<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GENAISSANCE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 8731 06-1338846
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Five Science Park
New Haven, Connecticut 06511
(203) 773-1450
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
GUALBERTO RUANO, M.D., PH.D.
Chief Executive Officer
Genaissance Pharmaceuticals, Inc.
Five Science Park
New Haven, Connecticut 06511
(203) 773-1450
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL LYTTON, ESQ. GEOFFREY B. DAVIS, ESQ.
Palmer & Dodge LLP Ropes & Gray
One Beacon Street One International Place
Boston, Massachusetts 02108 Boston, Massachusetts 02110
(617) 573-0100 (617) 951-7000
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering Amount of
Securities to be Registered Price(1) Registration Fee
<S> <C> <C>
Common Stock, $.001 par value per share..................... $115,000,000 $30,360
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said 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 Securities and Exchange Commission declares
our registration statement effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
<PAGE>
Subject to Completion, Dated , 2000
[LOGO]
Shares
Common Stock
This is our initial public offering and no public market currently exists for
our shares. We are offering __________shares of our common stock. We have
applied to quote our common stock on the Nasdaq National Market under the symbol
"GNSC".
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commission Genaissance
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to
additional shares to cover over-allotments.
Deutsche Banc Alex. Brown
Bear, Stearns & Co. Inc.
Salomon Smith Barney
Warburg Dillon Read LLC
The date of this prospectus is , 2000.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE
ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE
MAKING AN INVESTMENT DECISION.
Our Business
We are a leader in commercializing population genomics and informatics to
improve the development, marketing and prescribing of drugs. We apply population
genomics, the analysis of genomic variation within diverse groups of people, to
discover proprietary markers that are predictive of which patients will respond
effectively to a drug. Currently, we are marketing our technology to the
pharmaceutical industry as a fully integrated genomic solution for developing
"smarter" clinical trials and for improving the sales of approved drugs. Our
solution combines a powerful informatics system, proprietary genomic markers and
a cost effective, high-throughput process for analyzing clinical samples to
correlate drug response with patients' genomic variation. In the future, we
believe that our technology should allow physicians and patients to select
specific treatments based on a patient's genome.
The pharmaceutical industry faces intense pressure to become more productive.
Two of the industry's most challenging issues are the high cost and low success
rate of developing drugs and the need to differentiate approved drugs in highly
competitive markets. The average cost of developing a drug has increased to over
$500 million, including the costs of unsuccessful drug candidates. The industry
spends over $25 billion each year in the United States alone on marketing
products. In order to maintain revenue growth rates and profitability,
pharmaceutical companies must improve the success rate of clinical trials and
more effectively market and obtain reimbursement for their drugs.
Genomic differences clearly influence how an individual responds to a drug.
However, because there has been no practical method to correlate drug response
with genomic variability, pharmaceutical companies have not taken genomic
differences into account in planning and implementing clinical trials or in
marketing approved drugs. As a result, pharmaceutical companies may
unnecessarily discontinue further development of a drug, fail to obtain
regulatory approval for a promising drug candidate or be unable to market an
approved drug effectively.
Genomic differences can now be measured at the DNA level. Some companies are
seeking to discover individual sites of genomic variation, each commonly
referred to as a SNP, as predictive markers for correlating drug response with
genomic variability. This individual SNP approach, however, requires thousands
of patients and complex statistical analysis to detect possible predictive
markers and may lead to a large number of false associations.
Geneticists have historically studied genetic variation by analyzing the
inheritance of traits within an extended family in terms of organized genetic
units called haplotypes. At the molecular level, a haplotype consists of
multiple individual SNPs that are organized into one of the limited number of
combinations that actually exist as units of inheritance in humans. Each
haplotype contains significantly more information than individual, unorganized
SNPs. As a result, these haplotypes contain the information needed to correlate
drug response with genomic variation in a patient population of fewer than 200,
a size commonly used in phase II clinical trials, with relatively few false
associations.
1
<PAGE>
Our population genomics approach is based on the discovery and application of
haplotype markers. Our fully integrated solution, which we call HAP Technology,
combines our proprietary haplotype markers, known as HAP Markers, with a
sophisticated software tool, our DECOGEN informatics system, and a
high-throughput process, HAP Typing, for measuring which of our HAP Markers are
present in a patient's clinical blood sample. Our HAP Technology is designed for
use in clinical trials to predict or explain a patient's response to a
particular drug. We expect to provide our HAP Technology to pharmaceutical and
biotechnology companies through our HAP2000 program. We also expect to apply our
HAP Technology internally to develop predictive markers for selected approved
drugs in highly competitive markets through our Mednostics programs.
Utilizing our HAP Technology, we have discovered HAP Markers for 604 genes,
filed patent applications for HAP Markers for 365 of these genes, differentiated
patient drug response in an asthma clinical study and initiated a Mednostics
program on approved drugs for lowering cholesterol levels. We are currently
capable of discovering HAP Markers for approximately 50 genes per week and
intend to increase this number to approximately 160 genes per week by the fourth
quarter of 2000.
Our objective is to make our HAP Technology the industry standard for using
genomic variation information throughout the pharmaceutical process of
developing, marketing and prescribing drugs. The key elements of our strategy
include:
- obtaining pharmaceutical partners through our HAP2000 program;
- discovering and marketing HAP Markers for selected approved drugs in highly
competitive markets through our Mednostics program;
- discovering and patenting HAP Markers for all of the pharmaceutically
relevant genes;
- improving and expanding our DECOGEN informatics system;
- seeking strategic alliances with leading equipment and information
technology providers; and
- increasing awareness of the impact of genomic variation on the practice of
medicine.
We were incorporated in Delaware on February 22, 1992 and changed our name to
Genaissance Pharmaceuticals, Inc. on March 18, 1997. Our principal executive
offices are located at Five Science Park, New Haven, Connecticut 06511. Our
telephone number is (203) 773-1450. Our website is located at
http://www.genaissance.com. We are sponsoring a website,
http://www.hapcentral.com, to disseminate information on the benefits of using
genomic variation information in healthcare. The information on these websites
is not part of this prospectus.
This prospectus contains our trademarks, Genaissance-Registered Trademark-,
HAP-TM- Marker, HAP-TM- Typing, HAP2000-TM- partnership program, HAP-TM-
Technology, DECOGEN-TM- informatics system, ISOGENOMICS-TM- Database, and
Mednostics-TM- program. Each trademark, trade name or service mark of any other
company appearing in this prospectus belongs to its holder.
In this prospectus, Genaissance Pharmaceuticals, Inc. is referred to as "we,"
"us," or "Genaissance," unless the context indicates otherwise.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Genaissance......................... shares
Common stock outstanding after this offering................ shares
Use of proceeds............................................. To purchase consumables and
equipment for discovery of our HAP
Markers; hire additional informatics
personnel; fund internal Mednostics
programs; file additional patent
applications; and for general
corporate purposes. You should read
our discussion under "Use of
Proceeds."
Proposed Nasdaq National Market symbol...................... GNSC
</TABLE>
The number of shares to be outstanding upon completion of this offering is
based on shares outstanding as of March 31, 2000. This number assumes the
conversion into common stock of all our preferred stock outstanding on that
date, assumes the cashless exercise of warrants into 58,103 shares of common
stock upon the completion of this offering and excludes:
- 1,050,475 shares of common stock subject to options outstanding as of
March 31, 2000, with a weighted average exercise price of $2.52 per share;
and
- 628,831 shares of common stock subject to warrants outstanding as of
March 31, 2000, with a weighted average exercise price of $5.27 per share.
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
- THAT THE UNDERWRITERS HAVE NOT EXERCISED THEIR OPTION TO PURCHASE
ADDITIONAL SHARES;
- CONVERSION OF ALL SHARES OF PREFERRED STOCK INTO SHARES OF COMMON STOCK
UPON COMPLETION OF THIS OFFERING; AND
- THE FILING OF AN AMENDED AND RESTATED CERTIFICATE OF INCORPORATION UPON
COMPLETION OF THIS OFFERING TO, AMONG OTHER THINGS, INCREASE OUR AUTHORIZED
COMMON STOCK AND DECREASE OUR AUTHORIZED PREFERRED STOCK.
3
<PAGE>
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue............................................. $ 1,152 $ 1,592 $ 1,476 $ 1,417 $ 645 $ 275 $ 2,098
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Sublicense royalty obligations.................... -- 93 19 68 20 -- 514
Research and development.......................... 1,433 1,010 1,643 3,017 6,259 1,107 2,991
Selling, general and administrative............... 411 304 415 894 2,714 467 1,346
Stock based compensation.......................... -- 45 106 473 447 57 1,389
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations....................... (692) 140 (707) (3,035) (8,795) (1,356) (4,142)
Net income (loss)................................... (784) 62 (832) (2,805) (9,040) (1,235) (4,087)
Accretion of preferred stock and warrant............ -- -- -- (742) (2,207) (511) (1,893)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) attributable to common
shareholders...................................... $ (784) $ 62 $ (832) $ (3,547) $(11,247) $ (1,746) $ (5,980)
======== ======== ======== ======== ======== ======== ========
Basic net income (loss) per
common share...................................... $ (0.38) $ 0.03 $ (0.42) $ (1.64) $ (4.14) $ (0.67) $ (2.13)
Weighted average shares used in computing net income
(loss) per common share........................... 2,052 2,207 1,983 2,165 2,719 2,599 2,812
Pro forma net loss per common share, basic and
diluted........................................... $ (1.73) $ (0.44)
Pro forma weighted average shares used in computing
net loss per common share, basic and diluted...... 5,211 9,193
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 2000
------------------------------------------
Pro Forma
Actual Pro Forma(1) As Adjusted(1)
-------- ------------- ---------------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments...................... $ 54,909 $ 55,023 $
Total assets................................................ 67,355 67,469
Long-term liabilities....................................... 11,088 11,088
Redeemable convertible preferred stock...................... 68,630 --
Accumulated deficit......................................... (24,213) (24,213)
Total stockholders' equity (deficit)........................ (17,732) 51,420
</TABLE>
- ------------
(1) The pro forma column gives effect to both the conversion of our preferred
stock outstanding as of March 31, 2000 into common stock and the cashless
exercise of certain warrants upon the closing of this offering. The pro forma as
adjusted column reflects the receipt of the net proceeds from the sale of
shares of common stock offered by us at the midpoint of the range of initial
public offering prices listed on the cover page of this prospectus, and the
application of the net proceeds from this offering, after deducting underwriting
discounts and commissions and estimated offering expenses. The pro forma
information is unaudited and reflects adjustments which are necessary, in our
management's opinion, for a fair presentation of our financial condition and
results of operations on a pro forma basis.
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER WITH
THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE WHETHER TO
BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, RESULTS OF OPERATIONS, AND FINANCIAL CONDITION COULD SUFFER
SIGNIFICANTLY. IN ANY OF THESE CASES, THE MARKET PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON
STOCK.
Risks Related to Our Business
We are an early stage company that may never be profitable.
We have incurred substantial operating losses since our inception. We have
not generated any revenues from our HAP Technology, other than government
grants, and we do not expect to generate significant revenues for several years,
if ever. From inception through March 31, 2000, we had an accumulated deficit of
approximately $24 million. Our losses to date have resulted principally from
costs incurred in the development of our HAP Technology and, specifically, our
HAP Marker production facility, discovery of our HAP Markers, our DECOGEN
informatics system and general and administrative costs associated with
operations. We expect to dedicate a significant portion of our resources for the
foreseeable future to further develop and maintain our HAP Technology.
We expect to incur additional losses this year and in future years and cannot
predict when, if ever, we will achieve profitability. These losses may increase
in the near future as we expand our technology development activities. In
addition, pharmaceutical companies have never used products such as ours in
their drug development or marketing efforts and, accordingly, we cannot be
certain that they will choose to use our HAP Technology. We do not expect our
losses to be substantially mitigated by revenues from our HAP2000 or Mednostics
programs for a number of years, if ever.
Our operations also may be affected by the risks detailed elsewhere in this
section of this prospectus.
To generate significant revenues, we must obtain customers for our HAP
Technology.
Our strategy depends on entering into agreements with pharmaceutical and
biotechnology companies for our HAP2000 partnership program. To date, we have no
partners for our HAP2000 partnership program, and we cannot be certain that we
will ever have partners for our HAP2000 partnership or other partnering
programs. We have only recently commenced efforts to market our HAP Technology.
If we are unsuccessful in selling our technology and services, our business will
suffer. In addition, we expect that our future HAP2000 partnerships and
Mednostics programs will be limited to specific, limited-term projects.
Accordingly, we must continually obtain new customers for our technology and
services in order to be successful.
Furthermore, the success of our internally funded Mednostics programs will
depend upon our independent discovery of a correlation between genomic
variations and drug response and the creation of intellectual property which we
may offer to pharmaceutical companies or other interested parties. We may not
have funds sufficient to pursue our Mednostics programs
5
<PAGE>
and we may never develop intellectual property as a result of the programs. Even
if we develop intellectual property as a result of our Mednostics programs, we
may be unable to sell the intellectual property on terms sufficient to recover
our costs.
Our HAP Technology is new and unproven and may not allow us or our partners to
develop commercial products or to increase sales of currently marketed products.
Our HAP Technology involves new and unproven approaches. These approaches are
based on the assumption that information about gene association and genomic
variation may help drug development professionals better understand complex
disease processes and the drug response of particular individuals. Although the
use of genomics in analyzing diseases and drug response is increasing, we are
unaware of any successful genomics aided drug development program to date.
The focus of our HAP Technology is on the rapid discovery of HAP Markers for
all of the pharmaceutically relevant genes. We may be unable to find HAP Markers
for a significant portion of the pharmaceutically relevant genes. Our failure to
complete the discovery of HAP Markers for pharmaceutically relevant genes in a
timely manner may adversely affect our business. For example, if we fail to
identify HAP Markers useful for the development and marketing of drugs, our
current and potential partners may lose confidence in our technology and our
company, and our business may suffer as a result. Even if we are able to
discover the HAP Markers for all of the pharmaceutically relevant genes, we
cannot be certain that this information will prove to be superior to genomic
variation information discovered by our competitors. Furthermore, we cannot
guarantee that pharmaceutical and biotechnology companies will choose our
technology over competing technologies.
Our DECOGEN informatics system may also be less effective than we expect or
may not allow our partners to determine a correlation between genomic variation
and drug response. Accordingly, our HAP Markers and HAP Technology may not
improve the development, marketing and prescribing of drugs by our HAP2000 and
Mednostics partners. Furthermore, even if our partners are successful in
identifying a specific correlation between genomic variation and drug response
based on our HAP Technology, they may not be able to develop or sell
commercially viable products or to increase the sales of existing products.
We may not be able to obtain sufficient additional funding to meet our expanding
capital requirements.
We have used substantial amounts of cash to fund our research and development
activities. We expect our capital and operating expenditures to increase over
the next several years as we expand our research and development activities to
further develop our HAP Technology. Many factors will influence our future
capital needs, including:
- the demand for our HAP Technology;
- the success of our HAP2000 partnership programs;
- the results of our Mednostics programs;
- the amount of equipment, reagents and other consumables required to conduct
our research and development activities;
- the level of competition we face;
- our ability to develop, market and license new technology; and
6
<PAGE>
- our ability to manage effectively operating expenses.
We intend to rely on future HAP2000 partners for significant funding in
support of our research efforts. In addition, we may seek additional funding
through public or private equity offerings and debt financings. Additional
financing may not be available when we need it, and if financing is available,
it may not be on terms favorable to us or our stockholders. Stockholders'
ownership will be diluted if we raise additional capital by issuing equity
securities. If we raise additional funds through partnerships and other
licensing arrangements, we may have to relinquish rights to some of our
technologies or grant licenses on unfavorable terms. These situations could
adversely affect our business. If adequate funds are not available, we would
have to scale back or terminate our discovery and research programs and our
product development programs, and our business, financial condition and results
of operations would be adversely affected. We believe that the net proceeds from
this offering, existing cash and investment securities will be sufficient to
support our current operating plan for at least 24 months. We have based this
belief on assumptions that may prove wrong.
If we are unable to protect our proprietary technology, trade secrets or
know-how, we may not be able to operate our business profitably.
Our success depends, in part, on our ability to protect our DECOGEN
informatics system, HAP Marker data, and any other proprietary software, methods
and technologies that we develop, under the patent and other intellectual
property laws of the United States and other countries, so that we can prevent
others from using our inventions and proprietary information. Our success also
will depend on our ability to preserve and protect our trade secrets. In
addition, we must operate in a way that does not infringe, or violate, the
intellectual property rights of others. Despite our efforts to protect our
proprietary rights, unauthorized parties may be able to obtain and use
information that we regard as proprietary. We are aware that there are other
firms or individuals who have discovered, or are currently discovering, genomic
variation information similar to the information we are discovering. Because
patent applications in the United States are maintained in secrecy until patents
issue, third parties may have filed patent applications for technology covered
by our pending patent applications without our being aware of those
applications. If any parties should successfully claim that the creation or use
of our DECOGEN informatics system or HAP Marker data infringe upon their
intellectual property rights, it could have a material adverse effect on our
business.
Our commercial success will depend in part on obtaining patent protection.
The patent positions of pharmaceutical and biotechnology companies, including
ours, are generally uncertain and involve complex legal and factual
considerations. The standards, which the U.S. Patent and Trademark Office and
its foreign counterparts use to grant patents, are not always applied
predictably or uniformly and can change. Further, there is no uniform, worldwide
policy regarding the subject matter and scope of claims granted or allowable in
biotechnology patents, particularly those involving genomics. Consequently, we
cannot be sure that any of our pending patent applications will result in issued
patents.
We also cannot be sure that we will develop additional proprietary
technologies that are patentable, that any patents issued to us or our partners
will provide a basis for commercially viable products, will provide us with any
competitive advantages or will not be challenged by third parties, or that the
patents of others will not have an adverse effect on our ability to do business.
In addition, patent law relating to the scope of claims in the area of
genomic variation and gene discovery is still evolving. There is substantial
uncertainty in the United States and
7
<PAGE>
abroad regarding the patentability of genes, gene fragments, SNPs, or haplotypes
having no known function or medical utility. Accordingly, the degree of future
protection for our proprietary rights is uncertain and we cannot predict the
breadth of claims allowed in any patents issued to us or to others.
Others may have filed, and in the future are likely to file, patent
applications covering genes, gene products, SNPs, or haplotypes that are similar
or identical to our technology. We cannot be certain that our patent
applications will have priority over any patent applications of others. The mere
issuance of a patent does not guarantee that it is valid or enforceable; thus
even if we are granted patents, we cannot be sure that they would be valid and
enforceable against third parties. Further, a patent does not provide the patent
holder with freedom to operate in a way that infringes the patent rights of
others. Any legal action against us or our HAP2000 or Mednostics partners
claiming damages and seeking to enjoin commercial activities relating to the
affected products and processes could, in addition to subjecting us to potential
liability for damages, require us or our HAP2000 or Mednostics partners to
obtain a license in order to continue to manufacture or market the affected
products and processes. We cannot guarantee that we or our HAP2000 or Mednostics
partners would prevail in any action or that any license required under any
patent would be made available on commercially acceptable terms, if at all. If
licenses are not available, we or our HAP2000 or Mednostics partners may be
required to cease marketing our technology or practicing our methods.
We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain our
competitive position. We generally protect this information with reasonable
security measures, including confidentiality agreements signed by our employees,
academic collaborators and consultants that provide that all confidential
information developed or made known to others during the course of the
employment, consulting or business relationship will be kept confidential except
in specified circumstances. Agreements with employees provide that all
inventions conceived by the individual while employed by us are our exclusive
property. We cannot guarantee, however, that these agreements will be honored,
that we will have adequate remedies for breach if they are not honored or that
our trade secrets will not otherwise become known or be independently discovered
by competitors.
Obtaining and protecting patent and proprietary rights can be expensive. Our
strategy depends on our ability to rapidly identify and seek patent protection
for HAP Markers for all of the pharmaceutically relevant genes. Even if we
succeed in discovering these HAP Markers, we must significantly increase our
ability to prosecute the substantial number of resulting patent applications, as
well as patent applications for the large number of patentable discoveries we
have made to date for which we have not yet filed patent applications. This
process will be expensive and time consuming and we may not be able to
sufficiently increase our patent prosecution capacity or to file and prosecute
all necessary or desirable patent applications at a reasonable cost or in a
timely manner.
If a competitor files a patent application claiming technology also invented
by us or our licensors, we may have to participate in an interference proceeding
before the U.S. Patent and Trademark Office to determine the priority of the
invention. We, or our licensors, may also need to participate in interference
proceedings involving our issued patents, or patents of our licensors, and
pending applications of another entity. Our participation in an interference
proceeding would require us to spend significant amounts of time and money to
address the claims of third parties. Moreover, an unfavorable outcome in an
interference proceeding could
8
<PAGE>
require us to cease using the technology or to license rights from prevailing
third parties. Our business would be harmed if a prevailing third party does not
offer us a license or offers us a license only on terms that are not acceptable
to us.
We may need to resort to litigation to enforce a patent issued to us or to
determine the scope and validity of third party proprietary rights. The cost to
us of any litigation or other proceeding relating to intellectual property
rights, even if resolved in our favor, could be substantial and our management's
efforts would be diverted. Some of our competitors may be able to sustain the
costs of complex patent litigation more effectively than we can because they
have substantially greater resources. Uncertainties resulting from the
initiation and continuation of any litigation could have a material adverse
effect on our ability to continue our operations.
We may also be sued for infringing on the patent rights of others. If we do
not prevail in any litigation, in addition to any damages we might have to pay,
we could be required to stop the infringing activity or obtain a license. There
is no guarantee that any prevailing party would offer us a license or that we
could acquire any license made available to us on commercially acceptable terms.
In addition, some licenses may be non-exclusive, and therefore, our competitors
may have access to the same technology licensed to us. If we fail to obtain a
required license or are unable to design around a patent, we may be unable to
sell some of our technology, which could have a material adverse effect on our
business, financial condition and results of operations.
Our dependence on collaborative relationships may lead to delays in product
development and disputes over rights to technology.
Under our current strategy, and for the foreseeable future, we do not expect
to develop or market pharmaceutical products on our own. As a result, our
current and future revenues will depend on payments from our HAP2000 and
Mednostics partners for new products that they may develop in the future, or for
increased sales of their existing products, made possible through the use of our
HAP Technology. Our HAP2000 and Mednostics partners will be responsible for
pre-clinical study and clinical development of their therapeutic and diagnostic
products and for regulatory approval, manufacturing and marketing of any such
products or enhanced marketing claims that result from our HAP Technology. Our
agreements with HAP2000 and Mednostics partners will typically allow them
significant discretion in electing whether to pursue these activities. We cannot
control the amount and timing of resources our HAP2000 and Mednostics partners
will devote to our programs or potential products. Our HAP2000 and Mednostics
arrangements may also have the effect of limiting the areas of research that we
may pursue either alone or with others.
If any HAP2000 or Mednostics partner breaches or terminates its agreement
with us, or otherwise fails to perform its contractual obligations successfully
and in a timely manner, the development or commercialization of products,
services, technologies or research programs may be delayed or terminated.
Furthermore, if our HAP2000 or Mednostics partners develop or obtain rights to
competing products, they may withdraw their support for our technology and
services.
Although we intend to retain the rights to all HAP Markers which we discover
as well as to HAP Markers discovered jointly with our HAP2000 partners, we may
not be able to obtain these rights. Furthermore, disputes may arise in the
future over the ownership of rights to HAP Markers as well as any other
technology we develop with our HAP2000 partners. These and other possible
disagreements between us and our HAP2000 partners could lead to delays
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in the research, development or commercialization of products. Such
disagreements could also result in litigation or require arbitration to resolve.
Any such event could adversely affect our business.
The sale of our technology and services involves a lengthy sales cycle, and we
may spend considerable resources on unsuccessful sales efforts or be unable to
complete transactions on the schedule anticipated.
Our ability to obtain customers for our technology and services will depend
in significant part upon the perception that our technology and services can
help accelerate or improve drug development and marketing efforts. Our average
sales cycle is lengthy due to the education effort that is required as well as
the need to effectively sell the benefits of our technology and services to the
research and development, clinical and marketing departments of large
pharmaceutical companies. In addition, each of our HAP2000 partnerships will
likely involve the negotiation of agreements containing terms that may be unique
to the partner involved. We may expend substantial funds and management effort
with no assurance that partnerships will result.
Our business and the products, if any, developed using the information from our
HAP Technology are subject to government regulation and ethical concerns.
Our success will depend in part on acceptance by the FDA and other regulatory
agencies of the importance of genomic variation analysis generally in the drug
approval process and, more specifically, the validity of our HAP Technology as a
basis for identifying genomic variation and for correlating genomic variation
with drug response. Without this acceptance, our business would be harmed.
Any new drug, biologic, or new drug or biologic indication developed through
the efforts of our HAP2000 or Mednostics partners as a result of their use of
our HAP Technology must undergo an extensive regulatory review process in the
United States and other countries before it can be marketed. This regulatory
process can take many years and require substantial expense. Changes in FDA
policies and the policies of similar foreign regulatory bodies can increase the
delay in regulatory review of each new drug or biological license application or
prevent approval of the application. We expect similar delays and risks in the
regulatory review process for any diagnostic product, whenever similar review or
other approval is required. Even if marketing clearance is obtained, a marketed
product and its manufacturer are subject to continuing review. Discovery of
previously unknown problems with a product may result in withdrawal of the
product from the market.
To date, no one has developed or commercialized any therapeutic or diagnostic
products using our HAP Technology. In addition, no investigational new drug
application or investigational device exemption has been submitted for any
therapeutic or diagnostic product candidate incorporating the use of our
technologies. We expect to rely on our HAP2000 and Mednostics partners to file
these applications and generally direct the regulatory review process and obtain
FDA acceptance of our HAP Technology. We cannot be certain if or when any
HAP2000 or Mednostics partner will submit an application for regulatory review
or whether any HAP2000 or Mednostics partner will be able to obtain marketing
clearance for any products on a timely basis, if at all.
Within the field of personalized health/medicine, current and future patient
privacy and healthcare laws and regulations issued by governmental or other
entities may limit the use of genomic variation data. To the extent that use of
our HAP Technology is limited or additional
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costs are imposed on our partners due to regulations, our business may be
adversely affected. In addition, use of genetic information has raised ethical
issues regarding confidentiality and the appropriate use of the resulting
information. For these reasons, governmental authorities or other entities may
call for limits on, or regulation of, the use of genetic testing or prohibit
testing for genetic predisposition to certain conditions, particularly for those
that have no known cure. Any of these scenarios could reduce the potential
markets for our HAP Technology, which could seriously harm our business.
Furthermore, we may be directly subject to regulations as a provider of
diagnostic information. To the extent that such regulations restrict the sale of
our technology or impose other costs, our business may be materially adversely
affected.
Our research and development depends on access to blood samples and other
biological materials, the use of which may be restricted.
To continue to build our proprietary database, we will need access to blood
samples, other biological materials and related clinical and other information,
which supply may be restricted. We may not be able to obtain or maintain access
to these materials and information on acceptable terms. In addition, government
regulation in the United States and foreign countries could result in restricted
access to, or use of, blood samples. If we lose access to sufficient numbers or
sources of blood samples, or if tighter restrictions are imposed on our use of
the information generated from blood samples, our business may be harmed.
Furthermore, we know of at least one lawsuit brought against a company by a
donor claiming intellectual property rights to a clinical sample donated without
an informed consent. We cannot guarantee that all donors providing the DNA
samples will have given legally valid informed consent sufficient to protect us
from liability to donors seeking intellectual property rights to their clinical
sample. The cost to us of any litigation regarding the rights to clinical
samples, even if resolved in our favor, could be substantial and our
management's efforts would be diverted.
Product liability and other claims against us may reduce demand for our
technology or result in substantial damages.
We may be exposed to claims of liability from the use of products that either
we or our HAP2000 or Mednostics partners provide. For example, we may be subject
to product liability if any of our HAP2000 or Mednostics partners develops or
commercializes a product discovered through the use of our technology which
results in injury or death to clinical trial participants or patients.
Regardless of merit or eventual outcome, product liability claims may result in:
- decreased demand for our HAP Technology and services;
- injury to our reputation;
- costs of related litigation; and
- substantial monetary awards to plaintiffs.
Furthermore, our HAP2000 and Mednostics partners may not indemnify us against
these types of claims or may not themselves be adequately insured or, in the
case of smaller
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companies, have a net worth sufficient to satisfy any product liability claims.
A product liability claim, product recall or a medical malpractice claim could
cause our business, financial condition and results of operations to suffer.
We could incur liabilities relative to the use, storage, handling, and disposal
of materials used in our research and development activities.
Our research and development, production and service activities involve the
controlled use of hazardous materials, biological waste, chemicals and patient
samples. We are subject to federal, state and local laws and regulations
governing the use, storage, handling and disposal of such materials and certain
waste products, conveyance, processing, and storage of and data on patient
samples. Further, our HAP Typing facility is subject to specific government
regulation under the Clinical Laboratory Improvement Act of 1988, or CLIA, a
federal law administered at the state level, relating to the certification of
all clinical laboratories performing tests on human specimens for the purpose of
providing information for the diagnosis, prevention or testing of any diseases.
The risk of accidental contamination or injury from these materials cannot be
completely eliminated. If we fail to comply with applicable laws or regulations,
or in the event of an accident, we could be required to pay penalties or be held
liable for any damages that result and this liability could exceed our financial
resources and harm our reputation. Furthermore, we may have to incur significant
additional costs to comply with current or future environmental laws and
regulations.
Because of the specialized nature of our business, the departure of key members
of management may prevent us from achieving our objectives.
We are highly dependent on the principal members of our management,
operations, informatics and scientific staff, including Gualberto Ruano, M.D.,
Ph.D., Kevin Rakin, Gerald F. Vovis, Ph.D. and Richard S. Judson, Ph.D. The loss
of any of these persons' services would have a material adverse effect on our
business.
The competition for qualified personnel in the biotechnology field is
intense, and our future success will depend, in part, on the continued service
of our key scientific, software, informatics and management personnel and our
ability to identify, hire and retain additional personnel. We may not be able to
continue to attract and retain the personnel necessary for the development of
our business.
The genomics field is intensely competitive and rapidly evolving, and we may
fall behind our competitors.
There is intense competition among entities attempting to identify genomic
variation predictive of specific diseases and drug response and to develop
products and services based on these discoveries. We face competition in these
areas from pharmaceutical, biotechnology and diagnostic companies, academic and
research institutions and government or other publicly-funded agencies, both in
the United States and abroad. A number of databases and informatics tools are
being marketed or are under development by companies or governments to assist
participants in the healthcare industry and academic researchers in the
management and analysis of genomic data.
Some of our competitors have developed databases containing gene sequence,
gene expression, genomic variation or other genomic information and are
marketing or plan to market their data to pharmaceutical companies. Additional
competitors may attempt to establish databases containing this information in
the future. We expect that competition in
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our industry will continue to intensify. In addition, numerous pharmaceutical
companies are developing genomic research programs, either alone or in
partnership with our competitors. In order to compete against existing and
future technologies, we will need to demonstrate to potential HAP2000 and
Mednostics partners the value of our HAP Technology and that our technologies
and capabilities are superior to competing technologies. Although we believe
that the focus of our existing informatics system on HAP Markers, rather than
random genomic SNPs, differentiates our HAP Technology from other technologies
being developed by our competitors, we cannot be sure that any technology we
create will achieve greater market acceptance than those of our competitors. If
our approach based on identifying HAP Markers is accepted, our competitors may
adopt approaches similar to ours. Also, our competitors' customers may be more
successful than our customers in their drug development and marketing efforts,
which could have an adverse effect on our programs and revenues.
