates only to the construction of "non-base
building" improvements ("Tenant Improvements") for the Premises. The "base
building work" has been performed by Landlord at Landlord's sole cost and
expense and includes the elements shown on those certain construction drawings
for the Building prepared by Design and Engineering Systems of Redwood City,
California, entitled "Building No. 7" and consisting of sheets Al (Title Sheet
and Index), A2 (Site & Roof Plan - Enlarged Entry Plan #7), A6 (Floor Plan -
Reflected Soffit Plan and Building Section) and A7 (Exterior Elevations)
approved for construction on July 2, 1986, and shall also include a sanitary
line plumbed under the Building slab to the Premises, with additional saw cut
and drains for future toilets, all as shown on the Preliminary Plans described
in Paragraph 2(a) below. The term "base building work" also means and refers to
the building shell without floor covering, wall finish, drop ceilings or
lighting, or any mechanical, electrical or plumbing systems, but with all
Building Code required improvements for unfinished "shell" buildings.
2. PRELIMINARY PLANS AND SPECIFICATIONS.
(a) PRELIMINARY PLANS. At Tenant's request, Landlord shall
prepare preliminary plans and an outline of specifications ("Preliminary
Plans") for the construction of the Tenant Improvements for the Premises,
which Preliminary Plans are identified by title, date and job number on
Schedule 1 to this EXHIBIT "B".
(b) DESIGN INFORMATION. Tenant shall deliver to Landlord
not later than March 15, 1988, information (the "Design Information")
sufficient to permit Landlord to prepare the "Plans" described in Paragraph 3
below. Such information to be supplied by Tenant shall include all necessary
design criteria for the construction of the Tenant Improvements, including,
without limitation, the following information:
(i) The locations of doors (including the truck door),
partitioning, ceiling layouts, lighting fixtures, electrical outlets
and switches, and telephone outlets;
(ii) The location and extent of special floor loading;
(iii) The location and description of plumbing
requirements;
<PAGE>
work to be submitted to each approved subcontractor. Tenant shall be entitled
to attend the bid opening and shall be given reasonable prior notice thereof.
Within five (5) days after receipt of the bids and receipt of Landlord's
general contractor's evaluation of such bids, Tenant may either approve a
bid, disapprove all bids or approve one or more bids for negotiation. Should
Tenant approve any bids for negotiation, such negotiation shall be concluded
as soon as reasonably possible but in no event later than five (5) days after
commencement of negotiations by either acceptance of one bid or by rejection
of all. If the first bidding process does not result in the selection of a
subcontractor for each bid subcontract, Landlord shall commence the process
of submitting the disapproved Improvement Budget for bid for each remaining
subcontract to a maximum of three approved subcontractors. If Tenant does not
approve of one of the responding bids for each subcontract in the second
round of bidding, Landlord shall use its best good faith judgment and select
one of the bids in such second round for each subcontract, which bid shall
thereafter be deemed approved by Tenant. As soon as the foregoing bidding
procedure has been completed, Landlord shall prepare and deliver to Tenant
the final Improvement Budget setting forth the Costs of the Tenant
Improvements. In no event shall the final Improvement Budget exceed the
Improvement Allowance (as hereinafter defined) without Tenant's prior written
consent. Changes to the final Improvement Budget may be made only in
accordance with Paragraph 8 below.
3. IMPROVEMENT ALLOWANCE. Landlord hereby agrees to credit Tenant
with an improvement allowance in the amount of Four Hundred Sixty-Five Thousand
One Hundred Sixty-Nine Dollars ($465,169.00) (the "Improvement Allowance") for
the "Costs" of the Tenant Improvements. As used herein, the term "Costs" shall
mean and refer to all costs expended by Landlord relative to the design and
construction of the Tenant Improvements in the Premises (excluding the Mezzanine
space), including, but not limited to, the costs of equipment, material and
labor; contractor's field overhead and fee; architectural, design and
engineering fees; working drawings; governmental agency fees; testing and
inspection costs; sales and use taxes (but not real property taxes); permits;
plan check fees; bonds; and all other costs directly related to the construction
of the Tenant Improvements, plus an administrative fee in the amount of five
percent (5%) of said costs to be paid to The Lewis & Tarlton Company for
construction management. The Cost of the Tenant Improvements shall not include
architectural, design or engineering fees incurred in modifying the Plans after
Landlord and Tenant's approval thereof; working drawings (except as a result of
changes requested by Tenant pursuant to Paragraph 8 below) or other expenses not
itemized on the Improvement Budget without Tenant's prior written consent. In
the event that the Costs of the Tenant Improvements exceed the Improvement
Allowance and all or any portion of such excess is attributable to Tenant's
Changes in Plans (as provided in Paragraph 8 below), the Rent shall be adjusted
as provided in Subparagraph 5(b)(ii) of the Lease. Notwithstanding the
foregoing, it is the intent of Landlord and Tenant that the Tenant Improvements
shall be constructed on a "turn key" basis at a Cost not to exceed the
Improvement Allowance. In the event the final Costs exceed the Improvement
Allowance other than due to Changes in Plans as provided in Paragraph 8 below,
such excess Costs shall be the sole responsibility of, and shall be paid by,
Landlord.