Most of our competitors have substantially greater capital resources,
research and development staffs, facilities, manufacturing and marketing
experience, distribution channels and human resources than we do. These
competitors may discover, characterize or develop important gene sequences or
drug discovery technologies before us or our HAP2000 or Mednostics partners that
are more effective than those developed by us or our HAP2000 or Mednostics
partners, or may obtain regulatory approvals of their drugs more rapidly than
our HAP2000 or Mednostics partners do, any of which could have a material
adverse effect on any of our similar programs. Moreover, our competitors may
obtain patent protection or other intellectual property rights that would limit
our rights or our customers' ability to use our technology to commercialize
therapeutic or diagnostic products.
We will rely on our partners for preclinical and clinical development of
related potential products and the manufacturing and marketing of these
products. Each of our partners will likely be conducting multiple product
development efforts within each disease area that is the subject of their
agreement with us. Generally, our agreements with our partners will not preclude
them from pursuing development efforts using approaches distinct from the
approaches which are the subject of our agreement with them. Any product under
development pursuant to a partnership, therefore, may be subject to competition
with another potential product under development by that partner.
Future competition will come from existing competitors as well as other
companies seeking to develop new technologies for drug discovery and development
based on genomic variation information, gene sequencing, target gene
identification, informatics and related technologies. In addition, certain
pharmaceutical and biotechnology companies have significant needs for genomic
information and may choose to develop or acquire competing technologies to meet
such needs.
Genomic technologies have undergone, and are expected to continue to undergo,
rapid and significant change. Some of our competitors and potential competitors
are developing proprietary gene sequencing technologies that may be more
advanced than ours. Our future success will depend in large part on maintaining
a competitive position in the genomics field. Rapid technological development by
us or others may result in products or technologies becoming obsolete before we
recover the expenses we incur in connection with our development. Products
offered by us could be made obsolete by less expensive or more effective drug
discovery and development technologies, including technologies that may be
unrelated to genomics. We may not be able to make the enhancements to our
technology necessary to compete successfully with newly emerging technologies.
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Our potential partners are primarily from, and are subject to risks faced by,
the pharmaceutical and biotechnology industries.
Our success will depend on our ability to derive a substantial portion of our
revenues from fees paid by pharmaceutical and biotechnology companies in our
HAP2000 partnership programs. We expect pharmaceutical and biotechnology
companies to be our primary source of any revenues we obtain for the foreseeable
future. As a result, we are subject to risks and uncertainties that affect the
pharmaceutical and biotechnology industries, including reduction and delays in
research and development expenditures by companies in these industries.
There is also the risk that any products developed by our HAP2000 and
Mednostics partners will:
- be found to be toxic;
- be found to be ineffective;
- fail to receive necessary regulatory approvals;
- be difficult or impossible to manufacture on a large scale;
- be uneconomical to market;
- fail to be developed prior to the successful marketing of similar products
by competitors;
- be impossible to market because they infringe on the proprietary rights of
third parties or compete with products marketed by third parties that are
superior; or
- compete unsuccessfully with other currently marketed products.
In addition, our future revenues may be adversely affected by mergers and
consolidation in the pharmaceutical and biotechnology industries, which will
reduce the number of our potential partners. Large pharmaceutical customers also
could decide to conduct their own genomics programs or to seek other providers
instead of using our technology and services.
We depend on a third party as the sole or limited source of supply for our gene
sequencing machines and a particular reagent used in those machines.
We use high-throughput, ABI Prism-Registered Trademark- 3700 capillary
electrophoresis gene sequencing machines manufactured by PE Biosystems Group, a
division of PE Corporation, in our computer-aided sequencing operations. These
machines are commercially available and are being used by at least one of our
competitors. There is a limited supply of these machines, and if we are unable
to obtain access to additional machines on acceptable terms, we may be unable to
find machines with comparable throughput from competing vendors. We also rely to
a substantial extent on PE Biosystems as the sole source supplier of a
particular reagent used in our gene sequencing machines. PE Biosystems Group is
an affiliate of Celera Genomics Group, a division of PE Corporation, which is
attempting to use genomic information in the drug discovery, development and
marketing process. Our reliance on outside vendors generally, and on PE
Biosystems in particular, involves several risks, including:
- the inability to obtain an adequate supply of required components due to
manufacturing capacity constraints, a discontinuance of a product by a
third party manufacturer or other supply constraints;
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- reduced control over quality and pricing of components; and
- delays and long lead times in receiving materials from vendors.
We may not be able to successfully obtain sufficient quantities of gene
sequencing machines or reagents on a cost competitive and timely basis. If we
are unable to establish relationships with additional suppliers or vendors for
the necessary components, we may not be able to provide our technology and
services in a cost effective or timely manner, and our business could be harmed.
Our business is dependent on the reliable and secure operation of our computer
hardware, software, and related infrastructure.
Because our business requires manipulating and analyzing large amounts of
data, we depend on the continuous, effective, reliable and secure operation of
our computer hardware, software, and related infrastructure. To the extent that
our hardware or software malfunctions, our business could suffer. Our computer
hardware is protected through physical and software safeguards. However, it is
still vulnerable to casualty events, power loss, telecommunications failures,
physical or software break-ins and similar events. In addition, the software and
algorithmic components of our DECOGEN informatics system are complex and
sophisticated, and as such, could contain data, design or software errors that
could be difficult to detect and correct. Software defects could be found in
current or future products. If we fail to maintain and further develop the
necessary computer capacity and data to support our computational needs and our
customers' drug discovery and development efforts, we could experience loss of
or delay in revenues and market acceptance.
If we do not effectively manage our growth, it could affect our ability to
pursue business opportunities and expand our business.
We expect to continue to experience significant growth in the number of our
employees and customers and the scope of our operations. In particular, we plan
significant growth in our HAP Technology and Mednostics programs. Growth in our
business has placed, and may continue to place, a significant strain on our
management and operations. We will need to continue to improve our operational
and financial systems and managerial controls and procedures and expand, train
and manage our workforce. We will have to maintain close coordination among our
production, technical, accounting, marketing, business development and research
departments. Our ability to manage this growth will depend upon our ability to
broaden our management team and our ability to attract, hire and retain skilled
employees. Our success will also depend on the ability of our officers and key
employees to continue to implement and improve our operational and other
systems, to manage multiple, concurrent HAP2000 partner relationships and to
hire, train and manage our employees. Our future success is heavily dependent
upon growth and acceptance of our HAP Technology. In addition, we must continue
to invest in customer support resources as the number of our partners and their
requests for support increase. Our partners are likely to have worldwide
operations and may require support at multiple U.S. and foreign sites. If we
cannot scale our business appropriately or otherwise adapt to anticipated growth
in this area, a key part of our strategy may not be successful.
Damages to our facilities could prevent us from effectively operating our
business.
All of our facilities are located at a single location in New Haven,
Connecticut. Damage to our facilities due to fire, weather, earthquake or other
natural disaster, power loss,
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unauthorized entry or other events could cause an interruption in the operation
of our HAP Typing facility, development of our HAP Technology, discovery of our
HAP Markers and our performance under any agreements we may enter into under our
HAP2000 program or other programs. A prolonged interruption in our operations
could have a material adverse impact on our ability to effectively develop our
HAP Technology and operate our business. The insurance we have purchased may not
be sufficient to cover any losses incurred.
Our operating results may fluctuate significantly and any failure to meet
financial expectations may disappoint securities analysts or investors and
result in a decline in our common stock price.
Our operating results have fluctuated in the past and we expect they will
fluctuate in the future. These fluctuations could cause our common stock price
to decline. Some of the factors that could cause our operating results to
fluctuate include:
- recognition of non-recurring revenue due to receipt of license fees,
achievement of milestones, completion of contracts or other revenues;
- demand for and market acceptance of our HAP Technology;
- entry into HAP2000 partnership programs or other material contracts;
- our competitors' announcements or introduction of new products, services or
technological innovations;
- disputes regarding patents or other intellectual property rights;
- securities class action or other litigation;
- adverse changes in the level of economic activity in the United States and
other major regions in which we do business; and
- general and industry-specific economic conditions, which may affect our
partners' research and development expenditures and use of our HAP
Technology.
Due to volatile and unpredictable revenues and operating expenses, we believe
that period-to-period comparisons of our results of operations may not be a good
indication of our future performance. It is possible that, in some future
periods, our operating results may be below the expectations of securities
analysts or investors. In this event, the market price of our common stock could
fluctuate significantly or decline.
Risks Related to this Offering
We do not have an exact plan for the use of the net proceeds of this offering
and will therefore have broad discretion as to the use of these proceeds, which
we may not use effectively.
We have no exact plan with respect to the use of the net proceeds of this
offering and have not committed these proceeds to any particular purpose apart
from expenses of the business and general working capital. Accordingly, our
management will have broad discretion in applying the net proceeds of this
offering and may use the proceeds in ways with which you and our other
stockholders may disagree. The net proceeds may be used for corporate purposes
that do not increase our profitability or our stock price. Furthermore, our
failure to invest these funds effectively would adversely affect our financial
condition.
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Purchasers in this offering will suffer immediate dilution.
If you purchase common stock in this offering, the value of your shares based
upon our actual book value will immediately be less than the offering price you
paid. This reduction in the value of your equity is known as "dilution." Based
upon the net tangible book value of the common stock at March 31, 2000, your
shares will be worth $ less per share than the price you paid in the offering.
If the options and warrants we previously granted are exercised, additional
dilution is likely to occur. As of March 31, 2000, options to purchase 1,050,475
shares of common stock were outstanding, at the weighted average exercise price
of $2.52 and warrants to purchase 628,831 shares of common stock, at the
weighted average exercise price of $5.27 will be outstanding. In addition, if we
raise additional funding by issuing more equity securities, the newly issued
shares will further dilute the voting power of your investment on a percentage
basis.
The sale of a substantial number of shares could cause the market price of our
common stock to decline.
Our sale or the resale by our stockholders of shares of our common stock
after this offering could cause the market price of the common stock to decline.
We intend to file registration statements following the offering to permit the
sale of 3,807,375 shares of our common stock to cover shares issuable under our
stock option and employee stock purchase plans.
As of March 31, 2000, options to purchase 1,050,475 shares of our common
stock upon exercise of options with a weighted average exercise price per share
of $2.52 were outstanding. Many of these options are subject to vesting that
generally occurs over a period of up to four years following the date of grant.
In addition, as of March 31, 2000, warrants to purchase 628,831 shares of our
common stock with a weighted average exercise price per share of $5.27 were
outstanding.
Future sales of common stock in the public market following this offering
could also adversely affect the market price of our common stock. After this
offering, we will have shares of common stock outstanding. Of these
shares, the shares sold in this offering will be freely
transferable without restriction.
Substantially all of our stockholders will have signed lock-up agreements
before the commencement of this offering. Under these lock-up agreements, these
stockholders will agree, subject to certain limited exceptions, not to sell any
shares owned by them as of the effective date of this prospectus for a period of
180 days thereafter, unless they first obtain the written consent of the
managing underwriter. At the end of 180 days, approximately 1,907,740 shares of
common stock, excluding shares issuable upon exercise of vested options, will be
eligible for immediate resale.
The remainder of the approximately 13,614,006 shares of common stock
outstanding will become eligible for sale at various times over a period of
approximately two years. In addition, 628,831 shares of common stock issuable
upon exercise of warrants held by existing warrant holders will become eligible
for sale at various times over a period of approximately two years.
The holders of 13,220,095 shares of common stock issuable upon conversion of
preferred stock and issuable upon the exercise of warrants will have the right
in certain circumstances to require us to register their shares for resale to
the public. Please read our discussion of registration rights under "Description
of Stock."
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An active public market for our common stock may not develop or be sustained
after this offering and our common stock may have a volatile public trading
price which could fall below the initial public offering price. As a result, you
could lose all or part of your investment.
Prior to this offering, our equity did not trade in a public market. We
cannot assure you that an active trading market for our common stock will
develop following this offering. You may not be able to sell your shares quickly
or at the market price if trading in our stock is not active.
We and the underwriters, through negotiations, determined the initial public
offering price. The initial public offering price may bear no relationship to
the price at which the common stock will trade upon completion of this offering.
Please see the section in this prospectus entitled "Underwriting" for more
information regarding our arrangement with the underwriters and the factors
considered in setting the initial public offering price.
The market prices for securities of companies comparable to us have been
highly volatile, and the market has experienced significant price and volume
fluctuations that are unrelated to the operating performance of the individual
companies. Many factors may have a significant adverse effect on the market
price of the common stock, including:
- conditions and publicity regarding the genomics or life sciences industries
generally;
- sales of substantial amounts of our stock by existing stockholders;
- price and volume fluctuations in the stock market at large which do not
relate to our operating performance;
- comments by securities analysts or our failure to meet analysts'
expectations;
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations by us or our competitors;
- new products or services introduced or announced by us or our competitors;
- changes in financial estimates by securities analysts;
- changes in the market valuations of other similar companies;
- announcements by us of significant acquisitions, strategic partnerships,
joint ventures or capital commitments; and
- additions or departures of key personnel.
Furthermore, the stock market has from time to time experienced extreme price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, in the past, class action lawsuits have been
initiated against biotechnology and pharmaceutical companies following periods
of volatility in the market prices of these companies' stock. In the future, we
may be the target of similar litigation. In general, decreases in our stock
price would reduce the value of our stockholders' investments and could limit
our ability to raise necessary capital or make acquisitions of assets or
businesses. If litigation were instituted on this basis, it could result in
substantial costs and would divert management's attention and resources. This
could have a material adverse effect on our business, financial condition and
results of operations.
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Concentration of ownership of our common stock among our existing executive
officers, directors and principal stockholders may prevent new investors from
influencing significant corporate decisions.
Upon completion of this offering, our executive officers, directors and
beneficial owners of 5% or more of our common stock and their affiliates will,
in aggregate, beneficially own approximately % of our outstanding common stock
or % if the underwriters' over-allotment option is exercised in full. As a
result, these persons, acting together, may have the ability to determine the
outcome of matters submitted to our stockholders for approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets. In addition, such persons, acting together,
may 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 the section entitled "Principal Stockholders" for additional
information on concentration of ownership of our common stock.
Anti-takeover provisions in our charter documents and under Delaware law may
make it more difficult for a third party to acquire us.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and
our charter documents as filed on the closing of this offering may make a change
in control more difficult, even if the stockholders desire a change in control.
Our anti-takeover provisions include provisions in our certificate of
incorporation providing that stockholders' meetings may only be called by the
president or the majority of the board of directors and a provision in our
by-laws providing that our stockholders may not take action by written consent.
Additionally, our board of directors has the authority to issue 1,000,000 shares
of preferred stock and to determine the terms of those shares of stock without
any further action by our stockholders. The rights of holders of our common
stock are subject to the rights of the holders of any preferred stock that may
be issued. The issuance of preferred stock could make it more difficult for a
third party to acquire a majority of our outstanding voting stock. Our charter
also provides for the classification of our board of directors into three
classes. This "staggered board" generally may prevent stockholders from
replacing the entire board in a single proxy contest. In addition, our directors
may only be removed from office for cause. Delaware law also prohibits a
corporation from engaging in a business combination with any holder of 15% or
more of its capital stock until the holder has held the stock for three years
unless, among other possibilities, the board of directors approves the
transaction. The board may use this provision to prevent changes in our
management. Also, under applicable Delaware law, our board of directors may
adopt additional anti-takeover measures in the future.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, principally in the
sections entitled "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and "Business." Generally, these statements can be
identified by the use of phrases like "believe," "expect," "anticipate," "plan,"
"may," "will," "could," "estimate," "potential," "opportunity" and "project" and
similar terms and include statements about:
- our research and development activities and projected expenditures;
- the ability of our technologies to improve the drug development process and
to enhance the marketing and prescribing of approved drugs;
- the advantages of our HAP Technology as compared to other technologies
including our approach to identifying markers for genomic variation and
correlating drug response with these markers;
- our ability to obtain partners for our HAP 2000 program and to license the
intellectual property from our Mednostics program and the terms of these
arrangements;
- the receipt of regulatory approvals by us or our partners;
- our spending of the proceeds from this offering;
- our cash needs;
- implementation of our corporate strategy; and
- our financial performance.
These forward-looking statements may involve risks and uncertainties. Our
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed in "Risk Factors." You should carefully
consider that information before you make an investment decision. You should not
place undue reliance on our forward-looking statements.
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USE OF PROCEEDS
The net proceeds to us from the sale of shares of common stock
in this offering at an assumed public offering price of $ per share are
estimated to be $ million after deducting underwriting discounts and
commissions and estimated offering expenses payable by us. The net proceeds to
us are estimated to be $ million if the underwriters' over-allotment option is
exercised in full.
We intend to use the net proceeds of this offering to:
- purchase consumables and equipment to accelerate our efforts to discover
HAP Markers for all of the pharmaceutically relevant genes;
- hire additional personnel for our informatics team with the goal of
improving the capabilities and features of our DECOGEN informatics system;
- fund our Mednostics programs;
- file additional patent applications to protect our intellectual property;
- acquire complementary businesses or technologies, although we currently
have no specific understandings, commitments or agreements with respect to
any acquisition; and
- support general corporate purposes, including working capital.
We have not determined the amount of net proceeds to be used for each of
these purposes. Accordingly, we will have broad discretion to use the proceeds
as we see fit. Prior to spending the funds, we will invest the net proceeds in
short-term, investment grade, interest-bearing securities or guaranteed
obligations of the United States government.
DIVIDEND POLICY
We have never paid cash dividends. We currently intend to retain any future
earnings to finance the growth and development of our business. We do not intend
to pay cash dividends on our common stock in the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
- our actual capitalization as of March 31, 2000;
- our pro forma capitalization after giving effect to the conversion of all
outstanding shares of preferred stock into 12,704,166 shares of common
stock upon completion of this offering and after giving effect to the
cashless exercise of warrants into 58,103 shares of common stock; and
- our pro forma capitalization as adjusted to reflect the receipt of the net
proceeds from our sale of shares of common stock at an assumed
initial public offering price of $ per share in this offering,
less underwriting discounts and commissions and estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
As of March 31, 2000
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)(in thousands)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, less current
portion................................................... $ 9,090 $ 9,090 $
Series A and KBL redeemable, convertible preferred stock,
$0.001 par value, 2,768,000 shares authorized; 2,437,500
shares issued and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted........... 11,594 --
Series B and KBH redeemable, convertible preferred stock,
$0.001 par value, 9,093,524 shares authorized; 8,727,273
shares issued and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted........... 45,143 --
Series C redeemable, convertible preferred stock,
$0.001 par value, 2,242,245 shares authorized; 1,539,393
shares issued and outstanding actual; no shares issued and
outstanding pro forma and pro forma as adjusted........... 11,893 --
Puttable warrant............................................ 408 --
Stockholders' equity:
Common stock, $0.001 par value; 22,000,000 shares
authorized, 2,817,580 shares issued and outstanding
actual; 15,579,849 shares issued and outstanding, pro
forma; shares issued and outstanding, pro forma as
adjusted................................................. 3 15
Additional paid-in capital................................ 6,504 75,644
Net unrealized investment loss............................ (26) (26)
Accumulated deficit....................................... (24,213) (24,213)
-------- -------- --------
Total stockholders' equity.................................. (17,732) 51,420
-------- -------- --------
Total capitalization........................................ $ 60,396 $ 60,510 $
======== ======== ========
</TABLE>
This table does not include:
- 1,050,475 shares subject to outstanding options as of March 31, 2000 at a
weighted average exercise price of $2.52.
- 628,831 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $5.27.
22
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000, after giving
effect to the automatic conversion of our preferred stock and the cashless
exercise of certain warrants upon the closing of this offering, was
$51.0 million, or $3.27 per share of common stock. Net tangible book value per
share is determined by dividing our tangible book value (total tangible assets
less total liabilities) by the number of outstanding shares of common stock at
that date. After giving effect to the sale of the shares of our common
stock offered by us at an assumed public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses, our net tangible book value on March 31, 2000 would have been
$ , or $ per share. This represents an immediate increase in net
tangible book value to existing stockholders of $ per share and an immediate
dilution to new investors of $ per share. The following table illustrates
the calculation of per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
-----
Pro forma net tangible book value per share before this
offering................................................. $3.27
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 2000,
the number of shares of common stock purchased, the total consideration paid and
the average price per share paid by our existing stockholders. The following
table also enumerates the number of shares of common stock purchased and the
total consideration paid, calculated before deduction of underwriting discounts
and commissions and estimated offering expenses, and the average price per share
paid by the new investors in this offering assuming the sale of shares of
our common stock at an assumed initial offering price of $ per share.
<TABLE>
<CAPTION>
Shares Issued Total Consideration
---------------------- ----------------------- Average Price
Number Percent Amount Percent Per Share
----------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 15,579,849 % $73,136,960 % $4.69
New investors....................... $
---------- --- ----------- ---
Total............................. 100% $ 100%
========== === =========== ===
</TABLE>
The above discussion and tables assume no exercise of the underwriters'
over-allotment and no exercise of stock options or warrants outstanding as of
March 31, 2000, except for those warrants which will be exercised upon
completion of the offering, and gives effect to the conversion of all shares of
preferred stock outstanding as of that date into common stock upon completion of
this offering. As of March 31, 2000, there were additional warrants outstanding
to purchase 628,831 shares of common stock at a weighted average exercise price
of $5.27 per share, options outstanding to purchase 1,050,475 shares of common
stock at a weighted average exercise price of $2.52 per share under our stock
option plan and additional shares reserved for future option grants under this
plan. To the extent the warrants and outstanding options are exercised and the
underlying shares are issued, there will be further dilution to new investors.
If all of these options and warrants had been exercised as of March 31, 2000,
net tangible book value per share after this offering would be $ and total
dilution per share to new investors would be $ .
23
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following selected financial data should be read in conjunction with our
financial statements and related notes included elsewhere in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this prospectus. The selected balance sheet data set forth below,
as of December 31, 1998 and 1999, and the statements of operations data for each
of the years in the three-year period ended December 31, 1999, are derived from
our financial statements which have been audited by Arthur Andersen LLP,
independent public accountants, which are included elsewhere in this prospectus.
The selected balance sheet data as of December 31, 1996 and 1997 and selected
statements of operations data for the years ended December 31, 1996 and 1997 are
derived from audited financial statements not included in this prospectus. The
selected balance sheet data as of December 31, 1995 and selected statement of
operations data for the year then ended have been derived from unaudited
financial statements which, in the opinion of management, include all
adjustments necessary for a fair presentation of such data. The selected
financial data as of March 31, 2000 and for the three months ended March 31,
1999 and 2000 are derived from our unaudited financial statements which are
included elsewhere in this prospectus and which include, in our opinion, all
adjustments, consisting of only normal recurring adjustments that are necessary
for a fair presentation of our financial position and results of operations for
those periods. The historical results are not necessarily indicative of the
results that may be expected for fiscal year 2000.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
----------- -------- -------- -------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue............................ $ 1,152 $ 1,592 $ 1,476 $ 1,417 $ 645 $ 275 $ 2,098
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Sublicense royalty obligations... -- 93 19 68 20 -- 514
Research and development......... 1,433 1,010 1,643 3,017 6,259 1,107 2,991
Selling, general and
administrative................. 411 304 415 894 2,714 467 1,346
Stock based compensation......... -- 45 106 473 447 57 1,389
-------- -------- -------- -------- -------- -------- --------
Total operating expenses........... 1,844 1,452 2,183 4,452 9,440 1,631 6,240
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations...... (692) 140 (707) (3,035) (8,795) (1,356) (4,142)
Interest income (expense), net..... (92) (78) (125) (29) (245) 121 55
Realized gains on investments...... -- -- -- 259 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................. (784) 62 (832) (2,805) (9,040) (1,235) (4,087)
Accretion of preferred stock and
warrant.......................... -- -- -- (742) (2,207) (511) (1,893)
-------- -------- -------- -------- -------- -------- --------
Basic net income (loss)
attributable to common
shareholders..................... $ (784) $ 62 $ (832) $ (3,547) $(11,247) $ (1,746) $ (5,980)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common
share............................ $ (0.38) $ 0.03 $ (0.42) $ (1.64) $ (4.14) $ (0.67) $ (2.13)
======== ======== ======== ======== ======== ======== ========
Weighted average shares used in
computing net income (loss) per
common share..................... 2,052 2,207 1,983 2,165 2,719 2,599 2,812
Pro forma net loss per common
share, basic and diluted......... $ (1.73) $ (0.44)
Pro forma weighted average shares
used in computing net loss per
common share, basic and diluted.. 5,211 9,193
</TABLE>
24
<PAGE>
SELECTED FINANCIAL DATA (Continued)
(In thousands, except per share data)
<TABLE>
<CAPTION>
As of December 31, As of March 31,
------------------------------------------------------- ---------------
1995 1996 1997 1998 1999 2000
----------- -------- -------- -------- -------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
investments........................ $ 14 $ 304 $ 1,420 $ 7,419 $ 3,666 $ 54,909
Total assets......................... 461 782 1,899 8,946 11,514 67,355
Long-term liabilities................ 1,182 1,113 1,405 2,348 10,986 11,088
Redeemable convertible preferred
stock.............................. -- -- 750 9,945 11,247 68,630
Accumulated deficit.................. (2,469) (2,554) (3,439) (6,986) (18,233) (24,213)
Total stockholders' equity
(deficit).......................... (1,989) (822) (1,369) (4,128) (14,371) (17,732)
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND THE
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA" AND OUR FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS
PROSPECTUS. THE DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS, UNCERTAINTIES, AND ASSUMPTIONS. THE ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF MANY FACTORS, INCLUDING BUT NOT LIMITED TO, THOSE SET FORTH UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
Overview
We are a leader in commercializing population genomics and informatics to
improve the development, marketing and prescribing of drugs. We apply population
genomics, the analysis of genomic variation within diverse groups of people, to
discover proprietary markers that are predictive of which patients will respond
effectively to a drug. Currently, we are marketing our technology to the
pharmaceutical industry as a fully integrated genomic solution for developing
"smarter" clinical trials and for improving the sales of approved drugs. Our
solution combines a powerful informatics system, proprietary genomic markers and
a cost effective, high-throughput process for analyzing clinical samples to
correlate drug response with patients' genomic variation. In the future, we
believe that our technology should allow physicians and patients to select
specific treatments based on a patient's genome.
We have incurred substantial operating losses since our inception. We have
not generated any revenues from our HAP Technology, other than government
grants, and we do not expect to generate significant revenues for several years.
From inception through March 31, 2000, we had an accumulated deficit of
$24.2 million. Our losses to date have resulted principally from costs incurred
in the development of our HAP Technology and, specifically, our HAP Marker
production facility, discovery of our HAP Markers, our DECOGEN informatics
system and general and administrative costs associated with operations. We
expect to dedicate a significant portion of our resources for the foreseeable
future to further develop and maintain our HAP Technology.
Results of Operations
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenue consists primarily of proceeds received in connection with research
grants and through the sublicensing of certain technologies. Revenue increased
to $2.1 million in the three months ended March 31, 2000 from $274,721 in the
three months ended March 31, 1999. The 2000 revenue resulted from an amendment
to a license agreement that generated a nonrefundable fee of approximately
$2.1 million. Because we have no future obligations or ongoing commitments to
either support or maintain the technology or to provide any future products or
services, we recognized the fee immediately. There was no corresponding license
revenue in 1999. The 1999 revenue consisted of research grant revenue. There was
no corresponding research grant revenue in 2000.
26
<PAGE>
Sublicense royalty expense represents royalties paid by us on licensed
technologies. The $513,912 of sublicense royalty expense for the three months
ended March 31, 2000 relates primarily to the non-refundable fee recognized in
connection with the license agreement amendment.
Research and development expenses consist primarily of payroll and benefits
for research and development personnel, material and reagent costs, depreciation
and maintenance costs for equipment used for HAP Marker discovery and facility
related costs. We expense our research and development costs as incurred.
Research and development expenditures increased to approximately $3.0 million in
the three months ended March 31, 2000 from $1.1 million in the three months
ended March 31, 1999. The increase in expenditures is attributable to the
significant increase in the discovery of HAP Markers during 2000. The increased
HAP Marker discovery required additional personnel, materials and reagents and
additional equipment, which resulted in additional depreciation expense. Payroll
costs also increased in connection with the development of our propriety DECOGEN
informatics system. Lastly, facility related costs increased as a result of our
relocation to a larger facility in February 1999. We expect research and
development costs to continue to increase significantly over the next few years
as we continue to increase our HAP Marker discovery and as we continue to invest
in ongoing product development efforts related to our DECOGEN informatics
system.
Selling, general and administrative expenses consist primarily of payroll and
benefits for executive, business development, legal, finance and other
administrative personnel, as well as business development efforts, facility
related costs and outside professional fees incurred in connection with legal,
patent and financial matters. Selling, general and administrative expenses
increased to approximately $1.3 million in the three months ended March 31, 2000
from $467,149 in the three months ended March 31, 1999. The increase is
primarily attributable to an increase in business development, legal and
administrative personnel to support our continued growth, our expanded business
development efforts related to our HAP Technology and our increased number of
patent applications. In addition, facility related costs increased as a result
of our relocation. We expect selling, general and administrative costs to
continue to increase over the next few years to support our growth, to fund our
patent strategy, to broaden the marketing of our products and to pay the costs
of operating as a public company.
Stock based compensation relates primarily to options granted to scientific
advisory board members. The accounting for options granted to scientific
advisory board members requires us to record periodic charges for unvested
options based on an increase in the fair value of our common stock and the
related vesting of the options. Stock based compensation increased to
approximately $1.4 million in the three months ended March 31, 2000 from $57,238
in the three months ended March 31, 1999. The increase is due to our decision to
vest fully all unvested options previously granted to scientific advisory board
members. As of March 31, 2000, there were no outstanding unvested options for
scientific advisory board members.
Interest income results primarily from investing proceeds raised through the
issuance of equity securities. Interest income increased to approximately
$327,727 in the three months ended March 31, 2000 from $143,833 in the three
months ended March 31, 1999. The increase is the result of our investment of the
proceeds raised in connection with our issuance of preferred stock in February
and March 2000.
Interest expense results primarily from capital lease obligations, as well as
other long-term debt. Interest expense increased to approximately $272,786 in
the three months ended
27
<PAGE>
March 31, 2000 from $22,151 in the three months ended March 31,1999. The
increase is due to additional capital lease and other debt obligations resulting
from our significant investment in equipment to support the increased discovery
of our HAP Markers, as well as costs incurred in connection with the expansion
of our facility.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenue decreased to $644,674 in 1999 from $1.4 million in 1998. The decrease
resulted primarily from a $648,898 decrease in grant research revenue. The
decrease in grant research revenue occurred because we decided not to pursue
research grant funding but to focus instead on commercializing our HAP2000
program and obtaining private equity financing.
Research and development expenses increased to approximately $6.3 million in
1999 from $3.0 million in 1998. The increase was attributable to the increased
production of HAP Markers and the development of our proprietary DECOGEN
informatics system.
Selling, general and administrative expenses increased to approximately
$2.7 million in 1999 from $893,574 in 1998. The increase was attributable to an
increase in personnel from our expanded operations, additional business
development costs from marketing our products, additional patent costs from an
increase in patent applications and higher operating costs from our move to a
larger facility in February 1999.
Interest income increased to $266,596 in 1999 from $88,284 in 1998. The
increase was due to proceeds received in connection with the issuance of
preferred stock in August of 1998, which resulted in an increase in funds
available for investment.
Interest expense increased to $512,030 in 1999 from $118,044 in 1998. The
increase was due to additional capital lease and other debt obligations.