4. CONSTRUCTION. Upon approval by the parties of the Improvement
Budget, Landlord shall use its commercially reasonable best efforts to
substantially complete the Improvements on or before the Anticipated
Commencement Date set forth in Paragraph 3(b) of the Lease. Landlord shall not
authorize construction of any Improvements which will result in
<PAGE>
"Outside Costs" (i.e., those Improvements which are not within the scope of
work contemplated by the Improvement Budget approved by the parties pursuant
to the provisions of Paragraph 4 above) unless: (i) Tenant shall have
delivered written approval to Landlord of such Outside Costs, or (ii) such
Outside Costs occur as a result of a "force majeure event" described below.
Landlord shall not be liable for any direct or indirect damages as a result
of delays in construction of the Improvements due to events ("force majeure
events") which generally affect the progress of construction beyond
Landlord's reasonable control, including, but not limited to, fire,
earthquake, inclement weather or other acts of God; strikes; boycotts;
availability of materials and labor; changes in governmental regulations or
requirements; changes in the Plans or Improvement Budget pursuant to
Paragraph 8 below; or Tenant Delays defined in Paragraph 4(d) of the Lease.
5. AUDITS. All costs associated with the Tenant Improvements will
be audited in accordance with generally accepted accounting practices. Landlord
hereby grants Tenant the exclusive right to review such cost audits before the
commencement of construction of the Tenant Improvements and upon completion;
provided, however, that Tenant shall give Landlord ten (10) days notice of its
election to review such cost audits.
6. CHANGES IN PLANS. From and after the date on which the Plans
have been approved by Landlord and Tenant pursuant to Paragraph 3 above, Tenant
shall have the right to request changes in the Plans, provided, however, that:
(a) such requests shall not result in any structural or material change in the
Tenant Improvements as determined by Landlord; (b) such requests conform to
applicable government regulations and, if necessary, are approved by the
applicable governmental agencies; (c) all additional charges of implementing
such changes including, without limitation, architectural fees, increases in
construction costs and other related charges shall be included in Landlord's
Costs and payable by Tenant in accordance with the provisions of Subparagraph
5(b)(ii) of the Lease; (d) such requests shall constitute an agreement on the
part of Tenant to any delay in completion of the Tenant Improvements caused by
reviewing, processing and implementing the changes; and (e) such requests shall
constitute "Tenant Delays" under the provisions of Paragraph 4(d) of the Lease.
Each request for changes in accordance herewith shall be in writing, and if
approved by Landlord, shall be approved in writing.
7. COMPLETION OF THE TENANT IMPROVEMENTS. The Premises shall be
deemed to be "Ready for Occupancy" when the work of construction of the Tenant
Improvements has been substantially completed in accordance with the Plans
(subject to the normal so-called to the normal so-called "punch list items") as
evidenced by the delivery to Landlord and Tenant of a certificate from
Landlord's architect with a copy of a temporary certificate (if legally required
as a condition of occupancy) permitting occupancy of the Premises issued by the
City of Menlo Park. Landlord shall diligently complete as soon as reasonably
possible any items of work and adjustment not completed when the Premises are
Ready For Occupancy. Subject to Tenant's obligation to pay certain Costs in
excess of the Improvement Allowance (as provided in Paragraph 5 above), Landlord
hereby agrees to indemnify, defend and hold Tenant harmless from and against any
liens filed in connection with the construction of the Tenant Improvements.
8. QUALITY OF CONSTRUCTION. Landlord and Tenant hereby agree that
all Tenant Improvements shall be constructed by J. M. O'Neill, Inc., (O'Neill)
pursuant to a contract
<PAGE>
on a "cost plus a negotiated fixed fee" basis with a guaranteed maximum
amount which shall be prepared based upon and through negotiation and
competitive bidding. Landlord hereby agrees that the general contractor's
construction manager shall have previous experience in similar projects which
is reasonably satisfactory to Tenant. Landlord warrants and represents to
Tenant that all work shall be done in a good and workmanlike manner and in
compliance with all applicable laws and lawful ordinances, by-laws,
regulations and orders of governmental authority and of the insurers of the
Building. Landlord makes no representations, warranties or guarantees,
expressed or implied, including warranties of merchantability or use of the
Premises, except as expressly set forth herein and in the Lease. Upon written
request by Tenant in each instance, Landlord shall enforce for the benefit of
Tenant all warranties, if any, received by Landlord from O'Neill or others in
connection with the construction of the Tenant Improvements to the extent
that said warranties cover any defects in the Improvements which Tenant is
required to repair hereunder.
9. CONSTRUCTION REPRESENTATIVE. In connection with the
original construction of the Tenant Improvements, each party shall be bound
by the acts of its respective Construction Representative appointed by each
party upon the execution of this Lease. Landlord's Construction
Representative is Lorrin C. Tarlton, Jr. and Tenant's Construction
Representative is Matt Pitchon. A party may designate a substitute
Construction Representative by giving written notice to the other party.