Realized gains on investments in 1998 resulted from the one-time sale of an
investment in common stock that was acquired by us in 1996.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenue decreased to $1.4 million in 1998 from $1.5 million in 1997. The
decrease resulted from a decrease in other income, which was partially offset by
an increase in grant research revenue.
Research and development expenses increased to $3.0 million in 1998 from
$1.6 million in 1997 primarily because of an increase in the number of research
personnel and related costs for the development of our HAP Marker discovery
technologies.
Selling, general, and administrative expenses increased to $893,574 in 1998
from $415,981 in 1997 primarily attributable to an increase in personnel as we
expanded our operations and business development activities.
Stock based compensation increased to $472,692 in 1998 from $105,976 in 1997
as a result of both the increase in the fair value of our stock and the granting
of additional options to scientific advisory board members.
28
<PAGE>
Liquidity and Capital Resources
On March 31, 2000, cash, cash equivalents and short-term investments totaled
$54.9 million compared to $3.7 million at December 31, 1999. Our cash reserves
are held in interest-bearing high-grade corporate bonds and money market
accounts.
We have financed our operations primarily through the private sale of common
and preferred stock, government research grants, payments under licensing
agreements, loans and capital leases. From inception through March 31, 2000, we
have received aggregate gross proceeds of approximately $73.1 million from
issuance of common and preferred stock. In addition, through March 31, 2000, we
had received $4.5 million of government grant funding and $3.9 million from
license fees, royalties and research contracts. We also have received
$10.1 million from capital lease financing and $4.1 million from other loans.
The proceeds from capital lease financing and other loans have been used to
acquire $12.8 million of property and equipment. On March 31, 2000, we had
available borrowing capacity of $5.2 million under capital lease agreements and
$2.4 million under long-term loans for facility improvement costs. It is our
intention to continue to expand production and office facilities and to acquire
state-of-the art equipment to continue to accelerate the discovery of HAP
Markers for all pharmaceutically relevant genes.
Cash used in operations for the three months ended March 31, 2000 was
$1.5 million compared with $930,016 for the same period in 1999. A net loss of
$4.1 million for the first three months of 2000 was partially offset by non-cash
charges of $1.4 million for compensation expense related to issuance of common
stock and options, $456,378 of non-cash charges for depreciation and
amortization expense and an increase of $724,550 in accrued expenses. During the
three months ended March 31, 2000, we received net proceeds of $53.9 million
from the issuance of preferred stock, of which $12.0 million was invested in
marketable securities.
We believe that our current cash reserves, the proceeds we raise from this
offering and our available borrowing capacity will be sufficient to support our
planned operations for at least 24 months.
Our cash requirements will vary depending upon a number of factors, many of
which are beyond our control, including:
- the demand for our HAP Technology;
- the efforts and success of our HAP2000 partnership program;
- the results of our Mednostics programs;
- the level of competition we face;
- our ability to develop, market and license new technology; and
- our ability to effectively manage operating expenses.
Income Taxes
We have not generated any taxable income to date and, therefore, have not
paid any federal income taxes since inception. At December 31, 1999 we had
available unused net operating loss carryforwards of approximately
$12.7 million and $12.5 million which may be available to offset future federal
and state taxable income, respectively. Use of our federal and state net
operating loss carryforwards, which will begin to expire in 2007 and 2000,
29
<PAGE>
respectively, may be subject to limitations. The future utilization of these
carryforwards may be limited due to changes within our current and future
ownership structure as defined within the income tax code. We have recorded a
full valuation allowance against our deferred tax asset, which consists
primarily of net operating loss carryforwards, because of uncertainty regarding
its recoverability, as required by Financial Accounting Standard No. 109
"Accounting for Income Taxes."
Market Risk
Our exposure to market risk is principally confined to our cash equivalents
and investments, all of which have maturities of less than two years. We
maintain a non-trading investment portfolio of investment grade, liquid debt
securities that limits the amount of credit exposure to any one issue, issuer or
type of instrument. In view of the nature and mix of our total portfolio, a 10%
movement in market interest rates would not have a significant impact on the
total value of our investment portfolio as of March 31, 2000.
At March 31, 2000, we had aggregate fixed rate debt of approximately
$12.3 million, including borrowings outstanding under term loans and capital
lease obligations. A 10% change in interest rates would cause a corresponding
increase in our annual expense of approximately $100,000.
Recent Accounting Pronouncements
In December 1999, Staff Accounting Bulletin No. 101 (SAB 101), REVENUE
RECOGNITION, was issued. SAB 101 requires, among other things, that certain
upfront non-refundable fees be recognized over the life of a related
collaboration agreement if those fees are received in conjunction with
collaboration agreements which have multiple elements. The revenues included in
the accompanying statements of operations, for all periods presented, are in
accordance with the provisions of SAB 101.
In June 1998, the Financial Accounting Standards Board issued SFAB No. 133,
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND FOR HEDGING ACTIVITIES (SFAB
133) which provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. SFAB 133 is effective for
fiscal years beginning after January 1, 2001. We do not believe that the
adoption of SFAB 133 will have an impact on our results of operations or
financial condition as we hold no derivative financial instruments and we do not
engage in hedging activities.
30
<PAGE>
BUSINESS
Company Overview
We are a leader in commercializing population genomics to improve the
development, marketing and prescribing of drugs. We apply population genomics,
the analysis of genomic variation within diverse groups of people, to discover
proprietary markers that are predictive of which patients will respond
effectively to a drug. We market our technology to the pharmaceutical industry
as a fully integrated genomic solution to develop "smarter" clinical trials and
to improve the sales of existing drugs, by taking into account genomic
differences between individuals. Our solution combines a powerful informatics
system, proprietary genomic markers and a cost effective, high-throughput
process for analyzing clinical samples to correlate drug response with patients'
genomic variation.
We believe that the efficient use of population genomics will ultimately
cause a fundamental improvement in the delivery of healthcare. We foresee
knowledge of each individual's unique genome being used to predict disease
susceptibility and progression as well as each individual's response to a drug.
We believe that the first application of population genomics will be in
designing and conducting smaller and better informed clinical trials. We also
see its early application to currently marketed drugs, so as to gain approval
for new indications and maintain or increase market share through
differentiation from competing products and development of second generation
drugs. Ultimately, we believe that our technology will allow physicians and
patients to select specific treatments based on a patient's genome.
Our population genomics approach is based on the discovery and application of
haplotype markers. Our fully integrated solution, which we call HAP Technology,
combines our proprietary haplotype markers, known as HAP Markers, with a
sophisticated software tool, our DECOGEN informatics system, and a
high-throughput process, HAP Typing, for measuring which of our HAP Markers are
present in a patient's clinical blood sample. We expect to provide our HAP
Technology to pharmaceutical and biotechnology companies through our HAP2000
program. We also expect to apply our HAP Technology internally to develop
predictive markers for selected approved drugs in highly competitive markets
through our Mednostics programs. Our goal is to have our HAP Technology become
the standard for incorporating population genomics into how medicines are
developed, marketed and prescribed.
Utilizing our HAP Technology, we have discovered HAP Markers for 604 genes,
filed patent applications for HAP Markers for 365 of these genes, differentiated
patient drug response in an asthma clinical study and initiated a Mednostics
program on approved drugs for lowering cholesterol levels. We are currently
capable of discovering HAP Markers for approximately 50 genes per week and
intend to increase this number to approximately 160 genes per week by the fourth
quarter of 2000.
Industry Overview
The pharmaceutical industry faces intense pressure to become more productive.
Two of the industry's most challenging issues are the high cost and low success
rate of developing drugs and the need to differentiate approved drugs in highly
competitive markets.
The drug development process is costly and subject to a high failure rate.
The average cost of developing a drug is estimated to be $500 million, including
the cost of unsuccessful drug candidates. Even with recent technological
advances, including advances in areas such
31
<PAGE>
as genomics, the failure rate of clinical trials remains very high. In the
United States, only one in five drug candidates that enters clinical trials
reaches the market. Seventy percent of the drug candidates that enter clinical
trials successfully complete phase I, 33% complete phase II, 25% complete phase
III and only 20% achieve regulatory approval. The decision to enter phase III,
the most costly phase of clinical trials, is generally based upon the results
obtained from the limited number of individuals, often fewer than 200, typically
studied in phases I and II. The typical patient population in phase III is
between 1,000 and 5,000 individuals, and the average amount of money spent in a
single phase III clinical trial is estimated to be greater than $40 million.
Approved drugs often face intense competition. The period of market
exclusivity for the first drug in a new therapeutic class is typically much
shorter today than it was a few years ago. Consequently, marketing expenditures
have increased rapidly as companies attempt to maintain or increase market
share. Of the approximately $50 billion spent in 1999 on U.S.-based drug
discovery, development and marketing, over $25 billion was spent on marketing
drugs. Marketing departments are also under pressure to maximize the revenue
generated from approved products in order to meet corporate-wide revenue and
earnings goals. In addition, large pharmaceutical companies are expected to lose
a substantial portion of their present revenues by 2003 due to the expiration of
patents on existing drugs and the effect of generic drugs on competition. Thus,
in order to maintain revenue growth rates and profitability, pharmaceutical
companies must both improve the success rate of clinical trials and
differentiate their drugs in a crowded market place.
It is generally acknowledged that most drugs work more effectively for some
patients than others. Because this variability in patient response is often
poorly understood, pharmaceutical companies may unnecessarily discontinue
further drug development, fail to obtain regulatory approvals for promising drug
candidates, or, even if approvals are obtained, be unable to market an approved
drug effectively or to obtain approval for third party reimbursement.
Genomic differences have long been recognized as influencing how patients
respond to drugs. However, pharmaceutical companies generally have not
considered genomic differences between patients in developing and implementing
clinical trials or in the marketing of approved drugs. If pharmaceutical
companies were able to correlate genomic variation with drug response in
clinical trials, they could improve the drug development and marketing process.
For example, pharmaceutical companies could use the correlation data from phase
I and phase II clinical trials to make better informed decisions on whether or
not to enter phase III clinical trials. In addition, understanding the
correlation between genomic differences and drug response would enable
pharmaceutical companies to improve the marketing of their drugs by identifying
those patients for whom particular drugs are likely to be most effective.
POPULATION GENOMICS
Population genomics is the analysis of genomic variation within groups of
people. Differences among human beings, such as height, hair color, and eye
color, are determined by the genomic blueprint each person inherits from his or
her biological parents. These differences are encoded within our DNA, which is
composed of four building blocks called nucleotides. The relative order, or
sequence, of the four nucleotides determines the information content of the DNA.
The entire DNA content of humans consists of 23 structures called chromosomes
and approximately three billion nucleotides. These nucleotides are organized
into approximately 100,000 units of information called genes. The information
contained in genes is translated into a product called a protein.
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Humans have two copies of each chromosome. One set of the 23 chromosomes, a
complete genome, is inherited from each parent. Therefore, humans inherit two
copies of the human genome. Differences between siblings arise because the 23
individual chromosomes can be shuffled in more than eight million different
ways. In addition, during the reproductive process, physical exchange occurs
between regions of each chromosomal pair. Thus, each individual inherits two
versions of each chromosome in a form that is slightly different from that found
in either parent. Likewise, each individual may inherit two different versions
of any specific gene. As a result of this process, there may be differences
between versions of a gene within an individual and among groups of people. On
the other hand, individuals, whether they are related or not, may inherit
similar versions of specific genes. Differences between versions of a gene,
whether within an individual or among groups of people, are referred to as
genomic variation.
Small differences between the DNA sequences of two individuals may cause
profound differences between these two people. Population geneticists estimate
that there is approximately a 0.1% difference in the DNA sequence between any
two individuals; at the DNA level, this 0.1% difference translates into three
million sites of genomic variation. Moreover, in order to predict drug response,
one must not only take into account the genomic variation between two
individuals, but also across diverse groups of people. As few as fifty people
selected from two different geographic regions can have 30 million sites of
genomic variation.
As genetic variation becomes better understood at the molecular or genomic
level, it is clear that an individual's response to a drug is dependent upon
that individual's unique genome. In addition, more than one gene generally
determines how an individual responds to a drug. Every drug generally interacts,
directly and indirectly, with a variety of different proteins produced by
different genes. Therefore, in order to predict a specific drug response,
genomic variation in multiple genes must be analyzed.
A practical approach to understanding why individuals have different
responses to the same drug may be to group individuals together based upon
specific genomic similarity, particularly if the similarity correlates with drug
response or disease susceptibility. This genomic similarity can occur in
unrelated individuals from different geographic regions.
Any approach to commercialize the use of population genomics must:
- take into account that each individual has two versions of every gene;
- recognize that multiple genes are involved in an individual's response to a
drug;
- measure accurately and efficiently substantial genomic variation between
individuals from diverse groups; and
- detect, with sophisticated informatics tools, the correlation of genomic
variation with a drug response.
SINGLE NUCLEOTIDE POLYMORPHISMS AND HAPLOTYPES
At the DNA level, genomic variation occurs mainly as a result of single
nucleotide variations or polymorphisms, commonly referred to as SNPs. Several
international efforts are underway which are intended to serve as the starting
point for understanding genomic variation. One is the Human Genome Project whose
goal is to have a rough draft of a sequence of a single composite human genome
publicly available later this year. This sequence provides a starting point to
identify SNPs. Another effort is the SNP Consortium,
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which is an industry sponsored initiative, whose goal is to identify 300,000
SNPs distributed randomly throughout the entire genome. However, only a small
portion of the human genome is believed to constitute gene information. Thus,
only a small number of the SNPs that the SNP Consortium, or other entities
following a similar approach, will identify are likely to fall within these gene
regions of DNA.
Some companies are proposing to correlate genomic variability with drug
response by analyzing individual SNPs. This individual SNP approach, however,
requires thousands of patients and complex statistical analysis to detect
possible predictive markers and may lead to a large number of false
associations.
Geneticists historically studied genetic variation by analyzing the
inheritance of traits within an extended family. Classical population
geneticists coined the term haplotype to describe the physical organization of
genetic variation as its occurs on each pair of chromosomes in an individual.
The haplotype is the standard for measuring genetic variation. At the molecular
level, a haplotype consists of multiple individual SNPs that are organized into
one of the limited number of combinations that actually exist as units of
inheritance in humans. Each haplotype contains significantly more information
than individual, unorganized SNPs. As a result, fewer patients are needed to
detect a statistically significant correlation with a drug response if
haplotypes are used rather than individual, unorganized SNPs.
Haplotypes provide:
- an accurate measurement of the genomic variation in each individual's two
genomes;
- a practical method of organizing this genomic variation information;
- an efficient tool for measuring this genomic variation in diverse groups of
people; and
- enough information to allow statistically accurate data to be extracted
from small populations.
Both the Human Genome Project and the SNP Consortium will produce basic
information for use by academic and industrial researchers. However, these
efforts will not:
- determine how SNPs are organized within a gene to constitute a haplotype;
- determine the frequency with which SNPs or haplotypes are found in various
populations; or
- create an informatics interface for using this information in a clinical
setting.
Through the use of haplotypes, together with sophisticated informatics tools,
pharmaceutical companies could determine with statistical accuracy the
correlation between genomic variation and drug response in a small population of
the size commonly seen in phases I and II of clinical trials and, therefore,
make better informed decisions on whether or not to enter phase III clinical
trials. In addition, understanding the correlation between genomic differences
and drug response would enable pharmaceutical companies to improve the marketing
of their drugs by identifying those patients for whom particular drugs are
likely to be most effective.
The Genaissance Solution
We combine sophisticated informatics technologies and proprietary procedures
with state-of-the-art DNA sequencing and genomic variation measurement platforms
to allow
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population genomics to be integrated into the development, marketing and
prescribing of new and existing medicines. We have invested considerable
resources in constructing a production process to discover genomic variation and
are scaling up this process with the goal of discovering the range of genomic
variation among all of the pharmaceutically relevant genes. We call this fully
integrated solution our HAP Technology.
The key components of our HAP Technology are:
- a database of highly informative, proprietary measures of genomic
variation, or haplotypes, for pharmaceutically relevant genes;
- a proprietary informatics system, including unique algorithms, for
correlating genomic variation with drug response; and
- a cost effective high-throughput process for measuring genomic variation in
clinical DNA samples.
Our HAP Technology is designed to permit genomically aided drug development
and commercialization in a variety of ways for the pharmaceutical and
biotechnology industries.
DRUG DEVELOPMENT. Our HAP Technology is designed to improve the success rate
of drugs in clinical trials by:
- assessing efficiently the genomic variation among the patients involved in
a clinical trial, thereby permitting genomic variation information to be
incorporated into all decisions required during the course of a clinical
trial;
- creating better informed, or "smarter," clinical trials through the design
of protocols which result in the inclusion of those patients most likely to
benefit from the proposed therapeutic product;
- facilitating earlier "go/no-go" decisions on whether to proceed to the next
phase of clinical trial testing which should result in a more efficient use
of clinical resources; and
- reducing the size and, hence, the cost of late-stage clinical trials by
enrolling the most appropriate group of patients.
DRUG MARKETING. Our HAP Technology is also designed to maximize the value of
an approved drug by:
- creating diagnostic tests employing HAP Markers that are predictive of drug
response, as well as developing supporting software to be used in tandem
with the prescribing and/or marketing of a drug;
- integrating genomic variation information into marketing strategies to
sustain and enhance a market leading position or to address problems such
as poor market penetration, competitive pricing issues, safety, risk of
therapeutic substitution, and limited patent life; and
- targeting new markets and obtaining approval for new indications.
Our HAP Technology may also be useful for improving the drug discovery
process through the selection and validation of drug targets. In addition, data
obtained during clinical trials can be incorporated into the drug discovery
process to develop second generation drugs. If widely adopted, our HAP
Technology could enable the healthcare system to personalize treatment based
upon an individual's unique genome.
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Our Strategy
Our objective is to make our HAP Technology the industry standard for using
genomic variation information throughout the pharmaceutical development,
marketing and prescribing process. The key elements of our strategy include the
following:
COMMERCIALIZE OUR HAP TECHNOLOGY THROUGH OUR HAP2000 PARTNERSHIP PROGRAM. We
are currently in discussions and negotiations with selected pharmaceutical and
biotechnology companies to become the initial partners in our HAP2000
partnership program. Our HAP2000 program will give our partners access to our
HAP Technology, including access to our proprietary HAP Markers, our DECOGEN
informatics system, and our HAP Typing capabilities. In return, we expect to
receive annual subscription fees, payments for work on specific drug development
or marketing projects and for HAP Typing. In addition, we expect license,
milestone, and royalty payments for the use of our HAP Markers.
PURSUE MEDNOSTICS OPPORTUNITIES. Our Mednostics programs will apply our HAP
Technology to currently marketed drugs to enhance their competitive position. We
believe the application of our HAP Technology to these drugs will create
intellectual property from which we will derive considerable financial value. We
intend to market this intellectual property to those parties who may most
benefit from it, including pharmaceutical, diagnostic, and medical information
companies, as well as healthcare providers.
DISCOVER AND PATENT HAP MARKERS FOR ALL OF THE PHARMACEUTICALLY RELEVANT
GENES. We have accelerated the rate at which we are discovering HAP Markers. We
are seeking to discover HAP Markers for all of the pharmaceutically relevant
genes. We are filing composition of matter patents to protect HAP Markers, as
well as their association with clinical applications such as disease risk, drug
response and side effects. If we discover and protect these HAP Markers, we
believe we will have created the most comprehensive coverage of informative
genomic markers available. We believe that this coverage of genomic variation
would give us a competitive advantage as the premier source for correlating
genomic variation with drug response. We plan to file method patents covering
discoveries we make relating to diagnosing a patient's predisposition to a
particular disease or for prescribing a drug safely and efficaciously.
CONTINUE IMPROVING AND EXPANDING OUR DECOGEN INFORMATICS SYSTEM. We are
continually expanding the capability of our DECOGEN informatics system with the
goal of establishing it as the industry standard for integrating genomic
variation into the pharmaceutical development and marketing process. We have
invested considerable resources in building our informatics team and will
continue to do so. We believe our DECOGEN informatics system is the only
platform available that combines sophisticated genomic variation analysis tools
with state-of-the-art clinical statistics in an intuitive, graphical user
interface. We believe our DECOGEN informatics system effectively integrates
population genomics into the design and analysis of clinical trials.
SEEK STRATEGIC ALLIANCES WITH LEADING EQUIPMENT AND INFORMATION TECHNOLOGY
PROVIDERS. We plan to form strategic alliances with research and diagnostic
equipment manufacturers and diagnostic and information technology companies to
expand the applications of our HAP Technology, with the goal of establishing our
HAP Technology as a standard component in the delivery of healthcare.
INCREASE AWARENESS OF THE IMPACT OF GENE VARIATION ON THE FUTURE PRACTICE OF
MEDICINE. We intend to work closely with regulatory agencies, third party
payers, the medical community and healthcare consumers to build awareness about
the benefits of using genomic variation
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data in the development, marketing and prescribing of new and existing drugs.
Our goal is to establish our HAP Technology as the industry standard in the
healthcare field for evidence-based medicine.
Our Commercial Programs
We are commercializing our HAP Technology through two programs. Through our
HAP2000 program, we are seeking to establish partnerships with a select number
of pharmaceutical and biotechnology companies. This program will give our
partners access to our HAP Technology and in return, we expect to receive
various payments as discussed below. Through our Mednostics program, we are
applying our HAP Technology to currently marketed drugs to enhance their
competitive position. We believe that the application of our HAP Technology to
these drugs will create intellectual property from which we will derive
considerable financial value. We intend to market this intellectual property to
those parties who may most benefit from it, including pharmaceutical,
diagnostic, and medical information companies, as well as healthcare providers.
HAP2000 PARTNERSHIP PROGRAM
We have developed a program intended to give pharmaceutical and biotechnology
companies access to our HAP Technology throughout each phase of drug development
and marketing. Each partner will gain access to our proprietary HAP Markers, our
DECOGEN informatics system, and our HAP Typing capabilities. Partners may select
a limited number of genes annually for HAP Marker discovery. We anticipate that
each partnership will be for a minimum of three years. While we expect to retain
all intellectual property rights in HAP Markers discovered during the
partnership, our partners will have the option to receive multiple exclusive
licenses for the use of such HAP Markers for the development of diagnostic and
therapeutic products within specified drug classes and for particular disease
indications.
As part of the HAP2000 program, our partners will gain access to our HAP
Typing facility, which we will use to measure HAP Markers from individual
patient samples provided by our partners. Under our HAP2000 program, we seek to
obtain both near-term and deferred payments including:
- annual subscription fees for access to our DECOGEN informatics system,
including our proprietary HAP Markers;
- fees for research projects focused on development or marketing issues
associated with particular drugs;
- fees for HAP Typing clinical samples supplied by our partners; and
- license fees, milestone payments and royalties based on product sales for
the exclusive use of HAP Markers for drugs within a specific class and for
specific disease indications.
Although we are currently in discussions with a number of pharmaceutical and
biotechnology companies for our HAP2000 partnership program, we currently do not
have a partner for this program.
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MEDNOSTICS PROGRAM
Our internally funded Mednostics programs apply our HAP Technology to drugs
currently marketed by third parties. Through our Mednostics programs, we seek to
find HAP Markers that:
- identify individuals who will respond better to a particular drug within a
competitive class than to other drugs in the same class or to one competing
class of drugs as compared to another class of drugs;
- identify individuals who are prone to side effects and adverse reactions;
and
- identify individuals who are currently not undergoing therapy for a given
disease yet are at risk and will respond well to a given drug.
Identification of individuals who would benefit from a particular drug may
solidify or improve the market position of a particular drug in a highly
competitive market and assist in obtaining approval for third party
reimbursement. Identification of individuals who are at risk of developing a
side effect may increase patient compliance and expand the market for a drug.
Early identification of individuals who are at risk of developing a particular
disease may improve the treatment for a number of significant diseases and
conditions, including many central nervous system disorders, neurogenerative
disorders, and cardiovascular disease, and expand the market for already
approved drugs.
As an example of our Mednostics program, we are applying our HAP Technology
to the statin class of drugs, which are used to treat patients with high
cholesterol and lipid levels and who are, therefore, at risk for cardiovascular
disease. This is a highly competitive market with multiple approved products
seeking to gain increased market share. Currently, the market is approximately
$11 billion worldwide and is forecast to at least double in size by 2005.
Identification of genomic markers that would allow the right drug to reach the
right patient would allow a company to boost its market share and would improve
patient compliance, which are both particularly important factors when
maximizing profit from drugs that are taken over the course of a lifetime.
To gather data for this Mednostics program, we are studying approximately 200
individuals who have been prescribed one of several cholesterol lowering drugs.
We obtained full medical and family histories and extensive clinical
measurements for these individuals from the Ludwigshafen Risk and Cardiovascular
Health Study in Germany, a large, ongoing longitudinal study being managed by
Dr. Bernard Winkelman of the University of Freiburg. These individuals have been
diagnosed to have such conditions as coronary artery disease, diabetes, obesity,
high cholesterol levels and hypertension. The goal of the study is to identify a
series of HAP Markers that correspond to a particular response to the drug with
which the individuals are being treated. These drugs include pravastatin (sold
by Bristol-Myers Squibb Company as Pravacol-Registered Trademark-), atorvastatin
(sold by Pfizer Inc. and Warner-Lambert Company as
Lipitor-Registered Trademark-) and cerivastatin (sold by Bayer AG as
Baycol-Registered Trademark-). Once the HAP Markers are identified, we will
approach potential corporate partners, which have a significant product
franchise in cardiovascular disease, to make use of our HAP Technology to
improve their market position. We also intend to target other major diseases for
which the market is fragmented among multiple currently marketed drugs and there
appears to be an opportunity for our HAP Technology to confer a competitive
advantage on one of the participants in the market.
We do not currently expect to manufacture and market pharmaceutical and
diagnostic products ourselves.
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Asthma Clinical Study
To demonstrate how our HAP Technology would be used in our commercial
programs, we conducted a clinical study to determine a correlation between our
HAP Markers or SNPs and an asthma patient's response to the drug albuterol (sold
by GlaxoWellcome as Ventolin-Registered Trademark-), a standard treatment for
persons with asthma. The study was conducted in collaboration with Dr. Stephen
Liggett, our executive medical advisor and a professor of medicine at the
University of Cincinnati Medical Center. We initially examined genomic variation
in the target of the drug, the (2) adrenergic receptor ((2)-AR). We determined
the sites of variation in this gene and then used our DECOGEN informatics system
to organize the SNPs into HAP Markers. We found 13 SNPs in the (2)-AR gene,
which were organized into only 12 HAP Markers out of a theoretical possibility
of 8,192 (2(13)) haplotypes. We collapsed the 12 HAP Markers into four major
groups using our proprietary methods of population genomics to increase the
likelihood of finding a statistically relevant correlation.
Dr. Liggett recruited 121 asthmatic individuals for clinical treatment. A
large number of standard pulmonary measurements were made, after which the
patients were treated with albuterol in a controlled setting. Approximately 30
minutes after treatment, the pulmonary measurements were repeated. The response
to the drug differed significantly from patient to patient and the drug was
clinically effective in only 40% of these patients as measured by generally
accepted clinical criteria. Blood samples were drawn and DNA was extracted for
HAP Typing of the (2)-AR receptor gene. The clinical information and the results
from HAP Typing were entered into the DECOGEN informatics system. The search
engine of our DECOGEN informatics system analyzed the data for a correlation
between combinations of HAP Markers as well as individual SNPs and the response
to albuterol.
Both a positive response and a poor response to albuterol were correlated
with specific pairs of HAP Markers in the (2)-AR receptor gene. By contrast, no
individual SNP correlated with the response to albuterol in this study. This
study, which was similar in sample size used for a phase II clinical trial,
showed that a patient's response to albuterol correlated, in a statistically
significant manner, with specific HAP Markers. We have submitted a more detailed
description of this study for publication in a peer reviewed scientific journal.
Our Technology
We combine sophisticated informatics technologies and proprietary procedures
with state-of-the-art DNA sequencing and genomic variation measurement platforms
to allow population genomics to be integrated into the development, marketing
and prescribing of new and existing medicines. We are scaling up our production
process with the goal of discovering the highest quality genomic markers for all
of the pharmaceutically relevant genes. We use our HAP Technology as a
fully-integrated solution for correlating genomic variation with drug response.
OVERVIEW
Our process for discovering HAP Markers eliminates the need to find and then
test large numbers of families or related individuals to determine genomic
variation. Initially, we discover individual SNPs by high-throughput sequencing
of DNA samples of unrelated and related individuals that are representative of
the individuals who constitute the major pharmaceutical markets of the world. We
use our proprietary algorithms to organize the SNPs
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into HAP Markers. Using these algorithms, we find that the number of actual HAP
Markers per gene is significantly less than the theoretically large number of
ways in which SNPs could be organized.
Our DECOGEN informatics system contains a number of components. Our
ISOGENOMICS Database contains our HAP Markers including information about their
sequence, frequency and distribution. Our DECOGEN informatics system also
contains a proprietary collection of algorithms and a search engine that
correlates a patient's HAP Markers with a particular response to a drug. Using
our DECOGEN informatics system, we can determine with statistical accuracy the
correlation between HAP Markers and drug response in a small population of the
size commonly seen in phase I and phase II of a clinical trial.
HAP Typing is our process for measuring which HAP Marker pairs are present in
a patient's DNA sample. Our HAP Typing facility uses proprietary software,
robotics and Sequenom's MassARRAY-TM- platform to determine, on a
high-throughput basis, which two HAP Markers for a gene are present in a
patient's DNA sample. The resulting data is integrated into our DECOGEN
informatics system to search for a correlation with a patient's drug response.
The following outlines the components of our HAP Technology and how we use
our HAP Technology to detect a correlation with a drug response.
[LOGO]
GENE SELECTION
Our goal is to discover HAP Markers for all of the pharmaceutically relevant
genes. We prioritize these genes for HAP Marker discovery based upon the
anticipated needs of our HAP2000 partners and our Mednostics programs. We obtain
genomic information relevant for gene selection from publicly available sources,
such as the Human Genome Project, and from proprietary databases. We are
discovering HAP Markers for genes that:
- are, or will likely become, drug targets;
- are associated with drug target pathways;
- are involved in how drugs modify cell communication or regulate other
genes; and
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- are involved in the metabolic process by which a drug is absorbed and
broken down inside the body.
INDEX REPOSITORY
We use our Index Repository, a collection of diverse DNA samples, to discover
the SNPs that are present in genes. We designed our Index Repository to:
- contain genomic information that would be representative of the people who
constitute the major pharmaceutical markets of the world;
- aid in the quality control analysis of the SNPs we discover; and
- facilitate the organization of SNPs into HAP Markers.
To build our Index Repository, we engaged a contract research organization to
recruit 200 individuals whose parents and grandparents came from specified
geographical regions. Personal information was obtained from each individual,
including sex, date of birth, and general medical information, as well as a
detailed family history. Blood samples were drawn so that continually
multiplying cells could be created from the white cells present in the blood.
The resulting cells, called permanent cell lines, provide us with a supply of
DNA from which to discover SNPs. We store frozen samples of each cell line at
multiple locations to ensure that all of these cell lines are available in the
future. To supply sufficient DNA for the production process, we routinely grow
the cell lines in our cell culture facility. We employ quality control
procedures that permit each DNA sample to be unambiguously matched to its
corresponding cell line. We store all of the information about a cell line in
our proprietary ISOGENOMICS Database that is a component of our DECOGEN
informatics system.
We are adding to the content of our Index Repository and will have at least
300 additional individuals whose parents and grandparents are from geographical
regions that represent emerging and specialized pharmaceutical markets. We plan
to use this new resource to obtain additional population variability information
for specialized applications.
DISCOVERING SNPS
We use a subset of our Index Repository to discover SNPs. We employed
principles of population statistics to determine the minimum number of unrelated
individuals that are needed to have a 99% probability of detecting a SNP or HAP
Marker that occurs:
- in at least 5% of the general population or
- in at least 10% of a population from a specific geographical region.
We sequence individual samples of DNA so that we can accurately determine the
frequency of a SNP in the population. Our procedure allows us to detect SNPs
that are present at lower frequencies than if we were to analyze a mixture of
DNA from different individuals, as is done by some companies.
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We sequence 93 individual, human DNA samples, or 186 individual genomes, from
our Index Repository in the following genomic regions for each selected gene:
- the region responsible for controlling when a gene is active, the control
region;
- the regions containing coding information that is found in the protein
product of the gene, the coding regions;
- the boundaries between the genomic regions containing coding information
and those interspersed regions that do not contain coding information, the
non-coding regions; and
- the region at the end of a gene immediately after the last region
containing coding information.
The following diagram shows the regions of genomic DNA we sequence.
[LOGO]
Our process of discovering SNPs distinguishes us from other companies. Some
companies sequence cDNA, which is a test tube synthesized product that does not
contain sequence information for some key genomic regions that we sequence. As a
result, these companies cannot detect the SNPs that are present in these
regions. In addition, the DNA we use is easily obtainable from blood samples
whereas tissue biopsies may be necessary to obtain cDNA products for certain
genes.
Our sequencing process is highly automated, from picking the regions to be
sequenced through loading the samples onto one of our sequencing machines. The
process was designed in a modular fashion so that procedures can be easily
updated with improved technology without the need to shut down the entire
production process. We operate our sequencing facility 24 hours a day, seven
days a week. We currently have 25 ABI Prism-Registered Trademark- 3700 capillary
sequencers manufactured by PE Biosystems Group, a division of PE Corporation,
and have placed an order for 34 more machines, which are scheduled to be
operational by the end of the third quarter of 2000. We plan on ordering
additional machines by the end of the second quarter of 2000.
We have also developed a proprietary laboratory information management system
to track genes as they progress through the production pipeline. We use this
system to monitor the overall quality of data we produce to ensure that the
sequencing process is operating
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according to our established standards. The sequence information undergoes two
forms of quality control analysis. We use electronic procedures and established
population genomic principles to identify and validate that a SNP exists at a
given position.
HAP MARKERS AND ISOGENOMICS DATABASE
Geneticists use the term haplotype to describe how SNPs are organized on a
chromosome. They study the inheritance of genetic variability in extended
families in order to determine haplotypes. Family studies allow a geneticist to
differentiate which of the two copies of a chromosome was inherited from each
parent. The haplotype is the standard for describing genetic variability.
We do not need to conduct family studies to discover haplotypes. Rather than
relying on family studies, we have developed an entirely computerized process
for discovering haplotypes. Our proprietary method works because we analyze a
large number of individual samples and we have members of extended families in
our sample set. We have validated the accuracy of our computerized process by
conventional family studies and molecular techniques. We use our proprietary
computational methods and algorithms to determine how the SNPs in a gene are
organized on each of the two chromosomes in each sample we sequence from our
Index Repository. We use the term HAP Marker, derived from haplotype, to
describe the organization of SNPs we find for a gene. Without our
high-throughput computerized process, the discovery of our HAP Markers would not
be commercially feasible.
Our computerized process assigns a confidence value to each HAP Marker we
discover. If the HAP Markers we discover for a gene fall below a defined
confidence level, we subdivide the gene into regions. We reexamine each region
until we identify HAP Markers that meet our acceptance level. Each HAP Marker is
then entered into our proprietary ISOGENOMICS Database. We also enter other
relevant population information, such as the distribution and frequency of each
HAP Marker among people of different geographical regions. We also include in
our ISOGENOMICS Database other genomic markers that have been identified and are
available in public databases.
As of April 17, 2000, we had processed 604 pharmaceutically relevant genes
through our production process and deposited our HAP Markers and associated
information into our ISOGENOMICS Database. All of the nearly 500 current drug
targets have either gone through our production process or are in some stage of
our production pipeline. We are currently discovering HAP Markers for about 50
genes per week. We intend to increase this number to approximately 160 genes per
week by the fourth quarter of 2000. To date, we have found an average of
approximately 12 SNPs per gene. There are generally two possible forms of a SNP
that are found at a site of genomic variation. Therefore, these 12 SNPs could
theoretically be organized into 2(12) or 4,096 potential HAP Markers. Using our
proprietary algorithms, we found that these SNPs are organized into an average
of only approximately 18 HAP Markers per gene. This small number is not
unexpected. Our data validate a frequently made, but unproven, prediction of
population theory that the number of haplotypes for a gene should be just
slightly greater than the number of SNPs present in that gene.
THE DECOGEN INFORMATICS SYSTEM
We have assembled a team of 31 informatics professionals, 16 of whom have a
Ph.D., to integrate the high information content of our HAP Markers into the
pharmaceutical development and marketing process. This team consists of
individuals with training and experience in software engineering, population
statistics, clinical statistics, workflow systems,
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and computational molecular biology. We have constructed a proprietary
informatics system, called DECOGEN, which is short for decoding genes. Our
DECOGEN informatics system contains the proprietary database of population
information for our Index Repository and our proprietary ISOGENOMICS Database of
HAP Markers. This database can accommodate information from a variety of
populations, including individuals suffering from a specific disease and
patients in clinical trials, as well as associated data such as detailed medical
histories including responses to drugs. The portal to the ISOGENOMICS Database
is the DECOGEN search engine, which was designed with an intuitive, graphical
user interface so that drug development clinicians can easily manage their data
to find a correlation between HAP Markers and a drug response.
We have constructed the graphical interface to display a series of views that
contain information, beginning with a summary and extending down into details.
For example, in each project, we define a set of candidate genes for use in the
clinical study. This collection of genes can generally be organized into a
series of biochemical pathways, which we graphically display in our DECOGEN
informatics system. The user can point and click on any gene in the pathway and
obtain detailed information about that gene. One view provides information on
the structure of a gene and the physical location of the SNPs, along with the
limited number of ways in which these SNPs are organized into HAP Markers. This
view also displays the frequency of each HAP Marker in the different
sub-populations. With another view, a user can see the HAP Markers for
individual patients in a clinical trial alongside of their demographic and
clinical data.
Our DECOGEN informatics system provides more detailed views for experts in
various areas. For example, population genomic data are available at the click
of a mouse. We also provide views that show the statistics behind any
correlation found between HAP Markers and a drug response. Our DECOGEN
informatics system can use either qualitative or quantitative clinical
measurements as a clinical endpoint to search for a correlation with our HAP
Markers. Our DECOGEN informatics system has the ability to exchange information
with standard software packages used in the pharmaceutical industry.
Additional tools are available in our DECOGEN informatics system to help in
the design and operation of clinical trials. To avoid introducing a bias,
factors such as age and sex may be taken into account when patients are
randomized between the drug and placebo arms of a clinical trial. Our HAP
Markers can be used to compare the genomic background of the patients in the two
arms of a clinical trial. This function allows the clinician to determine
whether the two patient populations were genetically comparable. This function
can also be used to match patients for assignment to the two arms of a trial to
ensure that the genomic backgrounds are comparable.
HAP TYPING
We use the term HAP Typing to describe the process of determining which HAP
Marker is present for each of the two versions of each gene in a patient's
clinical sample. The first step in searching for a clinical correlation is to do
HAP Typing on the clinical samples we receive from our HAP2000 partners or
obtain for our Mednostics programs. Because of the information content in our
HAP Markers, we can detect a correlation between a HAP Marker and a drug
response with statistical accuracy in a small population, such as is used in
phase II clinical trials. Other companies propose using numerous, unorganized
SNPs to detect a correlation. We have done simulation studies to determine the
predictive power of individual SNPs. A larger number of patients, similar to
what is generally used in phase III trials, is
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needed with individual SNPs to find a correlation with similar statistical
accuracy. However, our analysis showed that a significant number of false
correlations is also predicted if one uses individual, unorganized SNPs.
Our DECOGEN informatics system contains a proprietary computational tool that
facilitates the use of HAP Markers for HAP Typing. Our SNP discovery process
identifies the positions of variation within a gene. Thus, only these variable
positions need to be examined in a clinical sample. Our proprietary algorithms
determine the minimal number and combination of variable sites, which must be
analyzed in order to identify, with high confidence, the two HAP Markers that
are present for each gene in a clinical sample of DNA. This proprietary tool
exploits an established genetic principle. That is, the presence of a given form
of genomic variation at one position can be highly predictive of the form of
genomic variation present at another site in a gene. This predictability reduces
the complexity of the information needed to identify a HAP Marker in a genomic
sample. This predictability can be determined, however, only if the haplotype or
the organization of SNPs is already known for a gene. Our HAP Markers contain
this needed information.
The genes we analyze are chosen based upon knowledge of the drug in question,
the drug's known or likely target, the disease, and drug metabolism
considerations. The number of genes we analyze will increase as the costs for
HAP Typing decrease. If we fail to detect a correlation with HAP Markers for a
given gene, we eliminate that gene from further consideration. If no significant
correlation is detectable, we analyze additional genes. We then test in a
prospective study any correlation that we detect in order to confirm the
predictability of the HAP Markers.
We will use our HAP Typing capabilities to support our HAP2000 partners and
our Mednostics programs and to obtain additional population information for
certain HAP Markers. We have installed our first HAP Typing system at our
facility. We are investing significant funds to construct a customized 8,000
square foot facility, compliant with government regulations, which will be
dedicated to HAP Typing. We are also developing proprietary software to track
samples through the facility. This facility, which is designed to handle
initially at least three million genomic tests per year, is scheduled for
completion in the third quarter of 2000. We have adopted Sequenom's
MassARRAY-TM- high-throughput technology to do our HAP Typing. Additional shifts
of technicians and MassARRAY-TM- systems are expected to increase the capacity
to at least 18 million genomic tests per year. We plan to develop genomic tests
for a significant number of our HAP Markers and intend to use these tests for
clinical studies with our HAP2000 partners and for our Mednostics programs.
Our Collaborations
To date, we have entered into the following licenses and collaborations:
VISIBLE GENETICS
In November 1996, we granted to Visible Genetics, Inc. a worldwide exclusive
license to our patented technology relating to the coupled amplification and
sequencing (CAS) of DNA for diagnostic use. This technology is not part of our
HAP Technology. Under the terms of the agreement, Visible Genetics paid us a
one-time licensing fee and continues to pay us royalties based on global sales
of products using the licensed technology. The CAS technology is incorporated in
Visible Genetics's TruGene-TM- HIV diagnostic kit which is designed to perform
pharmacogenomic analysis of HIV and to customize HIV and AIDS therapy for
particular patient sub-groups. In March 2000, we amended the agreement to, among
other things,
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reduce the amount of royalties payable under the agreement and expand the field
of the license to the research products market. In return for the reduction of
royalties and broadening of the field, Visible Genetics has paid us an
additional one-time fee of $2 million.
TELIK
In February 1998, we entered into a research collaboration with Telik, Inc.
to collaborate on genomics research into estrogen-related conditions, such as
breast cancer and osteoporosis. We amended this collaboration in February 1999
to extend the term of the collaboration. Telik's chemoinformatics technologies
were used to identify drug candidates that could modulate the activity of
proteins expressed by genes identified by our HAP Markers and that were
associated with various estrogen receptors. We jointly own the compounds or
other intellectual property rights arising from the collaboration and have
agreed to jointly seek a corporate partner to continue development of these
compounds. We will share the revenues received from any resulting corporate
partnering agreements in the same proportion. The agreement will terminate if we
have not entered into a third party license agreement or otherwise agreed to a
joint development program by August 11, 2000. Upon termination, the parties are
obligated to consult with each other before independently developing the jointly
owned compounds and other intellectual property rights.
Intellectual Property
We are pursuing an active program of intellectual property development and
acquisition. In particular, we are developing a system to integrate the
discoveries from our HAP Technology into our patent process in order to protect
all of our intellectual property. We rely on patents, trade secrets,
non-disclosure agreements, copyrights and trademarks to protect our proprietary
technologies and information. In addition, we are actively pursuing licensing to
third parties our intellectual property that is peripheral to our core products
and services.
Our intellectual property strategy is focused on several key areas:
- fundamental methods for conducting our genomics and informatics business;
- HAP Markers defining the genomic variation discovered in human populations
as well as the genes embodying such HAP Markers;
- the ISOGENOMICS Database and other components of the DECOGEN informatics
system;
- other proprietary informatics systems for storing and analyzing genomic
variation data; and
- novel business methods that utilize our technologies for providing genomic
services to the pharmaceutical and biotechnology industry.
As of April 17, 2000, our patent portfolio included a total of 381 issued and
pending patent applications, which we own or for which we are the exclusive
licensee. We have received a U.S. patent, which covers collecting and analyzing
genes from both chromosomes from multiple individuals in different
sub-populations. Of our 381 issued and pending patent applications, 365 pending
patent applications cover HAP Markers for 365 different genes. To protect and
extend our proprietary position in population genomics, we are pursuing patent
protection for any correlation between our HAP Markers and a drug response or
susceptibility to a disease. We have also filed patent applications for
components of our DECOGEN informatics system, including the process for
assembling HAP Markers and for determining
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genomic associations. We are pursuing both composition of matter and
method-of-use claims. Our goal is to file patent applications in the U.S. and
abroad on HAP Markers for every pharmaceutically relevant gene.
There have been, and continue to be, intensive discussions on the scope of
patent protection for gene fragments, SNPs and full-length genes. In addition,
the U.S. courts continue to redefine and narrow the enforceable scope of claims
to genes, gene fragments, and proteins. The U.S. Patent and Trademark Office has
also proposed new guidelines that address the requirements for demonstrating the
utility and describing the structure of these substances.
While the new guidelines do not require clinical efficacy data for issuance
of patents relating to human therapeutics and diagnostics, the guidelines have
been in effect for only a short period of time and it is possible that the U.S.
Patent and Trademark Office may interpret them in a way that could delay or
adversely affect our ability or the ability of our partners to obtain patent
protection. The biotechnology patent situation outside the United States is even
more uncertain and is currently undergoing review and revision in many
countries. Consequently, we must review our patent strategy and patent
applications to address the changing legal standards in the United States and
abroad.
We also rely upon unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain our
competitive position. We generally protect this information with reasonable
security measures, including confidentiality agreements that provide that all
confidential information developed or made known to others during the course of
the employment, consulting or business relationship shall be kept confidential
except in specified circumstances. Agreements with employees provide that all
inventions conceived by the individual while employed by us are our exclusive
property. We cannot guarantee, however, that these agreements will be honored,
that we will have adequate remedies for breach if they are not honored or that
our trade secrets will not otherwise become known or be independently discovered
by competitors.
Competition
There is significant competition among entities attempting to use genomic
variation data and informatics tools to develop and market new and existing
medicines. The intensity of the competition is expected to increase. We face,
and will continue to face, competition from pharmaceutical, biotechnology and
diagnostic companies, both in the United States and abroad. Several entities are
attempting to identify and assemble SNP databases. These databases are based on
various technologies and approaches, including the sequencing of either cDNA or
genomic DNA and a genome-wide approach or a candidate gene approach. Some of
these entities are now advocating the use of haplotypes as a measure of genomic
variation. In addition, some of these entities are providing or intend to
provide informatics tools for integrating the use of SNPs into the drug
development process. These entities include among others Celera Genomics Group,
Genset S.A., Incyte Pharmaceuticals, Inc. and Variagenics, Inc. In addition,
numerous pharmaceutical companies are developing internal capabilities for
identifying and utilizing gene variation data. In order to compete successfully
against existing and future entities, we must demonstrate the value of our HAP
Technology and that our informatics technologies and capabilities are superior
to those of our competitors. Many of our competitors have greater resources,
gene variation discovery capabilities and informatics development capabilities
than we do. Therefore, our competitors may succeed in identifying gene variation
and applying for patent protection more rapidly than we do.
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We expect that our ability to compete will be based on a number of factors,
including:
- the speed with which we can identify HAP Markers and develop the next
generation of our DECOGEN() informatics system;
- our ability and the ability of our partners to develop and commercialize
therapeutic and diagnostic products based upon our HAP Technology;
- our ability to attract partners;
- our ability to attract and retain qualified personnel;
- our ability to obtain patent protection; and
- our ability to secure sufficient resources to fund our technology
development and Mednostics programs.
Government Regulation
Regulation by governmental entities in the United States and other countries
will be a significant factor in the development, manufacturing and marketing of
any product that we or our partners develop. Various federal and, in some cases,
state statutes and regulations govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of human therapeutic and
diagnostic products. The extent to which these regulations may apply to us or
our partners will vary depending on the nature of the product. The FDA does not
require companies seeking product approvals to provide data regarding the
correlation between therapeutic response and genomic variation.
Virtually all of the pharmaceutical products developed by our partners will
require regulatory approval by governmental agencies prior to commercialization.
In particular, the FDA in the United States and similar health authorities in
foreign countries will impose on these products an extensive regulatory review
process before they can be marketed. This regulatory process typically involves,
among other requirements, preclinical studies, clinical trials, and often
post-marketing surveillance of each compound. This process can take many years
and requires the expenditure of substantial resources. Delays in obtaining
marketing clearance could delay the commercialization of any therapeutic or
diagnostic products developed by our partners, impose costly procedures on our
partners' activities, diminish any competitive advantages that our partners may
attain and lessen our potential royalties. We cannot be certain that any product
developed by our partners or us will receive regulatory approval in a timely
fashion or at all.
The FDA regulates human therapeutic and diagnostic products in one of three
broad categories: drugs, biologics, or medical devices. Products developed using
our technologies could potentially fall into any of these three categories.
The FDA generally requires the following steps for pre-market approval of a
new drug or biological product:
- preclinical laboratory and animal tests;
- submission to the FDA of an investigational new drug application, or IND,
which must become effective before clinical trials may begin;
- adequate and well-controlled human clinical trials to establish the safety
and efficacy of the product for its intended indication;
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- submission to the FDA of a new drug application, or NDA, if the FDA
classifies the product as a new drug, or a biological license application,
or BLA, if the FDA classifies the product as a biologic; and
- FDA review of the NDA or BLA in order to determine, among other things,
whether the product is safe and effective for its intended uses.
The FDA classifies medical devices, which include diagnostic products, as
class I, class II or class III, depending on the nature of the medical device
and the existence in the market of any similar devices. Class I medical devices
are subject to general controls, including labeling, premarket notification and
good manufacturing practice requirements. Class II medical devices are subject
to general and special controls, including performance standards, postmarket
surveillance, patient registries and FDA guidelines. Class III medical devices
are those which must receive premarket approval, or PMA, by the FDA to ensure
their safety and effectiveness, typically including life-sustaining,
life-supporting, or implantable devices or new devices which have been found not
to be substantially equivalent to currently marketed medical devices. It is
impossible to say at this time which of these categories will apply to any
diagnostic product incorporating our technologies.
Before a new device can be introduced into the U.S. market, it must, in most
cases, receive either premarket notification clearance under section 510(k) of
the Food, Drug, and Cosmetic Act or approval pursuant to the more costly and
time-consuming PMA process. A PMA application must be supported by valid
scientific evidence to demonstrate the safety and effectiveness of the device,
typically including the results of clinical trials, bench tests, laboratory and
animal studies. A 510(k) clearance will be granted if the submitted information
establishes that the proposed device is "substantially equivalent" to a legally
marketed class I or class II medical device or a class III medical device for
which the FDA has not called for PMAs. While less expensive and time-consuming
than obtaining PMA clearance, securing 510(k) clearance may involve the
submission of a substantial volume of data, including clinical data, and may
require a lengthy substantive review.
Even if regulatory clearance is obtained, a marketed product and its
manufacturer are both subject to continuing review. Discovery of previously
unknown problems with a product may result in withdrawal of the product from the
market, which could reduce our revenue sources and hurt our financial results.
Violations of regulatory requirements at any stage during the process, including
preclinical studies and clinical trials, the review process, post-marketing
approval or in manufacturing practices or manufacturing requirements, may result
in various adverse consequences to us, including:
- the FDA's delay in granting marketing clearance or refusal to grant
marketing clearance of a product;
- withdrawal of a product from the market; or
- the imposition of civil or criminal penalties against the manufacturer and
holder of the marketing clearance.
Generally, similar regulatory requirements apply to products intended for
marketing outside the United States.
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We use clinical samples of blood from individuals in developing our Index
Repository and in our Mednostics programs. The collection of these blood
samples, plus personal and medical information about each individual, is
performed under contract with a contract research organization or CRO. Our CRO
prepares, subject to our approval, the sample collection protocol and the
patient informed consent form, as well as identifying the clinical laboratories
which collect the samples. The individual clinical sites recruit the patients
for each clinical study, and following the study protocol, explain and obtain
the signed and witnessed informed consent documents from each patient. The
informed consent form includes the patient's authorization to use the patient's
blood sample and data derived from it for developing commercial products. Our
contract with the CRO requires that an independent institutional review board
approve the study protocol, the patient informed consent form, and the
transmission of the samples to us. We do not know the identity of any of the
individuals from whom we receive clinical samples. We believe that these
procedures comply with all applicable federal, state, and institutional
regulations.
While our HAP Typing facility is not currently subject to regulation by the
FDA, our facility is subject to regulation under the Clinical Laboratory
Improvement Act of 1988, commonly known as CLIA, which defines standards that
constitute good clinical laboratory practice. Although this is a federal law,
the statute is administered at the state level. Accordingly, for our HAP Typing
facility to be CLIA compliant, it will have to pass an inspection by auditors
from a division of the Connecticut Department of Health. In addition to passing
inspection from the auditors of the Connecticut Department of Health, our HAP
Typing facility will be inspected by auditors from the New York State Department
of Health. This agency is considered by experts to have formulated the most
comprehensive standards for defining what constitutes good laboratory practices.
We also anticipate that before we obtain samples from our HAP2000 partners, they
will hire auditors to inspect the HAP Typing facility in order to ensure that
the facility meets their expectations for operating a facility according to good
clinical laboratory practices. In preparation for these inspections by state
authorities or pharmaceutical partners, we will hire auditors to inspect our HAP
Typing facility. These auditors will provide a confidential report indicating
any existing deficiencies and suggesting the actions necessary to bring the
operation into compliance with CLIA, Connecticut and New York regulations for
the equivalent of good laboratory practices.
Human Resources
As of April 17, 2000, we had 84 full-time employees, 70 of whom were engaged
in research and development activities and 14 of whom conducted general and
administrative functions. Of the 70 employees engaged in research and
development, 31 were engaged in informatics and 39 were engaged in industrial
genomics. Twenty-eight of our employees hold Ph.D. or M.D. degrees and eight
hold other advanced degrees.
None of our employees is covered by a collective bargaining agreement, and we
consider our relations with our employees to be good.
Facilities
Our executive offices and laboratories are located at Five Science Park, New
Haven, Connecticut. We lease approximately 47,000 square feet of space, under a
lease expiring on February 28, 2004, which we may extend for 10 years. We
currently occupy 20,000 square feet of this space and are in the process of
renovating the remainder. We are negotiating to lease
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an additional 17,000 square feet within the same building complex. In addition,
we have a right of first refusal on an additional 4,000 square feet within the
same building complex and 24,000 square feet in an adjacent building.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers, Directors and Key Employees
Set forth below is certain information regarding our executive officers,
directors and key employees, including their age as of March 31, 2000:
<TABLE>
<CAPTION>
Name Age Position
- ---- -------- ------------------------------------------
<S> <C> <C>
Jurgen Drews, M.D......................... 66 Chairman of the Board and Director
Gualberto Ruano, M.D., Ph.D............... 40 Chief Executive Officer and Director
Kevin Rakin............................... 39 Executive Vice President, Chief Financial
Officer and Director
Gerald F. Vovis, Ph.D..................... 57 Senior Vice President of Genomics
Richard S. Judson, Ph.D................... 41 Senior Vice President of Informatics
Paul Oestreicher, Ph.D.................... 42 Vice President of Public Affairs
Melodie W. Henderson...................... 40 Director of Intellectual Property
Mark Rabin, Ph.D.......................... 47 Senior Director of HAP Typing Facility
Joel Claiborne Stephens, Ph.D............. 46 Director of Population Genomics
Gerhard Laur, M.D......................... 49 Director
Harry H. Penner, Jr....................... 54 Director
Seth Rudnick, M.D......................... 51 Director
Stefan Ryser, Ph.D........................ 40 Director
Christopher Wright........................ 42 Director
</TABLE>
JURGEN DREWS, M.D. Dr. Drews has served as Chairman of the board of
directors since August 1999 and a Director since August 1998. In 1998,
Dr. Drews cofounded International Biomedicine Management Partners, Inc., a
venture capital company of which he is a partner and Chairman of the board. From
1985 to 1997, Dr. Drews served as President of Global Research and Development
at Hoffmann-LaRoche Inc., a pharmaceutical company, and also served as a member
of the Corporate Executive Committee of the Roche Group. He holds a M.D. in
internal medicine from the University of Heidelberg. He serves on the boards of
Exelixis Pharmaceuticals; GPC Biotech AG; Human Genome Sciences, Inc.; MorphoSys
GmbH; and Protein Design Labs, Inc.
GUALBERTO RUANO, M.D., PH.D. Dr. Ruano cofounded Genaissance and has served
as Chief Executive Officer and Director since 1995. Prior to founding
Genaissance, Dr. Ruano was engaged in research at Yale University where he
focused on haplotyping technologies for profiling genome diversity stemming from
population and evolutionary genetics. Dr. Ruano holds a B.A. degree in
biophysics from The Johns Hopkins University and a M.D. and a Ph.D. in
population genetics from Yale University, where he was a fellow of the Medical
Scientist Training Program and the Ford Foundation.
KEVIN RAKIN. Mr. Rakin cofounded Genaissance and has served as our Executive
Vice President, Chief Financial Officer and Director since 1995. Prior to 1998,
Mr. Rakin was also a Principal at the Stevenson Group, a consulting firm, where
he provided financial and strategic planning services to high-growth technology
companies and venture capital firms. Prior to
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this, Mr. Rakin was a manager with Ernst & Young's entrepreneurial services
group. Mr. Rakin holds a B.S. in business and a M.S. degree in finance from the
University of Cape Town and a M.B.A. from Columbia University. He is a chartered
accountant.
GERALD F. VOVIS, PH.D. Dr. Vovis has been our Senior Vice President of
Genomics since April 1999. From 1980 to 1999, Dr. Vovis was affiliated with
Genome Therapeutics Corporation, a genomics company, most recently as Senior
Vice President of Scientific Affairs. He has twenty years of experience in the
management of genetic research and in the development and management of
collaborative research programs with pharmaceutical and biotechnology companies.
Dr. Vovis holds a B.A. degree in chemistry from Knox College and a Ph.D. in
molecular biology from Case Western Reserve University.
RICHARD S. JUDSON, PH.D. Dr. Judson has been our Senior Vice President of
Informatics since April 2000 and our Vice President of Informatics since
November 1999. He joined Genaissance in February 1999 as Associate Director,
Bioinformatics. From January 1997 to February 1999, he served as Group Leader in
the Bioinformatics Department of CuraGen Corporation, a genomics company, where
he was responsible for developing software for protein-protein interactions and
DNA sequence analysis. From January 1990 to December 1996, he served as Senior
Member of the Technology Staff at Sandia National Laboratories, leading modeling
projects in several areas including computational drug design, protein modeling
and sequence analysis. Dr. Judson holds a B.A. in chemistry and physics from
Rice University and a M.A. and a Ph.D. in chemistry from Princeton University.
PAUL OESTREICHER, PH.D. Dr. Oestreicher has been our Vice President of
Public Affairs since April 2000. From 1995 to 2000, he served as Executive Vice
President and General Manager at Edelman Public Relations Worldwide. From 1992
to 1995, Dr. Oestreicher was Senior Vice President at Medicus Public Relations.
From 1986 to 1992, he was associated with Hoffman-La Roche Inc., initially as a
clinical project coordinator and subsequently with the department of Public
Policy and Communications. Dr. Oestreicher holds a B.A. in biology from the
University of Rochester and a M.S. and a Ph.D. in nutritional biochemistry from
Rutgers University.
MELODIE W. HENDERSON. Ms. Henderson has been our Director of Intellectual
Property since May 1999. She joined Genaissance after several years as a
registered patent attorney in private practice where she specialized in the
preparation and prosecution of biotechnology-related patent applications. Prior
to obtaining her J.D. at the University of Connecticut, Ms. Henderson spent over
10 years as a scientist in the biotechnology industry, with job responsibilities
including research and development of products for life science research,
customer service, and marketing. Ms. Henderson also holds a M.S. in biochemistry
from Saint Louis University.
MARK RABIN, PH.D. Dr. Rabin has been our Senior Director of HAP Typing
Facility since December 1999. Previously, he was Director, Molecular Profiling
Services Laboratory, at Gene Logic and Oncormed, Inc. Prior to this, Dr. Rabin
was a Senior Investigator in the Molecular Diagnostics Department at SmithKline
Beecham Pharmaceuticals, Inc. From 1987 to 1994, he was an Assistant Professor
at the University of Miami Medical School and served as Director, Clinical DNA
Diagnostic Laboratory, in the Department of Pediatrics. Dr. Rabin holds a B.A.
and a M.A. in biology from SUNY, Binghamton and a Ph.D. in biochemistry from the
University of Illinois. He is a Fellow of the American College of Medical
Genetics and is certified in clinical molecular genetics by the American Board
of Medical Genetics and in genetic testing for molecular oncology by the New
York State Department of Health.
JOEL CLAIBORNE STEPHENS, PH.D. Dr. Stephens has been our Director of
Population Genomics since April 1999. Prior to this, he served as the Head of
the Bioinformatics Group at
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the National Cancer Institute's Laboratory of Genomic Diversity. Previously, he
was a Senior Research Associate at Yale's Howard Hughes Medical Institute &
Human Gene Mapping Library and the Department of Human Genetics. He researched
population genetics and molecular evolution at the Center for Demographic and
Population Genetics at the University of Texas Health Science Center.
Dr. Stephens holds a B.A. in zoology and mathematics from Duke University and a
Ph.D. in genetics from the University of Georgia.
GERHARD LAUR, M.D. Dr. Laur has been a director since March 2000. He is
Director, Head of Merchant Banking at A&A Actienbank, a merchant bank. From 1998
to 1999, he was Director, Mergers and Acquisitions/Life Sciences for BHF-BANK
AG, a commercial bank. From 1992 to 1998, Dr. Laur was Head of Corporate
Planning/Life Sciences at BASF AG and held various management positions with
Knoll AG, the pharma-division of BASF AG. Dr. Laur holds a M.D. in clinical
medicine from Mannheim and Heidelberg University.
HARRY H. PENNER, JR. Mr. Penner has been a director since August 1998. He is
the President and Chief Executive Officer of Neurogen Corporation, a
neuropharmaceutical company. Prior to this, Mr. Penner served as President of
Novo Nordisk of North America, Inc. and Executive Vice President of Novo Nordisk
A/S. Mr. Penner is currently a member of the governing body of the Emerging
Companies section of the Biotechnology Industry Organization (BIO). Mr. Penner
holds a J.D. from Fordham University, a L.L.M. from New York University and a
B.A. in history from the University of Virginia. He serves on the boards of
Avant Immunotherapeutics, Inc. and PRA International, Inc.