10. EARLY ENTRY.
(a) TENANT'S FINISHING WORK. If prior to the
Commencement Date, Tenant desires to enter upon a portion of the Premises,
upon reasonable written notice to Landlord, in order to install trade
fixtures and equipment and to commence construction of any improvements
within the Premises to be constructed by Tenant at Tenant's sole cost and
expense ("Tenant's Finishing Work"), such entry by Tenant for the purpose of
construction of Tenant's Finishing Work shall be subject to all of the
conditions set forth in this Paragraph 12.
(b) CONTROL OF WORK. Should Tenant elect to enter the
Premises under the terms of this Paragraph 12 for construction of Tenant's
Finishing Work, it is hereby agreed that Tenant, its employees, its agents,
its independent contractors, its suppliers and any other person under
Tenant's direct control ("Tenant's Personnel") installing Tenant's Finishing
Work on the Premises shall be subject to and shall work under the direction
of Landlord and O'Neill. If, in the sole reasonable judgment of Landlord, the
presence of Tenant's Personnel or the work that is being performed by
Tenant's Personnel shall interfere with Landlord's work of construction,
detrimentally affect Landlord's ability to comply with its commitments for
completing its work of improvement in the Premises, Landlord shall have the
right to order any or all of Tenant's early entry work to cease on 24 hours
written notice. If Landlord requires such cessation of work because there
exists interference with the work of construction of the Tenant Improvements,
Tenant shall have Tenant's Personnel remove from the Premises all of Tenant's
tools, equipment and materials.
(c) CONDITIONS OF OCCUPANCY. If Tenant desires to
exercise its right of early entry in accordance with the provisions of this
Paragraph, Tenant further agrees to: (i) pay for and provide certificates
evidencing the existence and amounts of liability insurance carried
<PAGE>
by Tenant, which coverage shall be reasonably approved by Landlord; (ii) pay
utility charges reasonably allocated to Tenant by Landlord; (iii) indemnify
and save Landlord and the Premises harmless from and against all liens,
liabilities, losses, damages, costs, expenses, demands, actions, causes of
action and claims (including, without limitation, attorney's fees and legal
costs) arising out of the use, construction, or occupancy of the Premises by
Tenant, and/or its agents, employees, contractors and servants prior to the
Commencement Date; and (iv) comply with all applicable laws, regulations,
permits and other approvals applicable to such early entry work on the
Premises.
11. BUILD-OUT OF MEZZANINE SPACE. Provided that Tenant does not
default in any of its obligations pursuant to the Lease, Landlord hereby
agrees to design and construct Tenant Improvements respecting the Mezzanine
space contained in the Premises, at Tenant's option, exercisable by Tenant
only during the initial term of the Lease. Upon exercise by Tenant of its
option hereunder, Landlord shall grant Tenant One Hundred Eighty-Eight
Thousand Eight Hundred Twenty-Five Dollars ($188,825.00) (or Twenty-Five
Dollars ($25) per square foot of mezzanine space in the event of partial
"build-out" of the mezzanine space) to be used for the design and
construction of said improvements, at which time, Landlord and Tenant shall
enter into an agreement substantially similar to this Agreement with respect
to the "build-out" of such "mezzanine space".
LANDLORD
Dated: __________, 198_ MENLO BUSINESS PARK, a California
general partnership
By: /s/ JOHN O. LEWIS
-----------------------
JOHN O. LEWIS
Its General Partner
By: OLTMANS INVESTMENT COMPANY,
a California Limited Partnership
Its General Partner
By: /s/ J.O. OLTMANS, II
--------------------------
J.O. OLTMANS, II,
General Partner
By: /s/ R.M. HOLMES
--------------------------
R.M. HOLMES,
General Partner
<PAGE>
PATRICIAN ASSOCIATES, INC.,
a California corporation
By: /s/ Karen E. Shaff
------------------------
Its: Karen E. Shaff, Counsel
By: /s/ R.L. Hays
------------------------
Its: R.L. Hays, Vice President
TENANT
Dated: March 21, 1988 ETAK, INC., a California corporation
-------- -
By: Matt Pittchon
---------------------------
Its: Vice-President Finance
---------------------------
By:
----------------------------
Its:
----------------------------
<PAGE>
EXHIBIT "C"
COMMENCEMENT DATE MEMORANDUM
LANDLORD: MENLO BUSINESS PARK, a California general partnership,
and PATRICIAN ASSOCIATES, INC.,a California corporation
TENANT: ETAK, INC., a California corporation.
LEASE DATE: March 21, 1988.
--------
PREMISES: Approximately 25,775 square feet of the building
located at
1430 O'Brien Drive
Menlo Park, California.
Pursuant to Paragraph 4(c) of the above referenced Lease, the
Commencement Date is hereby established as December 22, 1988.
-----------------
LANDLORD
Dated: 12/29/1988 MENLO BUSINESS PARK, a California
---------- general partnership
By: /s/ John O. Lewis
---------------------
JOHN O. LEWIS
Its General Partner
By: OLTMANS INVESTMENT
COMPANY, a California Limited
Partnership
Its General Partner
By: /s/ J.O.Oltmans II
--------------------
J.O. OLTMANS, II,
General Partner
By: /s/ R M Holmes
------------------
R.M. HOLMES
General Partner
<PAGE>
PATRICIAN ASSOCIATES, INC.,
a California corporation
By: /s/ G.C. Hauser
-------------------
Its: G.C. Hauser
Vice President
By: /s/ D.D. Duscher
-------------------
Its: D.D. Duscher
Vice President
TENANT
Dated: *12/29, 1988 ETAK, INC. a California
*See attached memo from Tig Tarlton corporation
dated 12/29/88.