SETH RUDNICK, M.D. Dr. Rudnick has been a director since February 2000. He
is a medical consultant and a clinical professor of medicine at the University
of North Carolina at Chapel Hill and has been a venture partner at Canaan Equity
Partners, a venture capital firm, since 1998. From 1991 until 1997, he served as
Chief Executive Officer of CytoTherapeutics, Incorporated, a company engaged in
the development of cell and gene based therapeutics and he served as its
Chairman of the Board from 1993 until 1998. Dr. Rudnick received a M.D. from the
University of Virginia and a B.A. from the University of Pennsylvania. He also
serves on the boards of Esperion Therapeutics, Inc., NaPro
BioTherapeutics, Inc. and OraPharma, Inc.
STEFAN RYSER, PH.D. Stefan Ryser, Ph.D. has been a director since
August 1998. Dr. Ryser has served as Chief Executive Officer, Member and
Delegate of the board of International Biomedicine Management Partners, Inc., a
venture capital company, since 1998. From 1989 to 1997, Dr. Ryser held various
positions at Hoffmann-LaRoche, Inc., a pharmaceutical company, in Basel,
Switzerland, and in Nutley, New Jersey, including Scientific Assistant to the
President of Global Research and Development, and was also responsible for
maintaining the scientific liaison between Roche and Genentech. Dr. Ryser served
on the joint steering committee of Roche and Millennium Pharmaceuticals, Inc., a
genomics company, from 1994 to 1995. Dr. Ryser is a director of Arena
Pharmaceuticals, Inc., Cytokinetics, Inc. and Telik, Inc. He holds a Ph.D. in
molecular biology from the University of Basel.
CHRISTOPHER WRIGHT. Mr. Wright has been a director since August 1998. He is
the head of the Global Private Equity businesses of Dresdner Kleinwort Benson, a
bank, which manages approximately $2 billion in private equity investments
worldwide. He has also been the Chairman of the Group Private Equity Board for
Dresdner Kleinwort Benson since 1997. From 1995 to 1997, Mr. Wright served as
Executive Vice President to Dresdner Kleinwort Benson. Mr. Wright holds a M.A.
in philosophy and economics from Oxford University and a C. Diploma in
accounting and finance. He serves on the boards of Merifin Capital Group and
Roper Industries Inc.
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Scientific Advisory Board
We address certain technical matters by consulting with medical, scientific
and information technology advisors who have demonstrated expertise in the areas
of molecular and genomic technologies, statistical epidemiology, drug
development and clinical correlations. Board members meet on a regular basis to
exchange ideas with management and actively participate in our development. In
addition, two members of our scientific advisory board serve as our executive
scientific and medical advisors on an additional as needed basis. Our advisors
are as follows.
STEPHEN LIGGETT, M.D., EXECUTIVE MEDICAL ADVISOR TO MANAGEMENT. Dr. Liggett
is a Professor in the Departments of Medicine, Pharmacology and Molecular
Genetics at the University of Cincinnati. Prior to this, he served as an
Associate Professor and Chief, Pulmonary and Critical Care Medicine at the
University of Cincinnati College of Medicine. His research focuses on
correlating genomic variation and clinical response with a specific focus on the
function of G-coupled protein receptors. He is particularly interested in how
gene variation in the structure of a receptor alters function at the cellular
level and how this affects responsiveness to therapeutic agents. These efforts
have been applied towards asthma and congestive heart failure. Dr. Liggett holds
a M.D. from the University of Miami School of Medicine.
RICHARD MYERS, PH.D., EXECUTIVE SCIENTIFIC ADVISOR TO MANAGEMENT. Dr. Myers
is a Professor of Genetics at the Stanford University School of Medicine and the
Director of the Stanford Human Genome Center. Dr. Myers was a founder of
Mercator Genetics Incorporated. He is a specialist in genome analysis,
positional cloning and the study of DNA variation. His professional interests
and accomplishments have spanned a number of genetic diseases including
Huntington disease, progressive myoclonus epilepsy, basal cell carcinoma,
haemochromatosis and autism. Dr. Myers holds a Ph.D. in biochemistry from the
University of California at Berkeley.
FRANK H. RUDDLE, PH.D., CHAIRMAN OF THE SCIENTIFIC ADVISORY
BOARD. Dr. Ruddle is Sterling Professor of Biology and Professor of Genetics at
Yale University. Dr. Ruddle is a member of the National Academy of Sciences, a
former President of the Society for Developmental Biology, the editor of
Genomics and a member of the editorial boards of several major scientific
journals. Dr. Ruddle is an authority in genome diversity, developmental biology
and transgenic animals. Dr. Ruddle holds a Ph.D. in cell biology from the
University of California at Berkeley.
BARUCH S. BLUMBERG, M.D., PH.D. AND NOBEL LAUREATE. Dr. Blumberg is a
Distinguished Scientist at Fox Chase Cancer Center, Philadelphia and University
Professor of Medicine and Anthropology at the University of Pennsylvania. His
research has covered many areas including clinical research, epidemiology,
virology, genetics and anthropology. He was awarded the Nobel Prize in 1976 for
"discoveries concerning new mechanisms for the origin and dissemination of
infectious diseases" and specifically for the discovery of the Hepatitis B
virus. In 1993, he was elected to the National Inventors Hall of Fame for
inventing the Hepatitis B vaccine and the diagnostic test for Hepatitis B with
his co-inventor Dr. Irving Millman. Dr. Blumberg holds a M.D. from Columbia
University and a Ph.D. in biochemistry from Balloil College at Oxford
University.
FRITZ BUHLER, M.D. Dr. Buhler is Deputy Chairman of the board of
International Biomedicine Management Partners, Inc, a venture capital company.
Prior to this, he served in several capacities at the Roche Group, including
Head, Worldwide Clinical Research and Development and Chief Medical Officer.
Dr. Buhler is Director of the European Center for
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Pharmaceutical Medicine at the University Hospital of Basel. Dr. Buhler is a
cardiologist whose career has spanned 35 years in academic medicine and
pharmaceutical industry research and development. He holds a M.D. from the
University of Basel.
STEPHEN DELLAPORTA, PH.D. Dr. Dellaporta is a Professor in the Department of
Molecular, Cellular and Developmental Biology at Yale University. He is an
expert in plant breeding and genetics. He received a Ph.D. in biomedical science
from Worcester Consortium.
LOUIS LASAGNA, M.D., SC.D. Dr. Lasagna is Dean of the Sackler School of
Graduate Biomedical Sciences and Scientific Affairs School of Medicine at Tufts
University and Chairman of the Board, Tufts Center for the Study of Drug
Development. Dr. Lasagna is an expert in the areas of clinical trial
methodology, analgesics, medical ethics and the placebo effect. He was Chairman
of the National Committee to review procedures for approval of new drugs for
cancer and AIDS. He holds a M.D. from Columbia University and was awarded a
honorary Sc.D. from both the Hahnemann Medical School and Rutgers University.
ALEX MAKRIYANNIS, PH.D. Dr. Makriyannis is Professor of Molecular and Cell
Biology and Director of the Drug Discovery Institute at the University of
Connecticut and Director of the Connecticut Critical Technologies Drug Design
Program. Dr. Makriyannis has provided expertise in the areas of drug design,
synthesis and testing to Abbott Laboratories, Bayer Corporation, Boehringer
Ingelheim Pharmaceuticals, Inc., Pfizer Inc., Sphinx Pharmaceuticals, Inc. and
Bristol-Myers Squibb Company. He holds a Ph.D. in medicinal chemistry from the
University of Kansas.
NEIL RISCH, PH.D. Dr. Risch is Professor of Genetics at Stanford University
where he also holds appointments in Biostatistics and Epidemiology. Prior to
this, Dr. Risch was Professor of Genetics at Yale University School of Medicine.
Dr. Risch is a genetic epidemiologist focusing on complex disorders using
association studies designed with novel biostatistical algorithms. He has
contributed to the understanding of the genetic basis of breast cancer, autism,
psychiatric disorders, coronary heart disease, Alzheimer's Disease and genetic
malformations of the palate. Dr. Risch holds a Ph.D. in biomathematics from the
University of California at Los Angeles.
Board of Directors
Our board of directors is currently comprised of eight directors. In
February 2000, the board of directors designated a compensation committee and in
March 2000 the board of directors designated an audit committee. Prior thereto,
there were no such committees of the board of directors, and decisions regarding
the compensation of executive officers were made by the board of directors as a
whole. The compensation committee, which consists of Drs. Drews and Rudnick and
Mr. Wright, makes recommendations to the Board concerning the compensation of
our officers and directors and the administration of our stock option plan and
employee stock purchase plan 2000. The audit committee, which consists of
Messrs. Wright and Penner and Dr. Laur, reviews our financial controls,
evaluates the scope of the annual audit, reviews audit results, consults with
management and our independent auditors prior to the presentation of financial
statements to stockholders and, as appropriate, initiates inquiries into aspects
of our internal accounting controls and financial affairs.
Director Compensation
Except for Dr. Drews and Mr. Penner, directors currently do not receive any
cash compensation from Genaissance for their services as members of the board of
directors, although members are reimbursed for expenses in connection with
attendance at board of
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<PAGE>
directors and committee meetings. Dr. Drews receives a non-accountable expense
allowance of $30,000 per year. Mr. Penner receives $1,000 per board meeting he
attends. Directors are eligible to participate in our stock plans. To date, we
have granted options to purchase 25,000 shares of common stock to our
non-employee directors.
Compensation Committee Interlocks and Insider Participation
The compensation committee currently consists of Drs. Drews, Rudnick and
Mr. Wright. Prior to the formation of the compensation committee, the board of
directors as a whole performed the functions typically assigned to a
compensation committee. Both Dr. Ruano and Mr. Rakin participated in the board's
deliberations concerning compensation of officers other than themselves. No
member of the compensation committee has been an officer or employee of ours at
any time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee.
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<PAGE>
Executive Compensation
The following table summarizes the compensation paid to or earned during the
fiscal year ended December 31, 1999 by our chief executive officer and all of
our other executive officers whose salary and bonus exceeded $100,000. We refer
to these persons as the named executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation --------------
-------------------------------- Securities
Other Annual Underlying
Name and Principal Position Year Salary Compensation Options
- --------------------------- -------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Gualberto Ruano, M.D., Ph.D.................... 1999 $225,000 $24,942(1) --
Chief Executive Officer
Kevin Rakin.................................... 1999 205,000 -- --
Chief Financial Officer
Gerald F. Vovis, Ph.D.......................... 1999 131,753(2) 41,619(3) 100,000
Senior Vice President of Genomics
Richard S. Judson, Ph.D........................ 1999 94,231(4) -- 50,000
Senior Vice President of Informatics
</TABLE>
- ---------
(1) Consists of $19,500 of interest forgiven on note payable to us and $5,442
related to auto allowance, life insurance, and disability insurance.
(2) Dr. Vovis joined us in April 1999.
(3) Consists of $37,057 related to reimbursed moving expenses and $4,562
related to life insurance and disability insurance.
(4) Dr. Judson joined us in February 1999.
Stock Option Grants
The following table contains certain information regarding stock option
grants during the twelve months ended December 31, 1999 by us to the named
executive officers:
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted Exercise for Option Term(1)
Options to Employees Price Expiration ---------------------
Name Granted in Fiscal Year Per Share Date 5% 10%
- ---- ---------- -------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gualberto Ruano, M.D., Ph.D...... -- -- % $-- -- $ -- $ --
Kevin Rakin...................... -- -- -- -- -- --
Gerald F. Vovis, Ph.D............ 100,000 26.3 3.00 4/15/09 $188,668 $478,123
Richard S. Judson, Ph.D.......... 50,000 13.1 3.00 9/19/09 $ 94,334 $239,061
</TABLE>
- ------------
(1) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation, if
any, in the price of the underlying common stock. No gain to the optionees
is possible without an increase in price of the common stock, which will
benefit all stockholders proportionately.
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<PAGE>
Option Exercises and Year-End Option Values
The following table provides information about the number of shares issued
upon option exercises by the named executive officers during the year ended
December 31, 1999 and the value realized by the named executive officers. The
table also provides information about the number and value of options held by
the named executive officers at December 31, 1999. As our common stock is not
publicly traded, a readily ascertainable market value is not available.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at Fiscal Year-End Fiscal Year-End(1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gualberto Ruano, M.D., Ph.D................ 44,444 55,556 $ $
Kevin Rakin................................ 44,444 55,556
Gerald F. Vovis, Ph.D...................... 12,500 87,500
Richard S. Judson, Ph.D.................... -- 50,000
</TABLE>
- ------------
(1) Based on the difference between the option exercise price and an assumed
public offering price of $ per share of common stock.
Employment Agreements
We have entered into employment agreements with each of Dr. Ruano,
Mr. Rakin, Dr. Vovis and Dr. Judson.
Dr. Ruano's employment agreement, entered into as of August 24, 1998,
provides for his employment as President and Chief Executive Officer through
August 31, 2003. The agreement is automatically renewed for successive one year
terms thereafter, unless terminated by either party. The agreement provides for
a salary of $225,000 per year, subject to yearly merit and performance based
bonuses to be granted in an amount in the board of directors' discretion. On the
date the agreement became effective, we granted Dr. Ruano a cash retention bonus
of $150,000 and an option to purchase 100,000 shares of our common stock at
$1.38 per share, with accelerated vesting upon the termination of the agreement
under certain circumstances. If we terminate Dr. Ruano's agreement without
cause, as that term is defined in the agreement, he is entitled to his base
salary for twelve months following the time of the termination. If Dr. Ruano's
agreement is terminated under certain circumstances following a change of
control, as that term is defined in the agreement, we are obligated to pay him a
lump sum equal to three hundred percent of his salary as in effect at the time
of the termination.
Mr. Rakin's agreement, entered into as of August 24, 1998, provides for his
employment as Executive Vice President, Chief Financial Officer and Treasurer
through August 31, 2003. Thereafter, the agreement is automatically renewed for
successive one year terms, unless terminated by either party. The agreement
provides for a salary of $205,000 per year, subject to yearly merit and
performance based bonuses to be granted in an amount in the board of directors'
discretion. On the date the agreement became effective, we granted Mr. Rakin a
cash retention bonus of $150,000 and an option to purchase 100,000 shares of our
common stock at $1.38 per share, with accelerated vesting upon the termination
of the agreement under certain circumstances. If we terminate Mr. Rakin's
agreement without cause, as that term is defined in the agreement, he is
entitled to his base salary for twelve months following the time of the
termination. If Mr. Rakin's agreement is terminated under certain
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<PAGE>
circumstances following a change of control, as that term is defined in the
agreement, we are obligated to pay him a lump sum equal to three hundred percent
of his salary as in effect at the time of the termination.
Dr. Vovis' agreement, entered into as of April 15, 1999, provides for his
employment as our Senior Vice President of Genomics, through April 15, 2003, and
will be renewed for a successive one year term unless terminated by either
party. The agreement provides for a salary of $185,000 per year, subject to
periodic increases and annual performance based bonuses to be awarded in amounts
to be determined by Dr. Ruano acting in his sole discretion. We granted
Dr. Vovis an option to purchase 100,000 shares of our common stock at $3.00 per
share. If we terminate Dr. Vovis' agreement without cause, as that term is
defined in the agreement, or if Dr. Vovis terminates the agreement under certain
circumstances, we are obligated to pay him his salary for a period of six months
following the date of such termination.
Dr. Judson's agreement, entered into as of November 16, 1999, provides for
his employment as our Vice President of Informatics. The agreement provides for
him to be paid a base salary of $125,000 per year, subject to merit and
performance based bonuses to be paid in amounts and at times at the discretion
of Dr. Ruano. Under this agreement, Dr. Judson was granted the option to
purchase 50,000 shares of our stock at $3.00 per share, these options to vest
ratably over four years.
Employee Benefits Plans
STOCK OPTION PLAN
Our stock option plan authorizes the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options for the purchase of an aggregate of 3,557,375 shares
of common stock, subject to adjustment for stock splits and similar capital
changes. The 3,557,375 includes an increase of 2,000,000 shares of common stock
issuable under the stock option plan that the board of directors approved in
April 2000. Employees and, in the case of non-qualified stock options,
directors, consultants or any affiliate, as defined in the plan, are eligible to
receive grants under the plan. The board of directors has appointed the
compensation committee to administer the plan. As of March 31, 2000, we had
options outstanding to purchase 1,050,475 shares of common stock under the stock
option plan. Currently, after the increase of 2,000,000 shares of common stock
authorized by the board of directors, there are 2,506,900 shares available for
issuance for future grants under the stock option plan.
EMPLOYEE STOCK PURCHASE PLAN 2000
The board of directors adopted the employee stock purchase plan on April 18,
2000, and we plan to submit it to the stockholders for approval in May 2000.
Under the employee stock purchase plan, employees may purchase shares of common
stock at a discount from fair market value. We have reserved 250,000 shares of
common stock for issuance under the purchase plan. The purchase plan is intended
to qualify as an employee stock purchase plan within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended. The compensation committee
grants rights to purchase common stock under the purchase plan. The compensation
committee also determines the frequency and duration of individual offerings
under the plan and the dates when employees may purchase stock. Eligible
employees participate voluntarily and may withdraw from any offering at any time
before they purchase stock. Participation terminates automatically upon
termination of employment.
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<PAGE>
The purchase price per share of common stock in an offering will not be less
than 85% of the lesser of its fair market value at the beginning of the offering
period or on the applicable exercise date and employees may pay through payroll
deductions, periodic lump sum payments or a combination of both. The purchase
plan terminates on April 18, 2010. As of April 14, 2000, we had issued no shares
of common stock under the purchase plan.
401(K) PLAN
We have a 401(k) defined contribution retirement plan covering substantially
all full-time employees. We match 25% of employee contributions up to 8% of
employee compensation. We contributed approximately $25,000 to the plan during
1999.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In August 1998, we made a loan in the amount of $325,000 to Dr. Ruano, our
President and Chief Executive Officer. Dr. Ruano incurred the loan in connection
with the exercise of options to buy 260,000 shares of our common stock. The loan
is represented by a promissory note and secured by a pledge of the stock
purchased with the loan proceeds. It bears interest at the rate of six percent
per year, payment of which is forgiven as long as Dr. Ruano is our employee.
Although the entire principal amount is currently outstanding, during 1998 we
recorded a reserve of $325,000 which has been offset against the note
receivable. The entire unpaid principal amount of the loan and unforgiven
accrued interest will be formally forgiven upon the closing of this offering.
In June 1994, we entered into an agreement with Yale University to license a
patent, the basis of which is technology Dr. Ruano invented. Under the terms of
the original agreement, we were obligated to make certain payments to Yale
University for the license and Yale University was obligated to pay Dr. Ruano a
royalty based on a percentage of net income it received from the licensing of
the patent. In August 1998, we amended the license agreement to provide that we
would make the payments that Yale University is obligated to pay Dr. Ruano under
the license agreement directly to Dr. Ruano and deduct the amount of these
payments from the license fees we are obligated to pay to Yale University under
the agreement. Pursuant to the terms of the amended license agreement, we have
obligations to Dr. Ruano of approximately $35,000 and $10,000 for 1998 and 1999
and $248,000 in the first quarter of 2000.
Dr. Ryser, a member of our board of directors, is the Chief Executive Officer
of International Biomedicine Management Partners Inc., an affiliate of
International BM Biomedicine Holdings, Inc., which is one of our stockholders.
In August 1998, we sold International BM Biomedicine Holdings, Inc. 1,000,000
shares of our series A convertible preferred stock, at $4.00 per share, and in
February 2000 we sold 732,054 shares of our series B convertible preferred
stock, at $5.50 per share. In November 1999, we issued International BM
Biomedicine Holdings, Inc. a warrant to purchase 5,455 shares of common stock at
$5.50 per share. Upon the closing of this offering, these shares, excluding the
shares issuable upon the exercise of the warrant, will automatically convert to
1,732,054 shares of our common stock. Dr. Ryser also serves on the board of
Telik, Inc., with which we have a research collaboration agreement.
Dr. Drews, a member of our board of directors, is the Chairman of the board
of International Biomedicine Management Partners Inc., which is the affiliate of
one of our stockholders, International BM Biomedicine Holdings, Inc., as
described above.
Dr. Rudnick, a member of our board of directors, is a venture partner of
Canaan Partners, which is the manager of Canaan Equity Partners II LLC, which is
the general partner of two of our stockholders, Canaan Equity II, LP and Canaan
Equity II, LP (QP) and is the manager of another stockholder, Canaan Equity II
Entrepreneurs LLC. In February 2000, we sold an aggregate of 895,454 shares of
our series B convertible preferred stock to these three stockholders at a price
of $5.50 per share. Upon the closing of this offering, these shares will convert
into 895,454 shares of our common stock.
Mr. Wright, a member of our board of directors, is an executive officer at
Dresdner Kleinwort Benson, the parent company of our stockholders, Kleinwort
Benson Holdings, Inc. and Kleinwort Benson Limited. In August 1998, we sold
Kleinwort Benson Limited 297,450 shares of our series KBL nonvoting preferred
convertible stock and 208,800 shares of our
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<PAGE>
series A convertible preferred stock at a price of $4.00 per share. In
November 1999, we issued to Kleinwort Benson Holdings, Inc. a warrant to
purchase 3,636 shares of common stock at $5.50 per share. In February 2000, we
sold Kleinwort Benson Holdings, Inc. 374,250 shares of our series B convertible
preferred stock and 165,374 shares of series KBH nonvoting preferred stock at
$5.50 per share. Upon the closing of this offering, these shares, excluding the
shares issuable upon exercise of the warrant, will convert into 1,045,874 shares
of our common stock.
Pursuant to the terms of an agreement between Dr. Ruano, Mr. Rakin and one of
our stockholders, Dr. Ruano and Mr. Rakin each are obligated to pay the
stockholder $160,000 upon the completion of this offering. We intend to issue a
promissory note to each of Dr. Ruano and Mr. Rakin for $160,000, the proceeds of
which shall be used to satisfy this obligation. The principal and interest due
on these notes will be forgiven at the end of 2000 if Dr. Ruano and Mr. Rakin
remain our employees.
We entered into agreements with Connecticut Innovations, Inc., one of our
stockholders, to finance leasehold improvements and other costs associated with
our facility expansion. In April 1999, we entered into a promissory note with
Connecticut Innovations, Inc. in the amount of $950,000. In December 1999, we
obtained a commitment from Connecticut Innovations, Inc. to provide an
additional $2,720,000 of funding for the continued expansion of our facility. In
the first fiscal quarter of 2000, we borrowed approximately $295,000 under this
commitment. Both the promissory note and the commitment provide for interest
only for the first two years with principal payments thereafter and final
payments are due in April 2007 and July 2008. Borrowings under the promissory
note and commitment are secured by the related leasehold improvements.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 31, 2000 and as adjusted to
reflect the sale of common stock offered for (1) each person who we know to
beneficially own more than 5% of our common stock, (2) each of our directors,
(3) each of the named executive officers, and (4) all directors and executive
officers as a group. Except as indicated in the table below or the footnotes
thereto and pursuant to applicable community property laws, the stockholders
named in the table have sole voting and investment power with respect to the
shares set forth opposite each stockholder's name
The "Number of Shares Beneficially Owned" column below is based on 15,521,746
shares of common stock outstanding before the offering, and shares
of common stock outstanding after the offering. Shares of common stock subject
to options and warrants that are currently exercisable or exercisable within
60 days of March 31, 2000 are deemed to be outstanding and to be beneficially
owned by the person holding the options or warrants for the purpose of computing
the percentage ownership of the person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Percentage of
Shares Outstanding
Number of Shares -----------------------
of Common Stock Before After
Name and Address of Beneficial Owner (1) Beneficially Owned Offering Offering
- ---------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
International BM Biomedicine Holdings, Inc.(2)............ 1,737,509 11.2%
House of Commerce
Aeschenplatz 7
P.O. Box 136
CH 4010 Basel, Switzerland
Connecticut Innovations, Inc.(3).......................... 1,575,616 10.1%
999 West Street
Rocky Hill, CT 06067
Kleinwort Benson(4)....................................... 1,049,510 6.8%
c/o Dresdner Kleinwort Benson North America LLC
75 Wall Street
New York, NY 10005-2889
CB Capital Investors, LLC................................. 933,333 6.0%
c/o Chase Capital Partners
380 Madison Avenue, 12(th) Floor
New York, NY 10017
A&A Geninvest LLP......................................... 909,090 5.9%
c/o A&A Actienbank Gmbh
IM Trutz Frankfurt 55
60322 Frankfurt, Germany
Sofinov Societe Financiere D'Innovation Inc............... 909,090 5.9%
1981 McGill College Avenue
Montreal, Quebec, Canada
Canaan Partners(5)........................................ 895,454 5.8%
105 Rowayton Avenue
Rowayton, CT 06853
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares Outstanding
Number of Shares -----------------------
of Common Stock Before After
Name and Address of Beneficial Owner (1) Beneficially Owned Offering Offering
- ---------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Gualberto Ruano, M.D., Ph.D.(6)........................... 647,434 4.2%
Kevin Rakin (7)........................................... 638,334 4.1%
Gerald F. Vovis, Ph.D.(8)................................. 25,000 *
Richard S. Judson, Ph.D.(8)............................... 12,500 *
Jurgen Drews, M.D.(9)..................................... 1,737,509 11.2%
Gerhard Laur, M.D.(10).................................... 909,090 5.9%
Harry H. Penner, Jr.,(11)................................. 10,000 *
Seth Rudnick, M.D.(12).................................... 909,090 5.9%
Stefan Ryser, Ph.D.(13)................................... 1,737,509 11.2%
Christopher Wright(14).................................... 1,049,510 6.8%
All executive officers and directors as a group
(10 persons)(15)........................................ 5,938,467 37.8%
</TABLE>
- ------------
* Indicates less than 1%
(1) Unless otherwise indicated, the address of each shareholder is
Genaissance Pharmaceuticals, Inc., Five Science Park, New Haven,
Connecticut 06511.
(2) Includes 5,455 shares of common stock issuable upon exercise of a warrant
currently exercisable.
(3) Includes 38,218 shares of common stock issuable upon exercise of warrants
currently exercisable.
(4) Consists of 506,250 shares of common stock owned by Kleinwort Benson
Limited, 539,624 shares of common stock owned by Kleinwort Benson
Holdings, Inc. and 3,636 shares of common stock issuable upon exercise of
a warrant held by Kleinwort Benson Holdings, Inc.
(5) Consists of the following shares: 586,522 shares owned by Canaan Equity
II L.P., 262,368 shares owned by Canaan Equity II L.P. (QP), and 46,564
shares owned by Canaan Equity II Entrepreneurs LLC. Canaan Equity
Partners II LLC is the general partner of Canaan Equity II L.P. and
Canaan Equity II L.P. (QP) and the manager of Canaan Equity II
Entrepreneurs LLC. Canaan Partners, of which Dr. Rudnick is a venture
partner, is the manager of Canaan Equity Partners II LLC.
(6) Includes 58,334 options exercisable within 60 days of March 31, 2000.
(7) Includes 40,000 shares owned by The Alison N. Hoffman and Kevin L. Rakin
Irrevocable Trust, two trusts for the benefit of certain members of
Mr. Rakin's family and of which Lloyd Hoffman, Mr. Rakin's
brother-in-law, is the sole trustee. Also includes 58,334 options
exercisable within 60 days of March 31, 2000.
(8) Consists solely of shares of common stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of March 31,
2000.
(9) Consists solely of shares of common stock owned by International BM
Biomedicine Holdings, Inc. Dr. Drews is the Chairman of the Board of
International Biomedicine Management Partners, Inc., a company that
manages investments on behalf of International BM Biomedicine
Holdings, Inc. Dr. Drews disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest.
(10) Consists solely of shares of common stock owned by A&A Geninvest LLP.
Dr. Laur is Director, Head of Merchant Banking of A&A Actienbank, a
company that is the general partner of A&A Private Equity, the general
partner of A&A Geninvest. Accordingly, Dr. Laur has voting and investment
control over the shares owned by that entity. Dr. Laur disclaims
beneficial ownership of these shares except to the extent of his
pecuniary interest.
(11) Consists solely of shares of common stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of March 31,
2000.
(12) Includes 895,454 shares owned by Canaan Partners. Dr. Rudnick is a
venture partner of Canaan Partners and has voting and investment control
over the shares owned by that entity. See footnote (5). Dr. Rudnick
disclaims beneficial ownership of these shares except to the extent of
his pecuniary interest.
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<PAGE>
(13) Consists solely of shares of common stock owned by International BM
Biomedicine Holdings, Inc. Dr. Ryser is the Chief Executive Officer,
member and delegate of the board of International Biomedicine Management
Partners, Inc., a company that manages investments on behalf of
International BM Biomedicine Holdings, Inc. Dr. Ryser has voting and
investment control over the shares owned by International BM Biomedicine
Holdings, Inc. Dr. Ryser disclaims beneficial ownership of these shares
except to the extent of this pecuniary interest.
(14) Consists of 506,250 shares of common stock owned by Kleinwort Benson
Limited, 539,624 shares of common stock owned by Kleinwort Benson
Holdings, Inc. and 3,636 shares of common stock issuable upon exercise of
a warrant held by Kleinwort Benson Holdings, Inc. Mr. Wright is an
executive officer of Dresdner Kleinwort Benson, the parent company of
Kleinwort Benson Limited and Kleinwort Benson Holdings, Inc. Mr. Wright
has voting and investment control over the shares owned by these
entities. Mr. Wright disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest.
(15) See footnotes (6)-(14). Includes 173,259 shares of common stock issuable
upon exercise of options or warrants currently exercisable or exercisable
within 60 days of March 31, 2000. Includes only 1,737,509 of the shares
attributed to Drs. Drews and Ryser as a result of their affiliation with
International BM Biomedicine Holdings, Inc.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock as of March 31, 2000 consisted of 20,000,000
shares of common stock, 2,000,000 shares of nonvoting common stock, and
30,000,000 shares of preferred stock. As of March 31, 2000, there were
outstanding 2,817,580 shares of common stock and 12,704,166 shares of preferred
stock. These shares were held of record by a total of 102 stockholders.
Upon the closing of this offering:
- Our certificate of incorporation will be amended and restated to provide
for total authorized capital consisting of 40,000,000 shares of common
stock and 1,000,000 shares of preferred stock; and
- All shares of preferred stock will convert into common stock, and a total
of shares of common stock and no shares of preferred stock will be
outstanding, based on the number of shares outstanding as of March 31, 2000
and assuming no exercise of the underwriters' over-allotment option, after
giving effect to the sale of common stock we are offering.
Common Stock
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor as the
board may from time to time determine. Each stockholder is entitled to one vote
for each share of common stock held on all matters submitted to a vote of
stockholders. Cumulative voting for the election of directors is not provided
for in Genaissance's certificate of incorporation, which means that the holders
of a majority of the shares voted can elect all of the directors then standing
for election. The common stock is not entitled to preemptive rights and is not
subject to conversion or redemption. Each outstanding share of common stock is,
and all shares of common stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
Preferred Stock
As of the closing date of this offering, each outstanding share of preferred
stock will automatically convert into one share of common stock. Pursuant to an
amended and restated certificate of incorporation to be filed upon the closing
of this offering, a total of 1,000,000 shares of preferred stock will be
authorized for issuance, none of which has been designated in any series. Our
board of directors is authorized, without further stockholder action, to
authorize and issue any of the 1,000,000 undesignated shares of preferred stock
in one or more series and to fix the voting rights, liquidation preferences,
dividend rights, repurchase rights, conversion rights, preemption rights,
redemption rights, and terms, including sinking fund provisions and certain
other rights and preferences of such shares of our preferred stock. The issuance
of any class or series of preferred stock could adversely affect the rights of
the holders of common stock by restricting dividends on, diluting the power of,
impairing the liquidation rights of common stock, or delaying, deferring, or
preventing a change in control of Genaissance. We have no present plans to issue
any preferred stock.
67
<PAGE>
Anti-Takeover Provisions of Delaware Law and Charter and Bylaw Provisions
Section 203 of the Delaware General Corporation Law is applicable to
corporate takeovers of Delaware corporations. Subject to exceptions enumerated
in Section 203, Section 203 provides that a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the date that the stockholder becomes an interested stockholder
unless:
- prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, though some shares may be excluded from the
calculation; and
- on or subsequent to that date, the business combination is approved by the
board of directors of the corporation and by the affirmative votes of
holders of at least two-thirds of the outstanding voting stock that is not
owned by the interested stockholder.
Except as specified in Section 203, an interested stockholder is generally
defined to include any person who, together with any affiliates or associates of
that person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation, any time within three years immediately prior to the
relevant date. Under certain circumstances, Section 203 makes it more difficult
for an interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may elect not to
be governed by this section, by adopting an amendment to our certificate of
incorporation or by-laws, effective 12 months after adoption. Genaissance's
certificate of incorporation and its by-laws do not exclude Genaissance from the
restrictions imposed under Section 203. It is anticipated that the provisions of
Section 203 may encourage companies interested in acquiring Genaissance to
negotiate in advance with the board since the stockholder approval requirement
would be avoided if a majority of the directors then in office excluding an
interested stockholder approve either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder.
These provisions may have the effect of deterring hostile takeovers or delaying
changes in control of Genaissance, which could depress the market price of the
common stock and which could deprive stockholders of opportunities to realize a
premium on shares of the common stock held by them.
Our certificate of incorporation and by-laws contain provisions that could
discourage potential takeover attempts and make more difficult attempts by
stockholders to change management. Genaissance's certificate of incorporation
provides that stockholders may not take action by written consent but may only
act at a stockholders' meeting, and that special meetings of the stockholders of
Genaissance may only be called by the president or a majority of the board and
requires advance notice of business to be brought by a stockholder before the
annual meeting. The certificate of incorporation includes provisions classifying
the board of directors into three classes with staggered three-year terms. Under
the certificate of incorporation and by-laws, the board of directors may enlarge
the size of the board and fill any vacancies on the board. The by-laws provide
that nominations for directors may not be
68
<PAGE>
made by stockholders at any annual or special meeting unless the stockholder
intending to make a nomination notifies us of its intention a specified period
in advance and furnishes certain information.
Registration Rights
After this offering, the holders of approximately 12,704,166 shares of common
stock and the holders of warrants to purchase approximately 515,929 shares of
common stock will be entitled to rights with respect to the registration of
these shares under the Securities Act of 1933. Under the terms of the agreements
between us and the holders of those registerable shares, upon the request of the
holders of certain amounts of these shares as set forth in the agreements, we
are required to file a registration statement under the Securities Act with
respect to their shares of common stock. The holders of these registration
rights have waived their rights with respect to this offering. Also, if we
propose to register any of our securities under the Securities Act, other than
in connection with demand registrations and registrations on Form S-8, the
foregoing holders are entitled to notice of and to include in the registration
shares of common stock owned by them. All of these registration rights are
subject to various conditions and limitations, among them certain rights of the
underwriters of an offering to limit the number of shares included in a
registration. We will bear all of the expenses incurred in connection with all
exercises of these registration rights.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock and we
cannot assure you that a liquid trading market for the common stock will develop
or be sustained after this offering. Future sales of substantial amounts of
common stock, including shares issued upon exercise of outstanding options and
warrants, in the public market after this offering or the anticipation of those
sales could adversely affect market prices prevailing from time to time and
could impair our ability to raise capital through sales of our equity
securities.
After the closing of this offering, Genaissance will have outstanding
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, the shares sold in this offering will be freely tradable without
restriction under the Securities Act unless purchased by "affiliates" of
Genaissance as that term is defined in Rule 144 under the Securities Act. The
remaining 14,565,089 restricted shares held by existing stockholders are subject
to various lock-up agreements providing that, with limited exceptions, the
stockholder will not offer, sell, contract to sell, grant an option to purchase,
effect a short sale or otherwise dispose of or engage in any hedging or other
transaction that is designed or reasonably expected to lead to a disposition of
any shares of common stock or any option to purchase common stock or any
securities exchangeable for or convertible into common stock for a period of
180 days after the date of this prospectus. Though these shares may be eligible
for earlier sale under the provisions of the Securities Act, none of these
shares will be saleable until 181 days after the date of this prospectus as a
result of these lock-up agreements. Beginning 181 days after the date of this
prospectus, 1,907,740 restricted shares will be eligible for sale in the United
States public market, subject to volume and other limitations. In addition, as
of March 31, 2000, there were outstanding options to purchase 1,050,475 shares
of common stock and warrants to purchase 628,831 shares of common stock, none of
which options are expected to be exercised prior to the closing of the offering.
Substantially all of the shares issued upon exercise will be subject to lock-up
agreements.
In general, under Rule 144 as currently in effect, a person, or persons whose
shares are aggregated, who has beneficially owned restricted shares for at least
one year is entitled to sell within any three-month period up to that number of
shares that does not exceed the greater of: (1) 1% of the number of shares of
common stock then outstanding, which immediately following this offering is
expected to be approximately shares, or (2) the average weekly trading
volume of the common stock during the four calendar weeks preceding the filing
of a Form 144 with respect to the sale. Sales under Rule 144 are also subject to
certain "manner of sale" provisions and notice requirements and to the
requirement that current public information about itself be available. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the issuer
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner except an affiliate, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
70
<PAGE>
Rule 701 under the Securities Act permits resales of qualified shares held by
some affiliates in reliance upon Rule 144 but without compliance with some
restrictions, including the holding period requirement, of Rule 144. Any
employee, officer or director of or consultant to Genaissance who purchased his
or her shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 further provides
that non-affiliates may sell shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares of common stock are
required to wait until 90 days after the date of this prospectus before selling
shares. However, all shares issued pursuant to Rule 701 are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up.
71
<PAGE>
UNDERWRITING
Subject to certain terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Deutsche Bank
Securities Inc., Bear, Stearns & Co. Inc., Salomon Smith Barney, Inc., and
Warburg Dillon Read LLC, have severally agreed to purchase from us the following
number of shares of common stock at a public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus set forth opposite their names below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ -----------
<S> <C>
Deutsche Bank Securities Inc................................
Bear, Stearns & Co. Inc.....................................
Salomon Smith Barney, Inc...................................
Warburg Dillon Read LLC.....................................
----------
Total...................................................
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock offered hereby are subject to
certain conditions precedent and that the underwriters will purchase all shares
of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public at
the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered by us. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the shares are being offered.
72
<PAGE>
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is 7% of the initial public offering price. We have
agreed to pay the underwriters the following fees, assuming either no exercise
or full exercise by the underwriters of the underwriters' overallotment option:
<TABLE>
<CAPTION>
Total Fees
---------------------------------------------
Without Exercise of With Full Exercise of
Fee Per Share Over-Allotment Option Over-Allotment Option
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Genaissance............... $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make with respect to any of
these liabilities.
Each of our officers and directors, and substantially all our stockholders
and holders of options and warrants to purchase our stock, have agreed not to
offer, sell, contract to sell, or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the date of the prospectus without the prior
written consent of Deutsche Bank Securities Inc. This consent may be given at
any time without public notice. We have entered into a similar agreement with
the representatives of the underwriters, except that we may grant options and
sell shares pursuant to our Stock Option Plan and our Employee Stock Purchase
Plan 2000 without such consent. There are no agreements between the
representatives and any of our stockholders or affiliates releasing them from
these lock-up agreements prior to the expiration of the 180-day period.
The representatives of the underwriters have advised us that the underwriters
do not intend to confirm sales to any account over which they exercise
discretionary authority.
In order to facilitate the offering of our common stock, the underwriters may
engage in transactions that stabilize, maintain, or otherwise affect the market
price of our common stock. Specifically, the underwriters may over-allot shares
of our common stock in connection with this offering, thus creating a short
position in our common stock for their own account. A short position results
when an underwriter sells more shares of common stock than that underwriter is
committed to purchase. Additionally, to cover these over-allotments or to
stabilize the market price of our common stock, the underwriters may bid for,
and purchase, shares of our common stock in the open market. Finally, the
representatives on behalf of the underwriters, may also reclaim selling
concessions allowed to an underwriter or dealer if the underwriting syndicate
repurchases shares distributed by that underwriter or dealer. Any of these
activities may maintain the market price of our common stock at a level above
that which might otherwise prevail in the open market. These transactions may be
effected on the Nasdaq National Market or otherwise. The underwriters are not
required to engage in these activities and, if commenced, may end any of these
activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for our vendors, employees, family
members of employees, customers,
73
<PAGE>
and other third parties. The number of shares of our common stock available for
sale to the general public will be reduced to the extent these reserved shares
are purchased. Any reserved shares that are not purchased by these persons will
be offered by the underwriters to the general public on the same basis as the
other shares in this offering.
Pricing of this Offering
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial public offering price for our common stock has been
determined by negotiation among us and the representatives of the underwriters.
Among the primary factors considered in determining the public offering price
were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies that
we and the representatives of the underwriters believe to be comparable to
our business; and
- estimates of our business potential.
74
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Palmer & Dodge LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Ropes & Gray, Boston, Massachusetts.
EXPERTS
The audited financial statements as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock
we are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. While we
have disclosed the material terms of any of our contracts, agreements or other
documents referenced in this prospectus, you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market you should call (212) 656-5060.
75
<PAGE>
Genaissance Pharmaceuticals, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1998 and 1999 and
March 31, 2000 (unaudited)................................ F-3
Statements of Operations for the Years Ended December 31,
1997, 1998, and 1999 and for the Three Months Ended
March 31, 1999 and 2000 (unaudited)....................... F-5
Statements of Stockholders' Deficit and Comprehensive Loss
for the Years Ended December 31, 1997, 1998, and 1999 and
for the three months ended March 31, 2000 (unaudited)..... F-6
Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 and for the Three Months Ended
March 31, 1999 and 2000 (unaudited)....................... F-8
Notes to Financial Statements............................... F-9
</TABLE>
All schedules, except those set forth above, are omitted as the required
information either is not applicable or is included in the Financial Statements
or related notes.
F-1
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Genaissance Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Genaissance
Pharmaceuticals, Inc. (a Delaware corporation) as of December 31, 1999 and 1998,
and the related statements of operations, stockholders' deficit and
comprehensive loss and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Genaissance
Pharmaceuticals, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ Arthur Andersen LLP
Hartford, Connecticut
March 10, 2000
F-2
<PAGE>
Genaissance Pharmaceuticals, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, March 31, 2000
-------------------------- ---------------------------
Pro Forma
1998 1999 Actual (Note 2)
----------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 4,189,284 $ 3,666,197 $ 42,983,429 $ 43,097,628
Marketable securities............. 3,229,285 -- 11,925,220 11,925,220
Other current assets.............. 89,446 205,446 362,184 362,184
----------- ------------ ------------ ------------
Total current assets.......... 7,508,015 3,871,643 55,270,833 55,385,032
----------- ------------ ------------ ------------
PROPERTY AND EQUIPMENT, net......... 1,321,542 7,224,008 11,454,024 11,454,024
----------- ------------ ------------ ------------
DEFERRED FINANCING COSTS, net of
accumulated amortization of
$51,538, $96,477 and $141,063 at
December 31, 1998 and 1999 and
March 31, 2000, respectively...... 97,807 251,031 435,561 435,561
----------- ------------ ------------ ------------
OTHER ASSETS........................ 18,370 167,150 194,411 194,411
----------- ------------ ------------ ------------
Total assets.................. $ 8,945,734 $ 11,513,832 $ 67,354,829 $ 67,469,028
=========== ============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term
debt............................ $ 112,489 $ 1,019,550 $ 682,374 $ 682,374
Current portion of capital lease
obligations..................... 13,143 1,199,938 2,186,443 2,186,443
Accounts payable.................. 385,128 820,574 694,012 694,012
Accrued expenses.................. 196,348 481,580 1,144,759 1,144,759
Due to related parties............ 48,460 5,814 253,771 253,771
Deferred revenue.................. 24,625 -- -- --
----------- ------------ ------------ ------------
Total current liabilities..... 780,193 3,527,456 4,961,359 4,961,359
----------- ------------ ------------ ------------
LONG-TERM LIABILITIES:
Long-term debt, less current
portion......................... $ 792,051 $ 2,287,239 $ 2,303,384 $ 2,303,384
Capital lease obligations, less
current portion................. 11,498 3,842,643 6,786,455 6,786,455
Royalty obligations............... 300,000 300,000 300,000 300,000
Leasehold improvements
obligations..................... 809,211 -- -- --
Convertible promissory notes...... -- 3,500,000 -- --
Accrued preferred stock
dividends....................... 275,671 1,055,671 1,697,684 1,697,684
Other............................. 159,800 -- -- --
----------- ------------ ------------ ------------
Total long-term liabilities... 2,348,231 10,985,553 11,087,523 11,087,523
----------- ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
F-3
<PAGE>
Genaissance Pharmaceuticals, Inc.
Balance Sheets (Continued)
<TABLE>
<CAPTION>
December 31, March 31, 2000
-------------------------- ---------------------------
Pro Forma
1998 1999 Actual (Note 2)
----------- ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT (Continued)
COMMITMENTS AND CONTINGENCIES
(Note 12)
REDEEMABLE CONVERTIBLE PREFERRED
STOCK, 10,000,000 authorized
shares at December 31, 1999 and
30,000,000 authorized shares at
March 31, 2000:
Series A and KBL
$.001 par value, 2,437,500
shares issued and outstanding
at December 31, 1998 and 1999
and March 31, 2000 and no
shares pro forma.............. 9,945,130 11,247,303 11,594,299 --
----------- ------------ ------------ ------------
Series B and KBH
$.001 par value, 8,727,273
shares issued and outstanding
at March 31, 2000 and no
shares pro forma.............. -- -- 45,142,723 --
----------- ------------ ------------ ------------
Series C
$.001 par value, 1,539,393
shares issued and outstanding
at March 31, 2000 and no
shares pro forma.............. -- -- 11,892,729 --
----------- ------------ ------------ ------------
PUTTABLE WARRANT.................... -- 124,564 408,386 --
----------- ------------ ------------ ------------
STOCKHOLDERS' DEFICIT:
Common stock, 10,000,000
authorized shares at
December 31, 1999 and 22,000,000
authorized shares at March 31,
2000, $.001 par value,
2,481,658, 2,809,680, and
2,817,580 shares issued and
outstanding at December 31, 1998
and 1999, and March 31, 2000,
respectively and
15,579,849 shares pro forma..... 2,481 2,809 2,817 15,579
Additional paid-in capital........ 2,861,458 3,858,970 6,579,440 75,719,014
Accumulated deficit............... (6,986,152) (18,232,823) (24,212,864) (24,212,864)
Deferred offering costs........... -- -- (75,000) (75,000)
Net unrealized investment
(losses)........................ (5,607) -- (26,583) (26,583)
----------- ------------ ------------ ------------
Total stockholders' deficit... (4,127,820) (14,371,044) (17,732,190) 51,420,146
----------- ------------ ------------ ------------
Total liabilities and
stockholders' deficit....... $ 8,945,734 $ 11,513,832 $ 67,354,829 $ 67,469,028
=========== ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
Genaissance Pharmaceuticals, Inc.
Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended
For the Years Ended December 31, March 31,
---------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Grant research revenue................................. $1,106,978 $ 1,206,250 $ 557,352 $ 274,721 $ --
License revenue........................................ 75,000 160,923 87,322 -- 2,097,599
Other income........................................... 294,426 49,978 -- -- --
---------- ----------- ------------ ----------- -----------
1,476,404 1,417,151 644,674 274,721 2,097,599
---------- ----------- ------------ ----------- -----------
OPERATING EXPENSES:
Sublicense royalty fees................................ 18,750 68,113 20,337 -- 513,912
Research and development............................... 1,643,101 3,017,543 6,258,664 1,106,642 2,991,047
Selling, general and administrative.................... 415,981 893,574 2,713,673 467,149 1,346,401
Stock based compensation............................... 105,976 472,692 446,500 57,238 1,388,487
---------- ----------- ------------ ----------- -----------
2,183,808 4,451,922 9,439,174 1,631,029 6,239,847
---------- ----------- ------------ ----------- -----------
Operating loss....................................... (707,404) (3,034,771) (8,794,500) (1,356,308) (4,142,248)
OTHER INCOME (EXPENSE):
Interest expense....................................... (129,649) (118,044) (512,030) (22,151) (272,786)
Interest income........................................ 5,178 88,284 266,596 143,833 327,727
Realized gains on investments.......................... -- 259,106 -- -- --
---------- ----------- ------------ ----------- -----------
Net loss............................................. (831,875) (2,805,425) (9,039,934) (1,234,626) (4,087,307)
PREFERRED STOCK DIVIDENDS AND ACCRETION.................. -- (741,610) (2,082,173) (428,065) (1,608,912)
ACCRETION OF PUTTABLE WARRANT............................ -- -- (124,564) (82,764) (283,822)
---------- ----------- ------------ ----------- -----------
Net loss applicable to common shareholders........... $ (831,875) $(3,547,035) $(11,246,671) $(1,745,455) $(5,980,041)
========== =========== ============ =========== ===========
Net loss per common share, basic and diluted
(Note 2)........................................... $ (0.42) $ (1.64) $ (4.14) $ (0.67) $ (2.13)
---------- ----------- ------------ ----------- -----------
Shares used in computing basic and diluted net loss
per common share (Note 2).......................... 1,983,340 2,164,974 2,719,302 2,599,258 2,811,758
========== =========== ============ =========== ===========
Pro forma net loss per common share, basic and
diluted (Note 2)................................... $ (1.73) $ (0.44)
============ ===========
Shares used in computing basic and diluted pro forma
net loss per common share (Note 2)................. 5,210,905 9,192,969
============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
Genaissance Pharmaceuticals, Inc.
Statements of Stockholders' Deficit and Comprehensive Loss
<TABLE>
<CAPTION>
Redeemable
Common Stock Common Stock Additional Deferred
--------------------- -------------------- Paid-in Accumulated Offering
Shares Amount Shares Amount Capital Deficit Costs
-------- ---------- --------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997........ 244,350 $ 561,920 2,112,410 $2,112 $1,214,342 $(2,553,810) $ --
Proceeds from sale of common
stock.......................... -- -- 7,580 8 23,492 -- --
Compensation related to issuance
of options to purchase common
stock.......................... -- -- -- -- 105,976 -- --
Accretion in carrying value of
redeemable common stock........ -- 53,432 -- -- -- (53,432) --
Purchase of treasury stock...... -- -- -- -- -- -- --
Net change in unrealized
investment loss................ -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- (831,875) --
-------- --------- --------- ------ ---------- ----------- ----
Total comprehensive loss........
Balance at December 31, 1997...... 244,350 615,352 2,119,990 2,120 1,343,810 (3,439,117) --
Issuance of common stock........ -- -- 260,000 260 324,740 -- --
Conversion of note payable and
accrued interest into common
stock.......................... -- -- 228,332 228 570,602 -- --
Termination of redemption
feature on redeemable common
stock.......................... (244,350) (615,352) 244,350 244 615,108 -- --
Compensation related to issuance
of options and warrants to
purchase common stock.......... -- -- -- -- 171,193 -- --
Warrant issued in connection
with debt financing............ -- -- -- -- 25,725 -- --
Accretion in carrying value of
redeemable preferred stock..... -- -- 9,986 10 39,935 (741,610) --
Retirement of treasury stock.... -- -- (381,000) (381) (229,655) -- --
Net change in unrealized
investment gain................ -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- (2,805,425) --
-------- --------- --------- ------ ---------- ----------- ----
Total comprehensive loss........
<CAPTION>
Net Unrealized Total
Investment Common Other
(Losses) Treasury Stockholders' Comprehensive
Gains Stock Deficit Loss
-------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997........ $ (21,875) $ (24,786) $ (822,097)
Proceeds from sale of common
stock.......................... -- -- 23,500
Compensation related to issuance
of options to purchase common
stock.......................... -- -- 105,976
Accretion in carrying value of
redeemable common stock........ -- -- --
Purchase of treasury stock...... -- (205,250) (205,250)
Net change in unrealized
investment loss................ 360,805 -- 360,805 $ 360,805
Net loss........................ -- -- (831,875) (831,875)
--------- --------- ----------- -----------
Total comprehensive loss........ $ (471,070)
===========
Balance at December 31, 1997...... 338,930 (230,036) (1,368,941)
Issuance of common stock........ -- -- 325,000
Conversion of note payable and
accrued interest into common
stock.......................... -- -- 570,830
Termination of redemption
feature on redeemable common
stock.......................... -- -- --
Compensation related to issuance
of options and warrants to
purchase common stock.......... -- -- 171,193
Warrant issued in connection
with debt financing............ -- -- 25,725
Accretion in carrying value of
redeemable preferred stock..... -- -- (701,665)
Retirement of treasury stock.... -- 230,036 --
Net change in unrealized
investment gain................ (344,537) -- (344,537) $ (344,537)
Net loss........................ -- -- (2,805,425) (2,805,425)
--------- --------- ----------- -----------
Total comprehensive loss........ $(3,149,962)
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
Genaissance Pharmaceuticals, Inc.
Statements of Stockholders' Deficit and Comprehensive Loss
<TABLE>
<CAPTION>
Redeemable
Common Stock Common Stock Additional Deferred
-------------------- -------------------- Paid-in Accumulated Offering
Shares Amount Shares Amount Capital Deficit Costs
--------- -------- --------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998....... -- $ -- 2,481,658 $2,481 $2,861,458 $ (6,986,152) $ --
Issuance of common stock in
settlement of obligation....... -- -- 71,022 71 159,729 -- --
Issuance of common stock from
exercise of stock options and
warrants....................... -- -- 257,000 257 264,283 -- --
Compensation related to issuance
of options to purchase common
stock.......................... -- -- -- -- 446,500 -- --
Warrants issued in connection
with debt financing............ -- -- -- -- 127,000 -- --
Accretion in carrying value of
redeemable preferred stock..... -- -- -- -- -- (2,082,173) --
Accretion of carrying value of
puttable warrant............... -- -- -- -- -- (124,564) --
Net change in unrealized
investment loss................ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- (9,039,934) --
Total comprehensive loss...........
--------- ------ --------- ------ ---------- ------------ --------
Balance at December 31, 1999....... -- -- 2,809,680 2,809 3,858,970 (18,232,823) --
Issuance of common stock from
exercise of stock options
(unaudited).................... -- -- 7,900 8 23,692 -- --
Compensation related to issuance
of options to purchase common
stock (unaudited).............. -- -- -- -- 1,388,487 -- --
Warrants issued in connection
with debt financing and
preferred stock offering
(unaudited).................... -- -- -- -- 1,308,291 -- --
Accretion in carrying value of
redeemable preferred stock
(unaudited).................... -- -- -- -- -- (1,608,912) --
Accretion in carrying value of
puttable warrant (unaudited)... -- -- -- -- -- (283,822) --
Deferred offering costs
(unaudited).................... -- -- -- -- -- -- (75,000)
Net change in unrealized
investment loss (unaudited).... -- -- -- -- -- -- --
Net loss (unaudited)............. -- -- -- -- -- (4,087,307) --
Total comprehensive loss
(unaudited)......................
--------- ------ --------- ------ ---------- ------------ --------
Balance, March 31, 2000
(unaudited)...................... -- $ -- 2,817,580 $2,817 $6,579,440 $(24,212,864) $(75,000)
========= ====== ========= ====== ========== ============ ========
<CAPTION>
Net Unrealized Total
Investment Common Other
(Losses) Treasury Stockholders' Comprehensive
Gains Stock Deficit Loss
-------------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998....... $ (5,607) $ -- $ (4,127,820)
Issuance of common stock in
settlement of obligation....... -- -- 159,800
Issuance of common stock from
exercise of stock options and
warrants....................... -- -- 264,540
Compensation related to issuance
of options to purchase common
stock.......................... -- -- 446,500
Warrants issued in connection
with debt financing............ -- -- 127,000
Accretion in carrying value of
redeemable preferred stock..... -- -- (2,082,173)
Accretion of carrying value of
puttable warrant............... -- -- (124,564)
Net change in unrealized
investment loss................ 5,607 -- 5,607 $ 5,607
Net loss......................... -- -- (9,039,934) (9,039,934)
-----------
Total comprehensive loss........... $(9,034,327)
-------- -------- ------------ ===========
Balance at December 31, 1999....... -- -- (14,371,044)
Issuance of common stock from
exercise of stock options
(unaudited).................... -- -- 23,700
Compensation related to issuance
of options to purchase common
stock (unaudited).............. -- -- 1,388,487
Warrants issued in connection
with debt financing and
preferred stock offering
(unaudited).................... -- -- 1,308,291
Accretion in carrying value of
redeemable preferred stock
(unaudited).................... -- -- (1,608,912)
Accretion in carrying value of
puttable warrant (unaudited)... -- -- (283,822)
Deferred offering costs
(unaudited).................... -- -- (75,000)
Net change in unrealized
investment loss (unaudited).... (26,583) -- (26,583) $ (26,583)
Net loss (unaudited)............. -- -- (4,087,307) (4,087,307)
-----------
Total comprehensive loss
(unaudited)...................... $(4,113,890)
-------- -------- ------------ ===========
Balance, March 31, 2000
(unaudited)...................... $(26,583) $ -- $(17,732,190)
======== ======== ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-7
<PAGE>
Genaissance Pharmaceuticals, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Three Months Ended
For the Years Ended December 31, March 31,
--------------------------------------- --------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (831,875) $(2,805,425) $(9,039,934) $(1,234,626) $ (4,087,307)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 76,282 117,702 816,202 86,580 456,378
Loss on disposal of equipment.......................... -- -- -- -- 55,103
Non-cash license revenue............................... (90,000) -- -- -- --
Realized securities gains.............................. -- (259,106) -- -- --
Stock based compensation............................... 105,976 472,693 446,500 57,238 1,388,487
Warrants issued in exchange for services............... -- 23,500 -- -- 14,123
Changes in assets and liabilities--
Other current assets................................. (67,407) 37,939 (116,000) (88,354) (156,738)
Other assets......................................... (44,127) (7,746) (148,780) (38,026) (27,261)
Accounts payable..................................... 72,741 95,501 435,446 322,114 (126,562)
Accrued expenses..................................... 189,751 33,808 285,232 36,193 724,550
Deferred revenue..................................... -- (79,125) (24,625) (24,625) --
Due to related party................................. 30,460 (42,646) (42,646) (46,510) 247,957
---------- ----------- ----------- ----------- ------------
Net cash used in operating activities...................... (558,199) (2,412,905) (7,388,605) (930,016) (1,511,270)
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (108,452) (1,121,849) (1,048,988) (570,687) (171,671)
(Investment in) proceeds from marketable securities...... -- (2,722,060) 3,234,892 (389,671) (11,951,803)
---------- ----------- ----------- ----------- ------------
Net cash (used in) provided by investing activities........ (108,452) (3,843,909) 2,185,904 (960,358) (12,123,474)
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred stock............ 750,000 8,769,136 -- -- 53,946,178
Net proceeds from issuance of common stock............... 23,500 -- 264,540 257,040 23,700
Proceeds from (repayment of) long-term debt, net......... 452,255 280,582 2,402,249 934,835 (321,031)
Proceeds from convertible promissory notes............... -- -- 3,500,000 -- --
Amounts payable under long term obligation............... -- 809,211 (809,211) (809,211) --
Financing costs.......................................... -- (48,420) (113,521) -- --
Payable to stockholder................................... 180,000 (180,000) -- -- --
Repayment of capital leases.............................. (11,089) (11,624) (564,443) (8,384) (621,871)
Deferred offering costs.................................. -- -- -- -- (75,000)
Acquisition of treasury stock............................ (205,250) -- -- -- --
Stock subscription receivable............................ -- -- -- (257,040) --
---------- ----------- ----------- ----------- ------------
Net cash provided by financing activities.................. 1,189,416 9,618,885 4,679,614 117,240 52,951,976
---------- ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 522,765 3,362,071 (523,087) (1,773,134) 39,317,232
CASH AND CASH EQUIVALENTS, beginning of period............. 304,448 827,213 4,189,284 4,189,284 3,666,197
---------- ----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of period................... $ 827,213 $ 4,189,284 $ 3,666,197 $ 2,416,150 $ 42,983,429
========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES:
Cash paid for interest................................... $ -- $ 117,944 $ 499,571 $ 22,151 $ 210,161
========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of liabilities into common or preferred
stock.................................................. $ -- $ 570,830 $ 159,800 $ -- $ 3,561,371
Acquisition of equipment pursuant to capital lease
obligations............................................ -- -- 5,582,383 707,838 4,552,188
Issuance of warrants in connection with financing
agreements............................................. -- 25,275 127,000 -- 1,308,291
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-8
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements
(including data applicable to unaudited periods)
(1) Organization and Operations
Organization and business activities
Genaissance Pharmaceuticals, Inc. (the Company) is a leader in
commercializing population genomics and informatics to improve the development,
marketing and prescription of drugs. The Company applies population genomics,
the analysis of genomic variation within diverse groups of people, to discover
proprietary markers that are predictive of which patients will respond
effectively to a drug. Currently, the Company is marketing its technology to the
pharmaceutical industry as a fully integrated genomic solution for developing
"smarter" clinical trials and for improving the sales of approved drugs. The
Company has funded its operations, including its research and development
activities, through revenue derived from licensing and research agreements, U.S.
Federal grants and the proceeds from equity and debt offerings.
During 1998, the Company raised approximately $8.8 million, net of issuance
costs, in a private placement of Series A and KBL Redeemable Convertible
Preferred Stock. In February and March of 2000, the Company raised approximately
$53.9 million, net of cash issuance costs and the conversion of $3.5 million of
promissory notes issued in 1999 (Note 7), in private placements of Series B, KBH
and C Redeemable Convertible Preferred Stock (Note 8). In addition, in April
2000, the Company filed a registration statement to sell additional shares of
common stock.
In addition to the normal risks associated with a business venture, there can
be no assurance that the Company's technologies will be successfully completed,
that the Company will obtain adequate patent protection for its technologies and
that any products will be commercially viable. In addition, the Company operates
in an environment of rapid change in technology and has substantial competition
from companies developing genomic related technologies. The Company expects to
incur substantial expenditures in the foreseeable future for its research and
development and commercialization of its products. The Company's management
believes, based upon its current business plans, available cash, and its fiscal
2000 preferred stock financings, that it will have the ability to fund its
operations for at least 24 months.
(2) Summary of Significant Accounting Policies
Interim financial statements
The unaudited interim financial statements as of March 31, 2000 and for the
three months ended March 31, 2000 and 1999 are unaudited and include all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the results for such
interim periods. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of the results to be expected for the entire
year.
F-9
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(2) Summary of Significant Accounting Policies (Continued)
Unaudited Pro Forma Presentation
The unaudited pro forma balance sheet as of March 31, 2000 reflects the
automatic conversion of all outstanding shares of redeemable convertible
preferred stock into an aggregate of 12,704,166 shares of common stock and
reflects the exercise of certain warrants (which require exercise upon an
initial public offering) into 58,103 shares of common stock, both of which will
occur upon the closing of the Company's initial public offering (see Note 1).
Revenue recognition
The Company recognizes grant research revenue as the related expenses for
development activities are incurred and the related work is performed under the
terms of the grants.