By: /s/ Stanley
-------------------
Its: Executive Vice President
------------------------
By:
-------------------------
Its:
-------------------------
<PAGE>
The
LEWIS & TARLTON
Company
August 27, 1991
Matt Pitchon, Vice President
ETAK
1430 O'Brien Drive
Menlo Park, Ca 94025
Re: Exercise of Option to Extend lease term for two additional years
Dear Matt,
This will confirm our phone conversation this morning and with your "READ and
AGREED" signature below, will constitute a formal exercise by ETAK of that
Option to Extend under Paragraph 4(g), page 5 of your lease.
This will extend the primary lease for suites AB&C for two years, to a new
termination date of 12-31-93.
In addition you have mentioned that you wish to extend the term of lease for
suites D&E to be coterminous with the same lease. This instrument shall also
serve to extend the lease on suites D&E to 12-31-93. We appreciate this timely
notification and look forward to having ETAK as a tenant at Menlo Business Park
for even more years to come.
Best personal regards,
THE LEWIS &TARLTON COMPANY
/s/ Tig Tarlton
- ----------------
L.C. Tarlton, Jr. READ and AGREED
Exclusive Agent for
Menlo Business Park Joint Venture /s/ Matt Pitchon
----------------------
cc: John Lewis
Joe Oltmans
Rod Vogel
Rick Mallory, Esq.
<PAGE>
TARLTON PROPERTIES
June 23, 1993 REVISED 9-10-93
Mr. Matt Pitchon, V.P. / Operations
ETAK
1430 O'Brien Drive
Menlo Park, CA 94025
RE: LEASE AGREEMENT TO EXTEND FOR FOUR (4) YEARS, FROM 1-1-94 TO 12-31-97
1430 O'BRIEN DRIVE, MENLO PARK, CA (SUITES A,B,C,D & E)
Dear Matt,
This letter, when executed by you, will serve as a formal Agreement to Extend
under that certain lease dated March 21, 1988 and amended March 23, 1992.
Following are the conditions of the Agreement:
1. The above referenced lease will be extended to include Suites D&E, and will
exclude Suite F, for a total square footage of 38,677 S.F.
2. Your new rent, as agreed, will be $.85/s.f./mo./NET, beginning January 1,
1994. In accordance with Paragraph 5 (b) of the Lease, your rent will be subject
to an annual Consumer Price Index (Urban Wage Earners and Clerical Workers, San
Francisco-Oakland Area) increase using a minimum of 4% and a maximum of 6%.
3. There will be a $3.00/s.f. Tenant Improvement Allowance, to be paid in cash
by Landlord, to be used by Tenant for carpet and paint.
4. Upon execution of this Agreement, the Security Deposit shall be $32,875.45
(equal to one month's rent).
5. The Tenant's Percentage Share of Common Area Expenses shall be 60.01%.
38,677 / 64,452 = 60.01%
------------------------
6. As agreed, the only broker involved in this transaction will be Tarlton
Properties, Inc.
7. ETAK shall have the option, exercisable six (6) months prior to the
expiration of the 2nd year of the extended term, to cancel the portion of this
lease, on suites D&E only, for years 3 & 4 of said lease by the payment of year
3 lease payments (including escalation) at the time of exercise.
8. All other terms and conditions of said Lease shall remain in full force and
effect.
Please acknowledge your acceptance of this Agreement by signing and returning a
copy hereof.
We look forward to having ETAK as a tenant for even more years to come.
<PAGE>
Sincerely, READ and AGREED
TARLTON PROPERTIES, INC. /s/ Matt Pitchon, VP OPS
/s/ L.C. (Tig) Tarlton, Jr. ---------------------------
---------------------------- Matt Pitchon, V.P. /
Operations
Lorrin C. Tarlton, Jr.
Agent for Menlo Business Park Joint Venture
MENLO BUSINESS PARK,
a California general partnership
By: /s/ John Lewis
---------------------
John O. Lewis
OLTMANS INVESTMENT COMPANY
General Partner
By: /s/ J O Oltmans II
----------------------
J.O. Oltmans II
By: /s/ Basil Johnson
----------------------
Basil C. Johnson
PATRICIAN ASSOCIATES, INC.,
a California corporation
By: /s/ Rod Vogel
---------------------------------
Its: Rod Vogel, Vice President
----------------------------------
By: /s/ Randall C. Mundt
----------------------------------
Its: Randall C. Mundt, Vice President
----------------------------------
<PAGE>
TARLTON
PROPERTIES
April 10, 1997
William S. Frank
Manager, Real Estate
ETAK, Inc.
c/o Sony Corporation of America
555 Madison Ave.
New York, NY 10022-3301
RE: LEASE EXTENSION FOR ETAK, INC.