The Company has been sublicensing certain technologies (Sublicensed
Technology) to a third party (the Licensor) under a license agreement dated
November 21, 1996 (Original License). The Original License provided the Licensor
with the right to use the Sublicensed Technology in certain diagnostic
applications in exchange for certain royalty payments, with no minimum royalty
obligation. On March 17, 2000, the Company amended the Original License (License
Agreement) to expand the Licensors ability to use the technology in both
diagnostic and research applications, and to modify the future royalty stream,
again with no minimum future obligation. In consideration of such License
Amendment, the Licensor paid the Company a nonrefundable fee of $2,050,000.
Because the Company has no future obligations or ongoing commitments to either
support or maintain the technology or to provide the Licensor with any future
products or services, the Company has recognized the $2,050,000 fee as revenue
in the fiscal quarter ended March 31, 2000. Included in license revenue in the
accompanying statements of operations for the years ended December 31, 1997,
1998 and 1999 and the three months ended March 31, 1999 and 2000, is
approximately $75,000, $161,000, $87,000, $0 and $2,098,000, respectively, of
sublicense revenues resulting from the Original License and License Amendment.
In connection with the Company's original license of the Sub-licensed
Technology from a University, the Company is obligated to pay both the
University and the inventor of the technology a sub-license royalty fee. The
inventor of the technology subsequently joined the Company and is currently the
chief executive officer of the Company. Accordingly, included in sub-license
royalty fees in the accompanying March 31, 2000 statements of operations is
approximately $301,000 and $254,000, respectively, of sublicense fees payable to
the University and to the inventor resulting from the License Amendment. Future
royalty payments from the Licensor, if any, will also be subject to a sublicense
royalty fee. Included in the accompanying statements of operations for the years
ended December 31, 1997, 1998 and 1999 and the three months ended March 31, 1999
and 2000, is approximately $19,000, $68,000, $20,000, $0 and $514,000,
respectively, of sublicensing fees resulting from the Original License and
License Amendment.
F-10
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(2) Summary of Significant Accounting Policies (Continued)
Research and development
Expenditures for research and development, including costs of obtaining
patents and licensing technologies, are charged to expense as incurred.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Long-lived assets
The Company accounts for internal use software in accordance with Statement
of Position 98-1 ("SOP 98-1"), ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires the capitalization of
direct costs incurred in connection with developing or obtaining software for
internal use, including external direct costs of materials and services and
payroll and payroll-related costs for employees who are directly associated with
and devote time to an internal use software development project. The Company's
policy is to capitalize all such costs and to amortize such costs over the
estimated useful life of the software. Capitalized costs associated with this
software were approximately $227,000 and $317,000 as of December 31, 1999 and
March 31, 2000, respectively.
The Company accounts for its investments in long-lived assets in accordance
with Statement of Financial Accounting Standards SFAS No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF.
SFAS 121 requires a company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company has reviewed its long-lived assets and has
determined that no impairments currently exist.
Royalty obligations
Included in the accompanying balance sheets is a $300,000 royalty obligation.
In 1993, the Company received the $300,000 grant from the Department of Economic
and Community Development of the State of Connecticut (DECD). Under the terms of
the agreement, the Company is required to make royalty payments based upon the
greater of 2% of net product revenue, as defined, or $1,550 per month. The
royalties will be satisfied when total payments equal the original amount of the
grant plus interest calculated at 6.2% per annum. During 1998 and 1999, the
Company made royalty payments of approximately $18,600, which satisfied the 6.2%
per annum interest.
Segment reporting
SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION (SFAS 131) establishes annual and interim reporting standards for an
enterprise's operating
F-11
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(2) Summary of Significant Accounting Policies (Continued)
segments and related disclosures about its products, services, geographic areas,
and major customers. The Company has determined that it operates in only one
segment. Accordingly, the adoption of SFAS 131 has had no impact on the
Company's financial statements.
Fair value of financial instruments
Financial instruments, including cash and cash equivalents, current
liabilities and long-term liabilities are carried at cost, which management
believes approximates fair value.
Other comprehensive income (loss)
The Company presents its financial statements in accordance with SFAS
No. 130, REPORTING COMPREHENSIVE INCOME, which establishes standards for the
reporting and displaying of comprehensive income and its components in a full
set of general purpose financial statements. Accordingly, the Company has
included this presentation as a component of the statements of stockholders'
deficit and comprehensive loss. The objective of the statement is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners
("comprehensive income"). This statement requires that financial statements
report unrealized gains on investments as a component of other comprehensive
income or loss.
The components of other comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, Three Months
--------------------------------- Ended March 31,
1997 1998 1999 2000
--------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Net appreciation (depreciation) of marketable
securities during the period................ $360,805 $ (85,251) $5,607 $(26,583)
Gains recognized in income during the period.. -- (259,106) -- --
-------- --------- ------ --------
Other comprehensive income (loss)............. $360,805 $(344,537) $5,607 $(26,583)
======== ========= ====== ========
</TABLE>
Net loss per common share
The Company computes and presents net loss per common share in accordance
with SFAS No. 128, EARNINGS PER SHARE. There is no difference in basic and
diluted net loss per common share as the effect of convertible preferred stock,
stock options and warrants would be anti-dilutive for all periods presented. The
outstanding convertible preferred stock, stock options and warrants (prior to
application of the treasury stock method) would entitle holders to acquire
1,075,700, 3,372,950, 3,678,095 and 14,375,315 shares of common stock at
December 31, 1997, 1998, 1999 and March 31, 2000, respectively. In accordance
with the SEC Staff Accounting Bulletin No. 98, EARNINGS PER SHARE IN AN INITIAL
PUBLIC OFFERING, the Company determined that there were no nominal issuances of
the Company's common stock prior to their planned initial public offering.
F-12
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(2) Summary of Significant Accounting Policies (Continued)
If the Company's initial public offering is consummated, all of the preferred
stock outstanding will automatically be converted into common stock and certain
of the outstanding common stock warrants will be automatically exercised. The
pro forma net loss per share reflects the shares issuable upon the conversion of
outstanding shares of preferred stock (using the as if method) and the automatic
exercise of such warrants (using the treasury stock method) from their original
date of issuance.
The following table sets forth the computation of basic and dilutive, and pro
forma basic and dilutive, net loss per share as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1999 2000
------------ ------------
<S> <C> <C>
Numerator--
Net loss applicable to common shareholders................ $(11,246,671) $(5,980,041)
Preferred stock dividends and accretion................... 2,082,173 1,608,912
Puttable warrant accretion................................ 124,564 283,822
------------ -----------
Pro forma net loss applicable to common shareholders...... $ (9,039,934) $(4,087,307)
============ ===========
Denominator--
Weighted average common shares............................ 2,719,302 2,811,758
Weighted average effect of pro forma securities--
Series A and KBL........................................ 2,437,500 2,437,500
Series B and KBH........................................ -- 3,546,908
Series C................................................ -- 355,245
Warrants................................................ 54,103 41,558
------------ -----------
Denominator for pro forma basic and diluted calculation..... 5,210,905 9,192,969
============ ===========
Net loss per share--
Basic and diluted......................................... $ (4.14) $ (2.13)
Pro forma basic and diluted............................... (1.73) (0.44)
</TABLE>
Recently issued accounting pronouncements
In December 1999, Staff Accounting Bulletin No. 101 (SAB 101), REVENUE
RECOGNITION, was issued. SAB 101 requires, among other things, that certain
upfront non-refundable fees be recognized over the life of a related
collaboration agreement if such fees are received in conjunction with
collaboration agreements which have multiple elements. The revenues included in
the accompanying statements of operations, for all periods presented, are in
accordance with the provisions of SAB 101.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND FOR HEDGING ACTIVITIES
(SFAS 133) which provides a comprehensive and consistent standard for the
recognition and measurement of derivatives
F-13
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(2) Summary of Significant Accounting Policies (Continued)
and hedging activities. SFAS 133 is effective for fiscal years beginning after
January 1, 2001. The adoption of SFAS 133 did not have an impact on the
Company's results of operations or financial condition as the Company holds no
derivative financial instruments and does not currently engage in hedging
activities.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(3) Marketable Securities and Equity Investments
The Company accounts for its investments in accordance with SFAS No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Pursuant to
this Statement, the Company has historically classified its marketable
securities as "available for sale" and, accordingly, carried these investments
at their aggregate fair value. Unrealized gains or losses on these investments
are included as a separate component of stockholders' deficit and comprehensive
loss (Note 2). The Company's marketable securities as of December 31, 1998 and
March 31, 2000 consisted of corporate bonds. As of March 31, 2000, these
securities had a maximum maturity of 18 months or less and carried a weighted
average interest rate of approximately 6.85%. The amortized cost of these
securities differed by their fair values by $5,607 and $26,583, as of
December 31, 1998 and March 31, 2000, respectively.
The Company had an investment in common stock which was sold during 1998. In
conjunction therewith, the Company realized a gain on the sale of $259,106 which
is reflected in the accompanying 1998 statement of operations.
(4) Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1998 1999 2000
----------- ----------- ------------
<S> <C> <C> <C>
Equipment, computers and software.................... $ 614,154 $ 992,436 $ 1,117,347
Equipment under capital lease........................ 52,732 5,642,732 9,814,669
Leasehold improvements and office equipment.......... 913,431 1,576,520 1,900,559
---------- ---------- -----------
1,580,317 8,211,688 12,832,575
Less--accumulated depreciation and amortization...... (258,775) (987,680) (1,378,551)
---------- ---------- -----------
Total property and equipment, net.................. $1,321,542 $7,224,008 $11,454,024
========== ========== ===========
</TABLE>
F-14
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(4) Property and Equipment (Continued)
These assets are stated at cost and are being depreciated and amortized over
the shorter of their lease term or their estimated useful lives on a
straight-line basis as follows:
<TABLE>
<S> <C>
Equipment, computers and software........................... 3-4 years
Office equipment............................................ 5 years
Leasehold improvements...................................... 10 years
Equipment under capital lease............................... 3-5 years
</TABLE>
Accumulated depreciation related to equipment under capital leases was
approximately $42,000, $489,000 and $800,000 at December 31, 1998 and 1999 and
March 31, 2000. Expenditures for maintenance and repairs, which do not improve
or extend the useful lives of the respective assets, are expensed as incurred.
(5) Financing Arrangements
Long-term debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Notes payable to Connecticut Innovations, Inc. (CII)
bearing interest at 6.5%, payments of interest only
for two years and monthly payments of principal and
interest thereafter.................................. $ -- $ 950,000 $1,245,084
Note payable to TransAmerica Business Corp. (TBCC)
bearing interest at 12.98%, monthly payments of
principal and interest of $72,388 are payable through
August 2002.......................................... -- 1,897,940 1,740,674
Note payable to DECD, bearing interest at 5%, monthly
payments of principal and interest of $4,233 through
April 2008. Repaid in March 2000..................... 350,000 348,771 --
Note payable to bank, bearing interest at a variable
rate of prime plus 2.75%. Repaid during 1999......... 416,159 -- --
Other.................................................. 138,381 110,078 --
--------- ----------- ----------
Total long-term debt................................. 904,540 3,306,789 2,985,758
Less--current portion................................ (112,489) (1,019,550) (682,374)
--------- ----------- ----------
Total long-term debt, less current portion........... $ 792,051 $ 2,287,239 $2,303,384
========= =========== ==========
</TABLE>
During 1999 and 2000, the Company entered into agreements with Connecticut
Innovations, Inc. (CII) to finance certain leasehold improvements and other
costs associated with the Company's facility expansion. In April 1999, the
Company entered into a promissory note with CII in the amount of $950,000 (CII
Promissory Note). In December 1999, the Company obtained a commitment from CII
to provide an additional $2,720,000 of funding for
F-15
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(5) Financing Arrangements (Continued)
the continued expansion of the Company's facility (CII Commitment). In the
fiscal quarter ended March 31, 2000 the Company borrowed approximately $295,000
under this CII Commitment. Both the CII Promissory Note and the CII Commitment
provide for interest only for the first two years with principal payments
thereafter, based on a 120 month amortization period, with final balloon
payments due in April 2007 and July 2008, respectively. There were no
outstanding borrowings under the CII Commitment as of December 31, 1999 and
additional borrowings of $2,425,000 were available under the CII Commitment as
of March 31, 2000. Borrowings under the CII Promissory Note and CII Commitment
are secured by the related leasehold improvements.
In April 1999, the Company entered into a $2 million promissory note payable
to TBCC to refinance approximately $400,000 of existing debt, acquire additional
equipment, and provide additional working capital. The note is callable by the
lender in connection with a material adverse change to the Company or a change
in ownership, as defined. The loan is collateralized by substantially all assets
of the Company. In connection with this loan, during 1999 the Company issued a
warrant to TBCC, which is exercisable through April 2006, to purchase 50,000
shares of common stock at $4.00 per share (Note 10). An original issue discount
of $80,000, which approximated the fair value of the warrant at date of
issuance, is being amortized into interest expense over the term of the loan.
In April 1998, the Company entered into an agreement to receive a $350,000
loan from DECD to finance the purchase of certain equipment. The note was
payable in monthly installments through April 2008, commencing April 1999. The
Company recognized interest on this note at its stated interest rate of 5%. The
note was repaid in March 2000.
Aggregate future maturities under notes payable is as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
-----------
<S> <C>
2000........................................................ $1,019,550
2001........................................................ 803,635
2002........................................................ 658,711
2003........................................................ 78,126
2004........................................................ 83,359
2005........................................................ --
Thereafter.................................................. 663,408
----------
$3,306,789
==========
</TABLE>
F-16
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(6) Capital Leases
Capital lease obligations related to equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1998 1999 2000
-------- ----------- -----------
<S> <C> <C> <C>
Capital lease obligations to Finova Capital Credit Corp.
payable in varying installments through March 2004,
bearing interest from 8.46% to 9.62%, secured by the
related equipment...................................... $ -- $1,237,950 $4,479,223
Capital lease obligations to Newcourt Financial USA, Inc.
payable in varying installments through August 2003
bearing interest at 10.5%, secured by the related
equipment.............................................. -- 1,891,581 1,858,001
Capital lease obligations to Oxford Venture Finance LLC
payable in varying installments through September 2003
bearing interest from 10.76% to 12.05%, secured by the
related equipment...................................... -- 1,722,849 2,462,316
Capital lease obligations to Steelcase Financing Corp.
payable in varying installments through October 2002
bearing interest at 13%, secured by the related
equipment.............................................. -- 166,760 153,579
Other.................................................... 24,641 23,441 19,779
------- ---------- ----------
Total capital lease obligations........................ $24,641 $5,042,581 $8,972,898
======= ========== ==========
</TABLE>
Aggregate future maturities under these capital leases are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
2000........................................................ $ 1,670,935
2001........................................................ 1,660,187
2002........................................................ 1,629,723
2003........................................................ 1,138,168
2004........................................................ --
-----------
6,099,013
Less--amount representing interest.......................... (1,056,432)
-----------
Total capital lease obligations......................... 5,042,581
Less--current portion....................................... (1,199,938)
-----------
Total capital lease obligations, less current portion... $ 3,842,643
===========
</TABLE>
F-17
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(6) Capital Leases (Continued)
During 1998, in connection with one of the capital lease arrangements, the
Company issued a warrant (which is exercisable through November 2003) to
purchase 26,250 shares of common stock at $4.00 per share (Note 10). Deferred
financing costs of $25,725, which approximated the fair value of the warrants at
the date of issuance, are being amortized into interest expense over the term of
the lease.
During 1999, in connection with one of the capital lease arrangements, the
Company issued a warrant (which is exercisable through September 2006) to
purchase 18,043 shares of common stock at $4.00 per share (Note 10). Deferred
financing costs of $25,000, which approximated the fair value of the warrant at
date of issuance, are being amortized into interest expense over the term of the
lease.
During the three months ended March 31, 2000, the Company financed additional
equipment purchases of approximately $3.2 million pursuant to certain lease
arrangements. In connection therewith, the Company issued warrants (which are
exercisable through March 2005) to purchase 21,636 shares of common stock at
$5.50 per share (Note 10). Deferred financing costs of $62,000, which
approximated the fair value of these warrants at the date of issuance, are being
amortized into interest expense over the term of the related lease.
During the three months ended March 31, 2000, the Company entered into an
agreement to provide for an additional $6,000,000 of capital lease financing for
equipment purchases. As of March 31, 2000, the Company has approximately
$5.2 million of availability under the agreement. In connection with entering
into the leasing arrangement, the Company granted the lessor a warrant (which is
exercisable through March 2005) to purchase 21,818 shares of common stock at an
exercise price of $8.25 per share. Deferred financing costs of $140,000, which
approximated the fair value of the warrant at the date of issuance, will be
amortized over the term of the related lease.
The Company's capital lease arrangements allow it to purchase the related
equipment at the completion of the lease term as defined in the agreement.
(7) Convertible Promissory Note
In November 1999, the Company borrowed $3,500,000 under convertible
promissory notes which bore interest at 8% per annum. In connection therewith,
the Company granted warrants (which are exercisable through November 2004) to
purchase 12,727 common shares at $5.50 per share (Note 10). The original issue
discount of $22,000, which approximated the fair value of the warrants at date
of grant, was amortized into interest expense through the February 2000 maturity
date of the convertible promissory notes. The convertible promissory notes were
converted into preferred stock subsequent to year-end in connection with the
issuance of the Series B and KBH preferred stock (Note 8).
F-18
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(8) Preferred Stock
As of December 31, 1999, the Company has authorized 10,000,000 shares of
preferred stock. Subsequent to year-end, the board of directors increased the
authorized shares of preferred stock to 30,000,000. As of March 31, 2000, the
following amounts have been authorized and are outstanding:
<TABLE>
<CAPTION>
Series Shares Authorized Shared Outstanding
- ------ ----------------- ------------------
<S> <C> <C>
A........................................ 2,437,500 2,107,000
KBL...................................... 330,500 330,500
B........................................ 8,543,524 8,543,524
KBH...................................... 550,000 183,749
C........................................ 2,242,245 1,539,393
</TABLE>
During 1997, the Company sold 187,500 shares of Series A Redeemable
Convertible Preferred Stock for $4.00 per share resulting in aggregate proceeds
of $750,000. During 1998, the Company sold an additional 1,919,500 shares of
Series A and 330,500 shares of Series KBL (2,250,000 shares in aggregate,
collectively Series A) for $4.00 per share resulting in aggregate 1998 proceeds
of approximately $8,769,000, net of issuance expenses of approximately $231,000.
In February and March 2000, the Company sold 8,543,524 shares of Series B and
183,749 shares of Series KBH (8,727,273 shares in aggregate, collectively
Series B) for $5.50 per share resulting in proceeds of approximately
$42,063,000, net of cash issuance costs of approximately $2,375,000 and net of
the conversion of $3,500,000 of convertible promissory notes, and related
interest, which were issued in 1999 (Note 7) and which were converted into
636,364 shares of Series B based upon a per share conversion price of $5.50 per
share. In connection with this offering, the investment banker was issued a
warrant (which is exercisable through February 2005) to purchase 400,000 shares
of common stock at $6.05 per share (Note 10). Issuance costs of $1,092,000,
which approximates the fair value of the warrant at the date of issuance, are in
addition to the $2,375,000 of cash issuance expenses noted above.
In March 2000, the Company sold 1,539,393 shares of Series C Redeemable
Convertible Preferred Stock at $8.25 per share resulting in proceeds of
$11,883,000, net of issuance expenses of approximately $817,000 (Series C).
Preferred stock terms and conditions
The significant terms of the Series A, KBL, B, KBH and C are as follows:
Voting--The Series A, B and C shares have voting rights and the Series KBL
and KBH shares do not have voting rights.
Dividends--All series outstanding earn cumulative dividends at 8% per annum.
Accordingly, included in the accretion of the carrying value of preferred
stock in the accompanying statements of stockholders' deficit and
comprehensive loss for the years
F-19
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(8) Preferred Stock (Continued)
ended December 31, 1998 and 1999 and the quarter ended March 31, 2000 is
$315,616, $780,000 and $642,013, respectively, of accrued dividends. Through
February 2003, the Company has the option to pay dividends in either cash or
common stock based on the then current conversion price, as defined.
Subsequent to February 2003, the holder can elect to have the accrued but
unpaid dividends paid in either cash or common stock. Accrued but unpaid
dividends of $275,671, $1,055,671 and $1,697,684, are classified as a
component of long-term liabilities in the accompanying balance sheets as of
December 31, 1998 and 1999 and March 31, 2000, respectively.
Dividends that accrue subsequent to the Series B, KBH and C issuance
dates will not be paid if the Company consummates an initial public offering
with proceeds of at least $40 million before February 2003 (Qualified IPO).
Accrued dividends of $1,158,750, which were earned on the Series A prior to
the issuance of the Series B and C, are payable even if the Company does
consummate a Qualified IPO.
Redemption requirement--The holders of all of the Series A, Series B and
Series C Preferred can require that the Company repurchase their shares in
three annual installments, as follows:
<TABLE>
<CAPTION>
Date Redemption
- ---- ----------------------------------------------
<S> <C>
February 11, 2005........... 1/3 of shares outstanding
February 11, 2006........... 1/3 of shares outstanding on February 11, 2005
February 11, 2007........... Balance
</TABLE>
Through February 17, 2000, the Series A was redeemable at its original
purchase price plus all accrued but unpaid dividends, plus a 12% cumulative
annual return on the original purchase price and all accrued but unpaid
dividends. In connection therewith, during 1998, 1999 and the first quarter
of 2000, $410,603, $1,256,000 and $176,750, respectively, was accreted
through a charge to retained earnings and added to the carrying value of the
Series A to appropriately reflect the 12% premium.
Effective February 17, 2000, the Series A was amended to change the
redemption value to be the greater of (a) the original purchase price plus
all accrued but unpaid dividends or (b) fair value, as defined. The Series B
and Series C also have a redemption value equal to the greater of (a) the
original purchase price plus all accrued but unpaid dividends or (b) fair
value, as defined. As of March 31, 2000, the fair value of the Series A and
Series B exceeded the original purchase price plus accrued but unpaid
dividends. The excess of the fair value is being accreted through additional
charges to retained earnings, using the effective interest rate method, from
the date of issuance for the Series B and from February 17, 2000 for the
Series A, through the earliest redemption date. Accordingly, included in the
accretion of the carrying value of preferred stock in the accompanying
statements of stockholders' deficit and comprehensive loss for the quarter
ended March 31, 2000 is $158,704 and $525,000 ($683,704 in aggregate) of
additional charges to retained earnings to reflect the accretion of the
Series A and Series B, respectively, to their fair value.
F-20
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(8) Preferred Stock (Continued)
Liquidation--All preferred stock has liquidation rights equal to the original
purchase price plus all amounts due and payable upon a redemption. Series A
and KBL liquidation rights are subordinated to Series B, KBH and C.
Conversion--At the option of the holder, the preferred stock can be
immediately converted into common stock at the initial conversion price,
subject to adjustment, as defined. Upon a Qualified IPO, all preferred stock
shall be automatically converted into such number of common shares as is
determined by dividing the original purchase price by the conversion price
then in effect. If a Qualified IPO has not occurred prior to February 17,
2003, any conversions subsequent to such date will include any accrued but
unpaid dividends. A summary of initial conversion prices is as follows:
<TABLE>
<CAPTION>
Conversion Price
Series Per Share
- ------ ----------------
<S> <C>
A and KBL................................................... $4.00
B and KBH................................................... $5.50
C........................................................... $8.25
</TABLE>
Issuance expenses--The issuance expenses are recorded as a reduction in the
carrying value of the applicable preferred stock. As a result of the
redemption rights of the holders (see above), the difference in the stated
value and the carrying value resulting from the issuance costs will be
accreted to the earliest redemption date through a direct charge to
accumulated deficit. Accordingly, included in the accretion of the carrying
value of preferred stock in the accompanying statements of stockholders'
deficit and comprehensive loss for the years ended December 31, 1998 and
1999, and the three months ended March 31, 2000, is $15,391, $46,173 and
$106,445, respectively, related to amortization of these issuance costs.
Preemptive rights--Preferred holders shall have certain pre-emptive right to
purchase new securities sold by the Company.
CII owns 437,500 shares of the Series A and 365,230 shares of the Series B.
If the Company elects to move its primary facilities outside of the State of
Connecticut, CII has a right to put the shares they own back to the Company for
the higher of (1) an amount which would be equal to the fair value of the stock
or (2) an amount which would yield a minimum rate of return of 25%. This right
terminates upon the occurrence of a Qualified IPO.
(9) Common Stock
At December 31, 1999, the Company has authorized 10,000,000 shares of common
stock. Subsequent to year-end, the board of directors increased the authorized
shares of common stock to 22,000,000. As of March 31, 2000, 14,375,315 shares
have been reserved for issuance under outstanding redeemable convertible
preferred stock, stock options, and warrants (Notes 8 and 10).
F-21
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(9) Common Stock (Continued)
At December 31, 1997, CII owned 244,350 shares of the Company's common stock
which, at CII's option, could be put back to the Company under certain
circumstances. In connection with the Company's sale of preferred stock in 1998
(Note 8), CII's right to put any stock back to the Company was terminated. If
the Company elects to move its facilities outside of Connecticut, CII has a
right to put the stock they own back to the Company. This right terminates upon
a Qualified IPO.
In September 1998, CII converted a $570,830 note payable into 228,332 shares
of the Company's common stock.
In August 1998, the CEO of the Company entered into an agreement with the
Company to purchase 260,000 shares of common stock of the Company. The purchase
of the shares was financed by the Company with a $325,000 promissory note
bearing interest at 6%, with the entire principal being payable August 2003. The
shares of the common stock are pledged as collateral for the loan. During 1998,
the Company recorded a reserve of $325,000 which has been offset against the
note receivable. The note will be forgiven upon a Qualified IPO.
In August 1999, the Company issued 71,022 shares of common stock in full
satisfaction of a $159,800 outstanding obligation.
(10) Stock Options and Warrants
Stock option plan
In 1993, the Board of Directors and stockholders approved the Stock Option
Plan (the Plan) which provides for both incentive and nonqualified stock
options. As of December 31, 1999, under the terms of the Plan, stock options may
be granted for up to a maximum of 1,297,000 shares. Subsequent to year-end, the
board of directors increased the number of shares issuable under the Plan to
1,557,375. Options granted under the Plan are exercisable for a period
determined by the Company, but in no event longer than ten years from date of
grant. In the event of certain capital stock changes, the options are subject to
adjustment in accordance with anti-dilution provisions.
The Company has adopted the provisions of SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS 123). This pronouncement requires the measurement
of the fair value of stock options to be included in the statement of operations
or disclosed in the notes to financial statements. The Company has determined
that it will continue to account for stock-based compensation for employees
under Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS 123.
F-22
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(10) Stock Options and Warrants (Continued)
A summary of the status of the Company's stock options plan at December 31,
1997, 1998, 1999 and March 31, 2000 and changes during the periods then ended is
presented below:
<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, January 1.............................. 428,000 $1.05 538,000 $1.34
Granted........................................... 170,000 2.03 293,000 2.01
Cancelled or expired.............................. (60,000) 1.25 (317,000) 0.78
Exercised......................................... -- -- -- --
------- ----- -------- -----
Outstanding, December 31............................ 538,000 $1.34 514,000 $2.07
======= ===== ======== =====
Options exercisable at December 31.................. 376,271 $1.08 117,054 $2.12
======= ===== ======== =====
Weighted average fair value of options granted
during the year................................... $1.78 $0.64
===== =====
</TABLE>
<TABLE>
<CAPTION>
1999 2000
------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, January 1............................. 514,000 $2.07 990,375 $2.37
Granted.......................................... 541,875 2.80 73,000 4.60
Cancelled or expired............................. (60,500) 2.73 (5,000) 3.60
Exercised........................................ (5,000) 1.50 (7,900) 3.00
------- ----- --------- -----
Outstanding, December 31 and March 31,
respectively..................................... 990,375 $2.37 1,050,475 $2.52
======= ===== ========= =====
Options exercisable at December 31 and March 31,
respectively..................................... 268,497 $2.01 517,142 $2.21
======= ===== ========= =====
Weighted average fair value of options granted
during the year and three months ended,
respectively..................................... $1.70 $2.94
===== =====
</TABLE>
F-23
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(10) Stock Options and Warrants (Continued)
The following table summarizes information about stock options at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- --------------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .01-$1.50 337,500 8.1 $1.23 160,729 $1.36
$1.51-$3.00 604,875 8.8 2.88 96,393 2.85
$3.01-$4.00 48,000 8.9 4.00 11,375 4.00
------- --- ----- ------- -----
990,375 8.6 $2.37 268,497 $2.01
======= === ===== ======= =====
</TABLE>
During fiscal 1999, options to purchase 380,875 shares of common stock were
granted at a weighted average exercise price of $3.00 per share. The weighted
average fair value of these options at the date of grant, as prescribed by SFAS
No. 123, was $1.27 per option. In addition, options to purchase 161,000 shares
of common stock were granted at a weighted average exercise price of $2.32 per
share. The weighted average fair value of these options at the date of grant, as
prescribed by SFAS No. 123, was $2.73 per option.
The following table summarizes information about stock options at March 31,
2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
- --------------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .01-$1.50 337,500 7.8 $1.23 204,167 $1.14
$1.51-$3.00 594,975 8.6 2.88 276,025 2.74
$3.01-$5.50 118,000 9.2 4.37 36,950 4.20
--------- --- ----- ------- -----
1,050,475 8.4 $2.52 517,142 $2.21
========= === ===== ======= =====
</TABLE>
During the three months ended March 31, 2000, options to purchase 29,000
shares of common stock were granted at a weighted average exercise price of
$5.50 per share. The weighted average fair value of these options at the date of
grant, as prescribed by SFAS No. 123, was $2.44 per option. In addition, options
to purchase 44,000 shares of common stock were granted at a weighted average
exercise price of $4.00 per share. The weighted average fair value of these
options at the date of grant, as prescribed by SFAS No. 123, was $3.27 per
option.
Total compensation expense recorded in the accompanying statements of
operations associated with employee stock options is approximately $40,000,
$48,000, and $12,000 for the years ended December 31, 1997, 1998 and 1999,
respectively, and approximately $3,000 and $6,000 for the three months ended
March 31, 1999 and 2000, respectively.
F-24
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(10) Stock Options and Warrants (Continued)
The Company accounts for options granted to consultants, which include
scientific advisory board members, using the Black-Scholes method prescribed by
SFAS 123 and in accordance with Emerging Issues Task Force Consensus No. 96-18.
During the three months ended March 31, 2000, the Company elected to fully vest
all unvested options previously granted to scientific advisory board members.
Accordingly, the Company recorded a compensation charge in the quarter ended
March 31, 2000 to reflect the value of the options at the time of vesting. Total
compensation expense recorded in the accompanying statements of operations
associated with these consultant options is approximately $66,000, $99,500 and
$434,000 for the years ended December 31, 1997, 1998 and 1999, respectively, and
approximately $54,000 and $1,382,000 for the three months ended March 31, 1999
and 2000, respectively.
The Company has computed the pro forma disclosures required under SFAS
No. 123 for options granted to employees using the Black-Scholes option pricing
model. The weighted average assumptions used are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 and 2000
-------- -------- -------------
<S> <C> <C> <C>
Risk free interest rate..................... 6.3% 5.3% 6.0%
Expected dividend yield..................... None None None
Expected lives.............................. 7 years 7 years 7 years
Expected volatility......................... None None None
</TABLE>
Had compensation cost for the Company's stock option plan been determined
consistent with SFAS No. 123, the Company's pro forma net loss would have been
as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Net (loss) applicable to
common shareholders:
As reported.............. $(831,875) $(3,547,035) $(11,246,671) $(1,745,455) $(5,980,041)
Pro forma................ (902,331) (3,601,279) (11,340,138) (1,768,822) (6,035,659)
Net (loss) per common
share, basic and diluted:
As reported.............. $ (0.42) $ (1.64) $ (4.14) $ (0.67) $ (2.13)
Pro forma................ (0.45) (1.66) (4.17) (0.68) (2.15)
</TABLE>
F-25
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(10) Stock Options and Warrants (Continued)
Stock warrants
As of March 31, 2000, the Company had the following warrants outstanding to
purchase shares of common stock of the Company. Certain warrants include
anti-dilutive provisions, as defined.