1430 O'BRIEN DRIVE, SUITES A,B,C,D& E (BUILDING 7), MENLO PARK, CA
Dear Bill:
This letter, when executed, will serve as a formal Agreement to extend and
modify that certain lease dated March 21, 1988 and amended on March 23, 1992 and
on June 23, 1993, for the Premises located at 1430 O'Brien Drive, Suites
A,B,C,D&E (Building 7), of Menlo Business Park, California (the "Lease").
Following are the conditions of the Agreement:
1. The commencement date of this extension shall be January 1, 1998 and
the expiration shall be September 30, 2001 (coterminous with the Lease for
Building 18).
2. The term of the Lease extension shall be for a period of forty
five (45) months.
3. Paragraph 5 is hereby amended with the following monthly rent
schedule
Year 1 $44,478.55/month ($1.15/s.f.)
Year 2 Year 1 plus CPI annual increase (min 4%, max 6%)
Year 3 Year 2 plus CPI annual increase (min 4%, max 6%)
Year 4 Year 3 plus CPI annual increase (min 4%, max 6%)
4. The amount of the Security Deposit per Paragraph 7 of the
Lease is hereby amended to $44,478.55. The existing security deposit of
$38,524.20 is to be credited to new security deposit. Tenant shall deposit
with Landlord an additional $5954.35 to increase the current security deposit
to one month's rent.
5. Tenant warrants that there are no brokers other than
Tarlton Properties, Inc., acting as exclusive leasing agent for Menlo
Business Park for which any commissions shall be paid solely by Menlo
Business Park Joint Venture.
<PAGE>
Lease Extension
ETAK, Inc.
Page 56
6. Paragraph 17(c) is hereby amended as follows:
Landlord shall, at Tenants expense, obtain at competitive rates, and keep in
full force and effect, a service contract with a licensed HVAC contractor for
the maintenance of the HVAC systems in the Building which shall have the
shortest notice of termination period available.
7. All other terms and conditions of said Lease shall remain in
full force and effect. Please acknowledge your acceptance of this Agreement by
signing and returning a copy thereof.
We look forward to having ETAK remain in the Park in the upcoming years.
Sincerely,
TARLTON PROPERTIES, INC.
Exclusive Agents for Menlo Business Park Joint Venture
/s/ L.C. (Tig) Tarlton
- ----------------------
Lorrin C. Tarlton, Jr.
<PAGE>
Lease Extension
ETAK,Inc.
Page 57
READ AND AGREED
Tenant:
ETAK, Inc.
a California corporation
By: /s/
---------------------------
Its: Approved by Law Dept.
---------------------------
By:
---------------------------
Its:
---------------------------
Landlord:
PATRICIAN ASSOCIATES, INC.,
By: /s/ Kurt D. Schaeffer
---------------------------
Kurt D. Schaeffer, Vice President
By: /s/ R L Minear
---------------------------
R.L. Minear, Vice President
MENLO BUSINESS PARK,
a California general partnership
By: /s/ John O. Lewis
---------------------------
John O. Lewis, as general partner
By: Oltmans Investment Company, as general partner
By: /s/ J.O. Oltmans
---------------------------
J.O. Oltmans II
<PAGE>
Lease Extension
ETAK, Inc.
Page 58
By: /s/ Basil C. Johnson
---------------------------
Basil C. Johnson
By: Lorrin C. Tarlton, Jr., and Marilyn L. Tarlton, Trustees, As general
partner
By: /s/ Lorrin C. Tarlton, Jr., Trustee
--------------------------------------
Lorrin C. Tarlton, Jr., Trustee
By: /s/ Marilyn L. Tarlton, Trustee
----------------------------------
Marilyn L. Tarlton, Trustee
<PAGE>
Lease Extension
ETAK, Inc.
PAGE 1
AMENDMENT TO LEASE
This agreement made this 23rd day of March 1992 by and between Menlo Business
Park, a California General Partnership and Patrician Associates, Inc., a
California corporation, Lessor and ETAK, Inc., a California corporation, Lessee
being the parties to that certain Lease dated March 21, 1988 for the premises
located at 1430 O'Brien Drive, Menlo Park, California designated as Suites A, B
& C consisting of approximately 25,775 square feet hereby express mutual desire
and intent as follows:
Whereas, Lessor desires to lease to Lessee and Lessee desires to lease from
Lessor that certain additional approximately 7,407 square foot space, designated
as Suite F, adjoining the Lessee's existing space as shown on Exhibit "A2"
attached. Now, therefore, it is agreed by and between the parties hereto as
follows:
1. That the term of this Agreement shall be for twenty one (21) months and
twenty two (22) days commencing the tenth day of March 1992 and ending December
31, 1993 (coterminous with that certain Lease on existing space dated March 21,
1988, per the letter of extension dated August 27, 1991 and signed by Matt
Pitchon, Vice President of ETAK).
2. That the monthly rent shall be in accordance to the aforementioned
Lease ($0.88/square foot or $6,518.16/month, as of the signing of this
Agreement) and that said monthly rent shall be subject to adjustment in
accordance with paragraph 5 of said Lease dated March 21, 1988.
3. That the Tenants Percentage Share of Common Area Expenses shall
increase by the following amount: 7,407/64,452 = 11.49%. This brings the total
Percentage Share to 51.48% for that certain Lease.
4. That the Tenant shall, upon execution of this Agreement, pay an
additional security deposit in the amount of $6,518.16 (one month's rent).
5. That all of the other terms and conditions of said Lease remain in full
force and effect.
PAGE 1
<PAGE>
Lease Extension
ETAK, Inc.
PAGE 2
6. That the aforementioned additional space was accepted and occupied by
the Tenant as of March 10, 1992, and that rent is to be paid from that date.
7. That the aforementioned additional space was accepted "as is", with NO
exceptions.
In Witness whereof the parties hereto have executed this instrument the day and
year herein above written.
PAGE 2
<PAGE>
Lease Extension
ETAK, Inc.
PAGE 3
AMENDMENT TO LEASE
LESSEE / TENANT LESSOR/LANDLORD
ETAK, Inc., a California corporation Menlo Business Park, a California
General Partnership
by: /s/ Matt Pittchon by: /s/ John O. Lewis
-------------------------- --------------------------
John O. Lewis
its: VP OPS Its General Partner
--------------------------
Oltman's Investment Company,
a California Limited Partnership
by: /s/ J.O. Oltamans
-----------------------
J.O. Oltmans, II
General Partner
by: /s/ Basil Johnson
----------------------
Basil Johnson
General Partner
Patrician Associates, Inc.,
a California corporation
by: /s/ Timothy E. Minton
-------------------------
its: Timothy E. Minton
Vice President
by: /s/ Randall C. Mundt
-------------------------
its: Randall C. Mundt
Vice President
PAGE 3
<PAGE>
Lease Extension
ETAK, Inc.
PAGE 4
EXHIBIT "C"
SKETCH OF PROPERTY
<PAGE>
EXHIBIT C
CONSENT TO SUBLEASE AGREEMENT
The undersigned Landlord under the Master Lease attached hereto as Exhibit
"A" hereby consents to the subletting of the premises described therein on
the express conditions that:
1. Landlord's consent to the sublease shall not constitute its consent or
waiver of consent to any subsequent sublease or sub-sublease, and shall not
in any manner increase, decrease or otherwise affect the rights and
obligations of Landlord and Tenant under the Master lease unless specifically
stated herein.
2. In the event of Sublessee default, it is agreed that Sublessor will
remain liable for all the monthly lease payments and any other monies due
through the remainder of the lease term, per the Master Lease.
3. This Sublease agreement shall in no way release Sublessor from any
obligation or covenant of the Master Lease between Landlord and Tenant.
4. If any monetary default under the Master Lease occurs, Landlord will have
the right to collect the rent attributable to the subleased premises directly
from Sublessee without (i) waiving any of the Landlord's rights against
Sublessor as a result of such default and (ii) becoming liable to Sublessee
for any failure of Sublessor to perform any obligation of Sublessor under the
Sublease.
5. If at any time prior to the expiration of the term of the Sublease the
Master Lease shall terminate or be terminated for any reason (or Tenant's
right to possession shall terminate without termination of the Master Lease),
the Landlord shall have the right to elect to either: (a) cause the Sublease
to simultaneously terminate, (b) upon written demand of Landlord, and not
otherwise, to succeed to Sublessor's interest in the Sublease, in which case
Sublessee shall attorn to Landlord for the remainder of the term of the
Sublease, such attornment to be upon all of the terms and conditions of the
Master Lease and the Sublease shall be automatically assigned to Landlord
upon such written demand. The foregoing provisions of this paragraph shall
apply notwithstanding that, as a matter of law, the Sublease may otherwise
terminate upon the termination of the Master Lease and shall be
self-operative upon such written demand of the Landlord, and no further
instrument shall be required to give effect to said provisions. Upon the
demand of Landlord, however, Sublessee agrees to execute, from time to time,
documents in confirmation of the foregoing provisions of this paragraph
satisfactory to Landlord in which Sublessee shall acknowledge such attornment
and shall set forth the terms and conditions of its tenancy. Nothing
contained in this paragraph shall be construed to (i) impair or modify any
right otherwise exercisable by the Landlord, whether under the Master Lease,
any other agreement or in law, or (ii) in the event of an attornment, cause
Landlord to be:
(a) liable for any rent paid by Sublessee to Sublessor more than one month in
advance, or any security deposit paid by Sublessee to Sublessor;
1
<PAGE>
(b) liable for any act or omission of Tenant under the Master Lease or for
any default of Sublessor under the Sublease that occurred prior to the
Landlord's assumption;
(c) subject to any defenses or offsets that Sublessee may have against
Sublessor that arose prior to Landlord's assumption; or
(d) bound by any changes or modification made to the Sublease without the
written consent of Landlord.
Landlord:
PATRICIAN ASSOCIATES, INC.,
a California Corporation
By: /s/ Tim Wirta By: /s/ John N. Urban
----------------------------- ------------------------------
Print Name: Tim Wirta, Vice President Print Name: John N. Urban, Vice
President
Its: Its:
---------------------------- -----------------------------
MENLO BUSINESS PARK,
a California general partnership
By: John Owen Lewis Trust UTD April 1, 1991
As general partner
By: /s/ John O. Lewis
----------------------------
John O. Lewis, Trustee
By: Oltmans Investment Company,
as general partner
By: /s/ J.O. Oltmans II
----------------------------
J.O. Oltmans II
By: /s/ Basil C. Johnson
----------------------------
Print Name: Basil C. Johnson
2
<PAGE>
By: Lorrin C. Tarlton, Jr., and Marilyn L. Tarlton,
Trustees UTD 1-23-75, as general partner
By: /s/ Lorrin C. Tarlton, Jr.,Trustee
--------------------------------------
Lorrin C. Tarlton, Jr., Trustee
By: /s/ Marilyn L. Tarlton, Trustee
--------------------------------------
Marilyn L. Tarlton, Trustee
3
<PAGE>
ADDENDUM ONE TO SUBLEASE
Sublessor agrees to the following:
1. Terminate the existing data/phone wiring to a location accessible to
Sublessee.
2. Provide a "doorbell" for guests of Sublessee
3. Provide janitorial service to Sublessee
4. Provide access to and use of the ground floor restrooms.
Sublessor also agrees to include the use of the existing office furniture and
partitions by Sublessee for the term of the Sublease. Sublessor and Sublessee
will list furniture and partition items below within the first week of the
Sublease Term.
Any damage to the furniture and partitions, excepting normal wear and tear,
will be repaired (or replaced) at the Sublessee's sole expense.
The furniture and partitions will remain intact and with the Premises when
the Sublessee vacates the Premises.
Furniture and Partition Inventory Dated September 25, 1998:
Agreed
ETAK, Inc.
By:
-------------------------------------
Its: Director, HR & General Affairs
Drug Abuse Sciences, Inc.
By:
-------------------------------------
Its: President & CEO
4
<PAGE>
FURNITURE AND PARTITION INVENTORY
DATED SEPTEMBER 25, 1998
Quantity Description
- ------- -----------
2 6' Executive Metal Desk
1 8' Plastic Laminated Conference Table
8 4' tall metal bookcases
2 3' tall metal bookcases
3 5' metal desks
2 round tables (Plastic Laminated)
1 3' X 5' work table (Plastic Laminated)
11 2 drawer black metal files (Hon)
11 red arm-chairs
8 blue conference table chairs
2 grey executive chairs
4 grey guest chairs
6 trash cans
3 white boards
5
<PAGE>
SUBLEASE AMENDMENT NUMBER 1
This agreement is made this 23 day of October, 1998 by and between ETAK, Inc.
(Sublessor) and Drug Abuse Sciences, Inc. (Sublessee) being the parties to
that certain Sublease dated October 1,1998 for the Premises located at 1430
O'Brien Dr., Suite E, Menlo Park, CA, consisting of approximately 1,500
leasable square feet.
Now, therefore, it is agreed by and between the parties:
1.2 Neither Sublessee nor any of its employees, agents, guests or
invitees shall be permitted to use any space leased to or occupied by
Sublessor under or pursuant to the Master Lease which is not included in the
Premises, other than such common areas which are appurtenant to or service
the Premises and which are necessary for the use and occupancy thereof,
limited, however, to the extent that the same are available to Sublessor
pursuant to the terms and conditions of the Master Lease.
1.3 This Sublease and the obligation of Sublessee to pay Rent hereunder
and perform all of the other covenants and agreements hereunder on the part
of Sublessee to be performed shall in no way be affected, impaired or excused
because Sublessor is unable to fulfill any of its obligations under this
Sublease expressly or implicitly to be performed by Sublessor or because
Sublessor is unable to make, or is delayed in making, any repairs, additions,
alterations, improvements or decorations or is unable to supply or is delayed
in supplying any equipment or fixtures, if Sublessor is prevented or delayed
from so doing by reason of strikes or labor trouble or by accident,
adjustment of insurance or by any cause whatsoever reasonably beyond
Sublessor's control, including but not limited to, laws, governmental
preemption in connection with a National Emergency or by reason of any rule,
order or regulation or any federal, state, county or municipal authority or
any department or subdivision thereof or any government agency or by reason
of the conditions of supply and demand which have been or are affected by war
or other emergency.
2.1 Sublessee shall not make any alterations, additions or improvements
to the Premises without obtaining the prior written consent of Landlord (if
such consent is required under the terms of the Master Lease) and Sublessor.
Sublessor's consent shall not be unreasonably withheld. The performance of
such alterations, additions and improvements shall be subject to the terms
and conditions of the Master Lease and Sublease.
2.2 If Sublessor shall be unable to give possession of the Premises on
the Commencement Date, the Rent reserved and covenanted to be paid herein
shall not commence until the date on which Sublessor shall be able to give
possession of the Premises to Sublessee, and no such failure to give
possession on such scheduled date shall in any wise affect the validity of
this Sublease or the obligations of Sublessee hereunder or give rise to any
claim for damages by Sublessee or claim for rescission of this Sublease, nor
shall the same in any way be construed to extend the Term. If permission is
given to Sublessee to enter into the possession of the Premises, other than
for the preparation of plans, measurement of and/or decoration of the
Premises, Sublessee covenants and agrees that such occupancy shall be deemed
to be under all the terms, covenants, conditions and provisions of this
Sublease, including the covenant to pay Rent.
1-3
<PAGE>
14.7 Sublessee hereby waives its right to interpose a counterclaim in any
summary proceeding instituted to remove Sublessee from the Premises or in any
action or proceeding instituted for the collection of Fixed Rent, Additional
Rent or other amounts Sublessee is obligated to pay to Sublessor hereunder
unless such counterclaim is compulsory and by the failure to raise such claim
in the proceeding or action, Tenant, would lose the right to assert such
claim.
14.8 Sublessor covenants, that, as long as Sublessee shall duly observe,
perform and comply with all of the terms, covenants and conditions of this
Sublease on its part to be observed, performed or complied with, Sublessee
shall, subject to all of the terms of the Master Lease and this Sublease,
peaceably have, hold and enjoy the Premises during the Term without
molestation or hindrance by Sublessor.
14.9 At any time and from time to time within ten (10) days after a
written request from Sublessor or Sublessee, Sublessor or Sublessee shall
execute, acknowledge and deliver to the other a written statement certifying
(i) that this Sublease has not been modified and is in full force and effect
or, if there has been a modification of this Sublease, that this Sublease is
in full force and effect as modified, and stating such modifications, (ii)
the dates to which the Rent, additional rent and other charges hereunder have
been paid, (iii) that to the best of Sublessor's or Sublessee's knowledge, no
defaults exist under this Sublease or, if any defaults do exist, specifying
the nature of each such default and (iv) as to such other matters as
Sublessor or Sublessee may reasonably request.
14.10 If any of the provisions of this Sublease or the application thereof
to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Sublease, or the application of such
provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Sublease shall be valid and enforceable
to the fullest extent permitted by law.
14.11 This Sublease shall be governed in accordance with the laws of the
State of California.
SUBLESSOR SUBLESSEE
ETAK, Inc. Drug Abuse Sciences, Inc.
By: /s/ Louis F, Connado By: /s/ Stanley A. Kaplan
----------------------------- -------------------------------
Print Name: Louis F. Connado Stanley A. Kaplan
Its: Director, HR & General Affairs Its: President & CEO
Landlord:
PATRICIAN ASSOCIATES, INC., a California Corporation
By: /s/ Tom Wirta By: /s/ Steve W. Pick
---------------------------- -----------------------------
2-3
<PAGE>
Print Name: Tim Wirta, Vice President Print Name: Steve W. Pick, Vice
President
Its: Its:
----------------------------- ------------------------------
MENLO BUSINESS PARK, a California general partnership
By: John Owen Lewis Trust UTD April 1, 1991
As general partner
By: /s/ John O. Lewis
------------------------------
John O. Lewis, Trustee
By: Oltmans Investment Company,
As general partner
By: /s/ J.O. Otmans II
------------------------------
J.O. Oltmans II
By: /s/ Basil C. Johnson
------------------------------
Print Name: Basil C. Johnson
By: Lorrin C. Tarlton, Jr., and Marilyn L. Tarlton,
Trustees UTD 1-23-75, as general partner
By: /s/ Lorrin C. Tarlton, Jr., Trustee
--------------------------------------
Lorrin C. Tarlton, Jr., Trustee
By: /s/ Marilyn L. Tarlton, Trustee
--------------------------------------
Marilyn L. Tarlton, Trustee
3-3
<PAGE>
EXHIBIT 21.1
OUR SUBSIDIARIES
Our Subsidiaries as of January 31, 2000, are listed below.
<TABLE>
<CAPTION>
Percentage of voting
State of country Securities directly
of incorporation or indirectly
or organization owned by US
----------------- --------------------
<S> <C> <C>
Drug Abuse Sciences, SAS France 100
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated January 31, 2000 relating to the consolidated financial
statements of DrugAbuse Sciences, Inc. and its subsidiary (companies in the
development stage), which appear in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, CA
February 3, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF COUNSEL
We consent to the reference to us under the heading "Experts" in this
Registration Statement on Form S-1.
/s/ RAEVENTER LAW GROUP
Raeventner Law Group
February 3, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES F-3 AND F-4 OF THE COMPANY'S FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 SEP-30-1999
<CASH> 2,305,882 1,039,315 3,609,974
<SECURITIES> 0 0 0
<RECEIVABLES> 0 416,040 862,432
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 2,447,101 1,590,603 4,543,181
<PP&E> 146,557 336,270 389,028
<DEPRECIATION> 250 38,825 82,143
<TOTAL-ASSETS> 2,693,408 1,997,048 4,959,161
<CURRENT-LIABILITIES> 507,025 591,468 835,904
<BONDS> 0 0 0
0 0 0
1,692 1,692 2,624
<COMMON> 1,457 1,457 1,511
<OTHER-SE> 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 2,693,408 1,997,048 4,959,161
<SALES> 0 0 0
<TOTAL-REVENUES> 0 810,607 921,288
<CGS> 0 0 0
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 1,382,412 1,887,636 3,778,548
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 3,065 15,464 80,407
<INCOME-PRETAX> (1,300,163) (996,426) (2,864,752)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (1,300,163) (996,426) (2,864,752)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,300,163) (996,426) (2,864,752)
<EPS-BASIC> (0.61) (0.47) (1.35)
<EPS-DILUTED> (0.61) (0.47) (1.35)
</TABLE>