<TABLE>
<CAPTION>
Per Share
Year Exercisable Exercise
Issued Through Number Price
- --------------------- ---------------- --------- ---------
<S> <C> <C> <C>
1992................. December 2002 41,800 $1.02(a)(b)
1994................. March 2004 36,400 1.38
1995................. May 2005 20,000 .50
1998 (Note 6)........ November 2003 26,250 4.00
1998................. March 2004 40,000 4.00
1999 (Note 6)........ June 2006 18,043 4.00(a)
1999 (Note 6)........ April 2006 50,000 4.00
1999 (Note 7)........ November 2004 12,727 5.50
2000................. February 2003 5,000 4.00(a)
2000 (Note 8)........ February 2005 400,000 6.05
2000 (Note 6)........ March 2005 21,636 5.50
2000 (Note 6)........ March 2005 21,818 8.25
--------
693,674(c)
========
</TABLE>
- ------------
(a) These warrants become exercised in connection with a qualified initial
public offering, as defined.
(b) The warrant to purchase 41,800 shares of common stock is currently puttable
to the Company at fair value, as defined. Accordingly, the Company has
recorded this repurchase obligation based upon the estimated value of the
warrant through a direct charge to retained earnings. For the year ended
December 31, 1999 and the quarter ended March 31, 2000, the Company has
recorded charges to retained earnings of $124,564 and $283,822,
respectively, to accrete the warrant to fair value.
(c) As of March 31, 2000, the weighted average exercise price of all
outstanding warrants is $4.97.
During 1999, warrants to purchase 252,000 shares of common stock were
exercised for $1.02 per share, for aggregate proceeds of $257,000.
(11) Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. This statement requires the Company to recognize
deferred tax assets and liabilities for the expected future tax consequences of
events that have been previously recognized in the Company's financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
carrying amounts and the tax bases of the assets and liabilities and the net
operating loss carryforwards available for tax reporting purposes, using
applicable tax rates for the years in which the differences are expected to
reverse.
F-26
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(11) Income Taxes (Continued)
The reconciliation of the statutory Federal income tax rate to the Company's
effective income tax rate for the years ended December 31, 1997, 1998 and 1999,
is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statutory rate.................................. 34.0 % 34.0 % 34.0 %
State tax benefit, net of Federal taxes......... 4.5 13.2 4.8
Other........................................... (0.2) (0.6) (1.5)
Increase in deferred tax valuation allowance.... (38.3) (46.6) (37.3)
----- ----- -----
-- % -- % -- %
===== ===== =====
</TABLE>
The Company has available, at December 31, 1999, unused net operating loss
carryforwards of approximately $12.7 million and $12.5 million which may be
available to offset future Federal and state taxable income, respectively, if
any. The future utilization of these carryforwards may be limited on a permanent
basis due to changes within the Company's current and future ownership structure
as defined within the income tax code. These limitations would have no impact on
the Company's statement of operations as these carryforwards are fully reserved.
Federal carryforwards are scheduled to expire beginning in 2007 through 2019.
State carryforwards are scheduled to expire from 2000 through 2019.
The components of deferred income tax assets as of December 31, 1998 and 1999
are as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 1,750,000 $ 5,250,000
Tax credit carryforwards........................ 340,000 340,000
Other........................................... 210,000 370,000
----------- -----------
Total deferred tax assets..................... 2,300,000 5,960,000
Less--valuation allowance for deferred tax
assets.......................................... (2,300,000) (5,960,000)
----------- -----------
Net deferred tax assets........................... $ -- $ --
=========== ===========
</TABLE>
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax benefits as of December 31, 1999 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire deferred tax asset.
F-27
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(12) Commitments and Contingencies
401(k) retirement plan
The Company has a 401(k) defined contribution retirement plan covering
substantially all full-time employees. The Company matches 25% of employee
contributions up to 8% of employee compensation. The Company contributed
approximately $14,000, $6,000 and $25,000 to the plan during 1997, 1998 and
1999, respectively, and approximately $5,000 and $17,000 for the three months
ended March 31, 1999 and 2000, respectively.
Licensing and royalty commitments
The Company periodically enters into agreements with third parties to obtain
exclusive or non-exclusive licenses for certain technologies management believes
important to the Company's overall business strategy. The terms of these
agreements generally provide for the Company to pay future royalty payments
based on product sales or sublicense income generated from the applicable
technologies, if any. Additionally, certain agreements call for future payments
upon achievement of certain milestones. The aggregate annual minimum payments
(assuming non-termination of the above agreements) as of December 31, 1999
required over the next five years are $30,000 per year through fiscal 2003 and
$85,000 in fiscal 2004. The Company recorded expenses of approximately $202,000,
$120,000, and $57,000 during 1999, 1998 and 1997, respectively, and
approximately $35,000 and $46,000 for the three months ended March 31, 1999 and
2000, respectively, related to these agreements.
Operating leases
The Company leases its operating facilities located in New Haven,
Connecticut. The lease agreements require annual lease payments of approximately
$644,000 per year increasing to $754,000 per year over five years terminating in
February 2004. The Company has two five-year renewal options to extend the lease
beyond its initial term. The Company is recording the expense associated with
the lease on a straight line basis over the expected ten-year minimum term of
the lease.
In addition to the five year operating lease for the Company's current
facility, the Company also has operating leases for various office equipment.
Rental expense for all operating leases for the year ended December 31, 1999,
1998 and 1997 was approximately $213,000, $77,000 and $73,000, respectively.
Rental expense for all operating leases for the three months ended March 31,
1999 and 2000 was approximately $29,000 and $63,000, respectively.
F-28
<PAGE>
Genaissance Pharmaceuticals, Inc.
Notes to Financial Statements (Continued)
(including data applicable to unaudited periods)
(12) Commitments and Contingencies (Continued)
Future minimum payments under all non-cancellable operating leases in effect
as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 433,000
2001........................................................ 586,000
2002........................................................ 747,000
2003........................................................ 768,000
2004........................................................ 764,000
Thereafter.................................................. 3,141,000
</TABLE>
F-29
<PAGE>
You may rely only on the information contained in this prospectus. Genaissance
Pharmaceuticals has not authorized anyone to provide information different from
that contained in this prospectus. Neither the delivery of this prospectus nor
sale of common stock means that information contained in this prospectus is
correct after the date of this prospectus. This prospectus is not an offer to
sell or solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Selected Financial Data............... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 31
Management............................ 52
Certain Relationships and Related
Party Transactions.................. 62
Principal Stockholders................ 64
Description of Capital Stock.......... 67
Shares Eligible for Future Sale....... 70
Underwriting.......................... 72
Legal Matters......................... 75
Experts............................... 75
Additional Information................ 75
Index to Financial Statements......... F-1
</TABLE>
Dealer Prospectus Delivery Obligation:
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
[LOGO]
Shares
Common Stock
Deutsche Banc Alex. Brown
Bear, Stearns & Co. Inc.
Salomon Smith Barney
Warburg Dillon Read LLC
Prospectus
, 2000
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to
be Paid
---------
<S> <C>
Registration fee............................................ $30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... *
Printing and engraving...................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent fees......................................... 3,500
Miscellaneous............................................... *
-------
Total....................................................... $
=======
</TABLE>
- ------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, other than
an action by or in the right of the corporation, by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the corporation's request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. The power to indemnify applies to actions brought by or in the right
of the corporation as well, but only to the extent of expenses, including
attorneys' fees but excluding judgments, fines and amounts paid in settlement,
actually and reasonably incurred by the person in connection with the defense or
settlement of the action or suit and with the further limitation that in these
actions no indemnification shall be made in the event of any adjudication of
negligence or misconduct in the performance of his duties to the corporation,
unless a court believes that in light of all the circumstances indemnification
should apply.
Article V of Genaissance's Amended and Restated By-laws provides that
Genaissance shall, to the extent legally permitted, indemnify each person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was,
or has agreed to become, a director or officer of Genaissance, or is or was
serving, or has agreed to serve, at the request of Genaissance, as a director,
officer or trustee of, or in a similar capacity with, another
II-1
<PAGE>
corporation, partnership, joint venture, trust or other enterprises. The
indemnification provided for in Article V is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and shall inure to the benefit of the heirs, executors and administrators of
such persons.
Section 145(g) of the Delaware General Corporation Law and Article V of
Amended and Restated By-laws of Genaissance provide that the company shall have
the power to purchase and maintain insurance on behalf of its officers,
directors, employees and agents, against any liability asserted against and
incurred by such persons in any such capacity.
Genaissance has entered into indemnification agreements with each of its
directors and executive officers and has obtained insurance covering its
directors and officers against losses and insuring Genaissance against certain
of its obligations to indemnify its directors and officers.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a corporation may eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provisions shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or limit
the liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
Pursuant to the Delaware General Corporation Law, Section 7 of Article FIFTH
of the Certificate of Incorporation of Genaissance eliminates a director's
personal liability for monetary damages to Genaissance and its shareholders for
breach of fiduciary duty as a director, except in circumstances involving a
breach of the director's duty of loyalty to Genaissance or its shareholders,
acts or omissions not in good faith, intentional misconduct, knowing violations
of the law, self-dealing or the unlawful payment of dividends or repurchase of
stock.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have sold and issued the following securities in the previous three years.
In 1997, we issued 7,580 shares of common stock for an aggregate sale price
of $23,500 and granted options to employees, consultants and directors to
purchase 170,000 shares of common stock at exercise prices ranging from $1.50 to
$3.00.
In December 1997, we sold 187,500 shares of Series A redeemable convertible
preferred stock for an aggregate sale price of $750,000.
In 1998, we issued 260,000 shares of common stock for an aggregate sale price
of $325,000, issued 228,332 shares of common stock in satisfaction of a $570,830
debt obligation and issued 9,986 shares of common stock in satisfaction of
dividends payable on preferred stock. In addition, we granted warrants to
purchase 66,250 shares of common stock at $4.00 per share and granted options to
purchase 293,000 shares of common stock at exercise prices ranging from $1.38 to
$4.00 per share.
II-2
<PAGE>
In August 1998, we completed a private placement offering of 1,919,500 shares
of series A convertible preferred stock and 330,500 shares of series KBL
nonvoting convertible preferred stock, for an aggregate sale price of
$9,000,000.
In 1999 we issued 71,022 shares of common stock in satisfaction of a $159,800
royalty obligation, issued 5,000 shares of common stock for an aggregate sale
price of $7,500 and issued 252,000 shares of common stock in connection with the
exercise of a warrant for an aggregate sale price of $257,040. We granted
warrants to purchase 68,043 shares of common stock at $4.00 per share and
options to purchase 541,875 shares of common stock at exercise prices ranging
from $0.01 to $4.00 per share.
In November 1999, we issued mandatory convertible promissory notes in the
aggregate amount of $3,500,000. These notes were converted to an aggregate of
636,364 shares of series B convertible preferred stock in February 2000. In
connection with these convertible promissory notes, we issued warrants to
purchase 12,727 shares of common stock at an exercise price of $5.50.
During the first quarter of 2000, we issued 7,900 shares of common stock for
an aggregate sale price of $23,700, issued warrants to purchase 48,454 shares of
common stock at exercise prices ranging from $4.00 to $8.25 per share and
granted options to purchase 73,000 shares of common stock at exercise prices
ranging from $4.00 to $5.50 per share.
In February 2000, we completed a private placement offering of 7,907,160
shares of series B convertible preferred stock and 183,749 shares of Series KBH
nonvoting convertible preferred stock (exclusive of the 636,364 shares of common
stock issued in connection with the conversion of the $3,500,000 promissory
notes) for an aggregate sale price of $44,500,000.
In March 2000, we completed a private placement offering of 1,539,393 shares
of series C convertible preferred stock, for an aggregate sale price of
$12,699,992.
All of the above sales of shares were made in reliance on the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended, as
transactions not involving a public offering and Rule 701 under the Securities
Act of 1933, as amended, as some of the issuances were to employees and
consultants as compensation.
We retained Legg Mason Wood Walker, Inc. as placement agent in connection
with the February and March 2000 private placements, who received aggregate
compensation of $2.5 million, including $67,826 of expenses and a common stock
purchase warrant for 400,000 shares exercisable at $6.05 per share for their
services. There were no underwriters employed in connection with any of the
other transactions set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of prospectus included herein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See the Exhibit Index, which is incorporated herein by reference.
(b) Financial Statement Schedule F
None.
II-3
<PAGE>
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the consolidated
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of New
Haven, Connecticut, on April 20, 2000.
<TABLE>
<S> <C> <C>
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO, M.D., PH.D.
-----------------------------------------
Gualberto Ruano, M.D., Ph.D.
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned officers and directors of Genaissance
Pharmaceuticals, Inc., hereby severally constitute and appoint Gualberto Ruano,
M.D., Ph.D., Kevin Rakin and Michael Lytton and each of them singly, our true
and lawful attorneys-in-fact, with full power to them in any and all capacities,
to sign any amendments to this Registration Statement, and any related
Rule 462(b) registration statement or amendment thereto, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ GUALBERTO RUANO, M.D., PH.D. Chief Executive Officer and
------------------------------------------- Director (Principal Executive April 20, 2000
Gualberto Ruano, M.D., Ph.D. Officer)
Chief Financial Officer
/s/ KEVIN RAKIN (Principal Financial and
------------------------------------------- Accounting Officer) and April 20, 2000
Kevin Rakin Director
/s/ JURGEN DREWS, M.D. Chairman of the Board
------------------------------------------- April 20, 2000
Jurgen Drews, M.D.
/s/ GERHARD LAUR, M.D. Director
------------------------------------------- April 20, 2000
Gerhard Laur, M.D.
/s/ HARRY H. PENNER, JR. Director
------------------------------------------- April 20, 2000
Harry H. Penner, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ SETH RUDNICK, M.D. Director
------------------------------------------- April 20, 2000
Seth Rudnick, M.D.
/s/ STEFAN RYSER, PH.D. Director
------------------------------------------- April 20, 2000
Stefan Ryser, Ph.D.
/s/ CHRISTOPHER WRIGHT Director
------------------------------------------- April 20, 2000
Christopher Wright
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement. To be filed by amendment.
3.1 Certificate of Incorporation as of February 22, 1992, as
amended.
3.2(1) Proposed Amended and Restated Certificate of Incorporation.
To be filed by amendment.
3.3 By-laws of Genaissance Pharmaceuticals, Inc.
3.4 Amended and Restated By-laws. To be filed by amendment.
4.1 Form of Common Stock Certificate. To be filed by amendment.
4.2 Form of Common Stock Purchase Warrant. To be filed by
amendment.
5.1 Opinion of Palmer & Dodge LLP. To be filed by amendment.
10.1* Stock Option Plan. To be filed by amendment.
10.2* Employee Stock Purchase Plan 2000.
10.3 Form of Indemnification Agreement between Genaissance and
its directors.
10.4 Lease Agreement between Genaissance and Science Park
Development Corporation, dated September 15, 1998. To be
filed by amendment.
10.5 Amendment No. 1 to Lease Agreement between Genaissance and
Science Park Development Corporation, dated December 1,
1999.
10.6 Amendment No. 2 to Lease Agreement between Genaissance and
Science Park Development Corporation, dated December 16,
1999.
10.7* Genaissance 401(k) Plan. To be filed by amendment.
10.8(2) Collaboration Agreement between Genaissance and Telik, Inc.,
dated February 11, 1998.
10.9 First Amendment to the Collaboration Agreement between
Genaissance and Telik, Inc., dated February 11, 1999.
10.10(2) License Agreement between Genaissance and Visible Genetics,
Inc., dated November 21, 1996.
10.11(2) Patent License Amending Agreement between Genaissance and
Visible Genetics, Inc., dated March 16, 2000.
10.12 Loan Agreement between Genaissance and Connecticut
Innovations, Incorporated, dated September 15, 1998. To be
filed by amendment.
10.13 Loan Agreement between Genaissance and Connecticut
Innovations, Incorporated, dated December 1, 1999. To be
filed by amendment.
10.14 Master Lease Agreement between Genaissance and Finova
Technology Finance, dated September 1998, and attached
Schedules.
10.15 Letter Agreement with Finova Technology Finance dated
January 24, 2000.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
--------------------- ------------------------------------------------------------
<C> <S>
10.16 Master Lease Agreement between Genaissance and Oxford
Venture Finance, dated June 10, 1999, and attached
Schedules.
10.17 Master Lease Agreement between Genaissance and Newcourt
Financial USA Inc., dated March 26, 1999, and attached
Schedules.
10.18* Employment Agreement with Gualberto Ruano, dated August 24,
1998.
10.19* Employment Agreement with Kevin Rakin, dated August 24,
1998.
10.20* Employment Agreement with Gerald F. Vovis, dated April 15,
1999.
10.21* Confidentiality and Non-Competition Agreement with Richard
Judson, dated November 16, 1999.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed
as Exhibit 5.1 herewith.
24.1 Power of Attorney. Included on signature page hereto.
27.1 Financial Data Schedule (available in EDGAR format only).
</TABLE>
- ------------
* Indicates a management contract or compensatory plan.
(1) As proposed to be filed with the Secretary of State of the State of
Delaware concurrently with the closing of the offering.
(2) This exhibit has been filed separately with the Commission pursuant to an
application for confidential treatment. The confidential portions of this
exhibit have been omitted and are marked by an asterisk.
II-8
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
BIOS LABORATORIES, INC.
*****
1. The name of the corporation is BIOS Laboratories, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted
by the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is seventy-five thousand (75,000) shares of common stock
having a par value of $.001 per share.
5. The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
Jack S. Kennedy Robinson & Cole
One Commercial Plaza
Hartford, CT 06103-3597
</TABLE>
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the bylaws of the corporation.
8. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
<PAGE>
9. Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the corporation.
10. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
11. No director shall be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall
2
<PAGE>
not limit or eliminate the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or it stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. If there is any amendment or revocation of this
provision, the liability of any director for any action taken prior to the
amendment or revocation will not be affected thereby.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 20th day of February, 1992.
/s/ JACK S. KENNEDY
----------------------------------
Jack S. Kennedy
Incorporator
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BIOS Laboratories, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That the Board of Directors of BIOS Laboratories, Inc., by
the unanimous written consent of its members, filed with
the minutes of the board, duly adopted resolutions setting
forth an amendment to the Certificate of Incorporation of
said corporation, declaring said amendment to be advisable
and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:
RESOLVED: That the Certificate of Incorporation of the
Corporation be amended by changing the Fourth
Article thereof so that, as amended said
Article shall be and read as follows:
"The total number of shares of
<PAGE>
stock which the corporation shall have
authority to issue is Seven Hundred
Fifty Thousand (750,000) shares of
common stock having a par value of
$.001 per share."
SECOND: That thereafter, pursuant to a resolution of its Board of
Directors, the annual meeting of the stockholders of said
corporation was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor
of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said BIOS Laboratories, Inc. has caused this
Certificate to be signed by Richard E. Kouri, its President, and attested by
Kevin L. Rakin, its Secretary, this 29 day of August, 1994.
BIOS LABORATORIES, INC.
By /s/ RICHARD E. KOURI
-------------------------
Richard E. Kouri
President
ATTEST:
By /s/ KEVIN L. RAKIN
-------------------------
Kevin L. Rakin, Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
BIOS LABORATORIES, INC.
BIOS Laboratories, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, adopted the
following resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of
said Corporation.
RESOLVED: That the Certificate of Incorporation of the Corporation be
amended by changing the First Article thereof so that, as
amended, said Article shall be and read as follows:
"The name of the corporation is Genaissance Pharmaceuticals,
Inc."
SECOND: That pursuant to a resolution of the Board of Directors, a
special meeting of the stockholders of said corporation was
duly called and held, at which meeting the necessary number of
shares as required by statute were voted in favor of the
amendment.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242(b) of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, BIOS Laboratories, Inc. has caused this Certificate
to be signed by Kevin L. Rakin, its Secretary and Treasurer, to be effective as
of the 20th day of February, 1997.
BIOS LABORATORIES, INC.
BY: /s/ KEVIN L. RAKIN
----------------------------
Name: Kevin L. Rakin
Title: Secretary & Treasurer
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Genaissance Pharmaceuticals, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify:
FIRST: That the Board of Directors of Genaissance Pharmaceuticals,
Inc., by unanimous written consent, duly adopted resolutions,
which were filed with the minutes of the board, setting forth
an amendment to the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and
directing the shareholders to adopt a resolution for
consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED: That the provisions of Article 4 of the Certificate
of Incorporation be amended to read as follows:
"The total number of shares of stock which
the corporation shall have authority to
issue is seven million five hundred thousand
(7,500,000) shares of common stock with
$.001 par value."
SECOND: That thereafter, in lieu of a meeting and vote of the
shareholders, the shareholders of the Corporation have given
their written consent to the amendment by adopting a
resolution in accordance with Section 228 of the General
Corporation Law of the State of Delaware and as a result of
such, the required number of outstanding shares as required by
statute, acted to adopt the amendment, and further, that a
written notice of the consent to
<PAGE>
the amendment has been given as required by Section 228 of the
General Corporation Law of the State of Delaware to every
shareholder entitled to such notice.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said Genaissance Pharmaceuticals, Inc. has caused
this Certificate to be signed by Gualberto Ruano, its President, and
attested by Kevin L. Rakin, its Secretary, this 11 day of August, 1997.
GENAISSANCE PHARMACEUTICALS, INC.
By /s/ GUALBERTO RUANO
--------------------------------
Gualberto Ruano
President
ATTEST:
By /s/ KEVIN L. RAKIN
--------------------------------
Kevin L. Rakin, Secretary
- 2 -
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. This Certificate of Amendment amends the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), by amending Article 4 to effect changes in the capital
structure of the Corporation.
2. The text of Article 4 of the Certificate of Incorporation is
amended hereby to read as set forth in Exhibit A attached hereto and hereby made
a part hereof.
3. This Amendment to the Certificate of Incorporation was duly
adopted by vote of the stockholders in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Gualberto Ruano, its President, and attested to by Kevin L. Rakin, its
Secretary, this 22 day of December, 1997
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
--------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
--------------------------------
Kevin L. Rakin
Secretary
<PAGE>
EXHIBIT A
Amendment to
Certificate of Incorporation
of
Genaissance Pharmaceuticals, Inc.
pursuant to
Section 242 of the
Delaware General Corporation Law
The Certificate of Incorporation of Genaissance Pharmaceuticals, Inc., a
Delaware corporation, has been amended by striking out the whole of Article 4
thereof as it now exists and substituting new Article 4 to read as follows:
4. The total authorized capital stock of the corporation consists of
17,500,000 shares, of which 7,500,000 are shares of Common Stock, $.001
par value (the "Common Stock"), and 10,000,000 are shares of Preferred
Stock, $.001 par value ("Preferred Stock"). The designations and the
powers, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
thereof, of the Preferred Stock and the Common Stock shall be as follows:
A. The Preferred Stock may be issued, from time to time, in one or more
series, with such designations, voting powers, if any, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated
and expressed in the resolution or resolutions providing for the issue of
such series adopted by the Board of Directors. The Board of Directors, in
such resolution or resolutions (a copy of which shall be filed and
recorded as required by law), is also expressly authorized to fix:
(i) the distinctive serial designations and the division of such shares
into series and the number of shares of a particular series, which may be
increased or decreased, but not below the number of shares thereof then
outstanding, by a certificate made, signed, filed and recorded as
required by law;
(ii) the annual dividend rate (or method of determining such rate) for
the particular series, the date or dates upon which such dividends shall
be payable, and the date or dates or method of determining the date or
dates shall be cumulative, if dividends on stock of the particular series
shall be cumulative;
(iii) the price or prices at which, the period or periods within which
and the terms and conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option, if any, of the corporation;
<PAGE>
(iv) the right, if any, of the holders of a particular series or the
corporation to convert such stock into other classes or series of stock
or to exchange such stock for shares of any other class of stock or
series thereof, and the terms and conditions, if any, including the price
or prices or the rate or rates of conversion and the terms and conditions
of any adjustments thereof, of such conversion and the terms and
conditions of any adjustments thereof, of such conversion;
(v) the obligation, if any, of the corporation to purchase and retire and
redeem, in whole or in part, shares of a particular series as a sinking
fund or redemption or purchase account, the terms thereof and the
redemption price or prices per share for such series redeemed pursuant to
the sinking fund or redemption account;
(vi) the voting rights, if any, of the shares of such series in addition
to those required by law, including the number of votes per share and any
requirement for the approval by the holders of up to two thirds of all
Preferred Stock, or of the shares of one or more series, or of both, as a
condition to specified corporate action or amendments to the certificate
of incorporation;
(vii) the ranking of the shares of the series as compared with shares of
other series of the Preferred Stock in respect of the right to receive
payments out of the assets of the corporation upon voluntary or
involuntary liquidation, dissolution or winding up of the corporation;
and
(viii) any other rights, obligations, or provisions which may be so
determined to the fullest extent permitted by Delaware law.
All shares of any one series of Preferred Stock shall be alike in every
particular and all series shall rank equally and be identical in all
respects except in so far as they may vary with respect to the matters
which the Board of Directors is hereby expressly authorized to determine
in the resolution or resolutions providing for the issue of any series of
the Preferred Stock.
B. Except as specified otherwise in any Certificate of Designation, all
shares of Preferred Stock shall rank senior to the Common Stock in
respect of the right to receive dividends and the right to receive
payments out of the assets of the corporation upon voluntary or
involuntary liquidation, dissolution or winding up of the corporation.
The shares of any one series of Preferred Stock shall be identical with
each other in all respects except as to the dates from and after which
dividends thereon shall be cumulative. All shares of Preferred Stock
redeemed, purchased or otherwise acquired by the corporation (including
shares surrendered for conversion) shall be canceled and thereupon
restored to the status of authorized but unissued Preferred Stock
undesignated as to series.
C. All shares of Common Stock shall be alike in every particular and
shall rank equally and be identical in all respects.
- 2 -
<PAGE>
GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF PREFERRED STOCK
Pursuant to Sections 151 and 242 of the
General Corporation Law of the State of Delaware
Genaissance Pharmaceuticals, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), hereby certifies
that the following resolution was duly adopted by the Board of Directors of the
Corporation pursuant to authority conferred upon the Board of Directors by the
provisions of Article 4 of the Amended Certificate of Incorporation of the
Corporation (referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 10,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value (the "PREFERRED
STOCK"), by action of the Board of Directors by unanimous written consent dated
December 20, 1997.
RESOLVED, that:
there is hereby designated a series of the Preferred Stock (as that term is
defined in Article 4 of the Amended Certificate of Incorporation of the
Corporation), consisting of 187,500 shares, which will be issued in a
series entitled "SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK" (referred
to as the "SERIES A PREFERRED STOCK"), and that the preferences and
privileges, relative, participating, optional and other special rights, and
qualifications, limitations and restrictions of all shares of such series,
in addition to those set forth in the Amended Certificate of Incorporation
of the Corporation, are affixed to such Series A Preferred Stock as set
forth in the attached EXHIBIT I:
<PAGE>
-2-
EXHIBIT I
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
1. DEFINITIONS. As used in this Certificate of Designations, the following
terms have the meanings specified below:
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Corporation.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other subdivision
or combination of the outstanding shares of Common Stock;
(ii) up to an aggregate 857,000 shares of Common Stock issued or
issuable to employees pursuant to an employee stock option plan
approved by the Board of Directors of the Corporation;
(iii) upon conversion of the Series A Preferred Stock; or
(iv) as approved in writing as "EXCLUDED STOCK" by the holders of not
less than 66 2/3% in voting power of the Series A Preferred Stock at
the time outstanding.
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification
that took effect during such 30 business day period). The closing price for
each day shall be the last reported sales price regular way or, in case no
such reported sales took place on such day, the average of the last
reported bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading (or if the Common Stock is not at the time listed or
admitted for trading on any such exchange, then such price as shall be
equal to the average of the last reported bid and asked prices, as reported
by the Nasdaq on such day, or if, on any day in question, the security
shall not be quoted on the Nasdaq, then such price shall be equal to the
last reported bid and asked prices on such day as reported by
<PAGE>
-3-
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National
Quotation Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is not
traded in such manner that the quotations referred to in this clause are
available for the period required hereunder, the Fair Market Value shall be
determined by a nationally recognized independent investment banking firm
selected mutually by the holders of more than 50% of the voting power of
the Series A Preferred Stock then outstanding and the Corporation (or if
such selection cannot be made, by a nationally recognized independent
banking firm selected by the American Arbitration Association in accordance
with its rules).
"HOLDER" shall mean a holder of shares of Series A Preferred Stock, as
applicable, as reflected in the stock records of the Corporation; and each
Holder's address shall be as it appears in the stock records of the
Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series A Preferred Stock, each
other class or series of capital stock (including, without limitation, each
class of common stock of the Corporation and each other series of Preferred
Stock) or other equity interests (including, without limitation, warrants,
rights, calls or options exercisable for or convertible into such capital
stock or equity interests) in the Corporation.
"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a
third party or parties, whether voluntary or involuntary; provided,
however, that a merger or consolidation shall not be considered a
Liquidation Event if the Corporation is the survivor or continuing
corporation of such merger or consolidation and as a result thereof there
is no change in the Common Stock or Series A Preferred Stock and that none
of the above events shall be considered to be a Liquidation Event if the
holders of at least seventy-five percent (75%) of the voting power of the
Series A Preferred Stock then outstanding elect, by vote or written
consent, that such event shall not be a Liquidation Event.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional
shares of Series A Preferred Stock and each other series of Preferred
Stock) or other equity interests (including, without limitation, warrants,
rights, calls or options exercisable for or convertible into such capital
stock or equity interests) in the Corporation issued after the Series A
Initial Issue Date; provided, however, that such term shall not include (i)
securities offered to the public pursuant to a registration statement filed
in accordance with the provisions of the Securities Act; (ii) securities
issued (x) pursuant to the approval of a majority of the members of the
Board of Directors, (y) in connection with the acquisition of another
corporation by the Company by merger, purchase of substantially all assets
or other reorganization whereby the Company owns, upon consummation of such
acquisition, greater than fifty percent (50%) of the voting power to elect
the directors of such corporation or (z) in connection with joint ventures
or corporate collaborations; (iii)
<PAGE>
-4-
securities issued to consultants, vendors, lenders, equipment lessors,
landlords and independent directors as consideration to such persons in
such capacities; (iv) any securities issued pursuant to any stock option
plan, stock purchase or stock bonus agreement existing on the Series A
Initial Issuance Date; (v) securities issued pursuant to any other stock
option plan, stock purchase or stock bonus arrangement, or grant, which are
approved by the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of the Series A Preferred Stock; and (v)
securities issued in connection with research agreements to which the
Company is a party, including, but not limited to, collaboration and
licensing agreements.
"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in aggregate gross cash proceeds to the
Corporation of not less than TEN MILLION DOLLARS ($10,000,000) and pursuant
to which the offering price per share is equal to or greater than two and
one half times the Series A Original Purchase Price (adjusted for any
Recapitalization Event).
"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications and similar events.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A ACCRUED DIVIDENDS" shall mean Series A Full Cumulative Dividends
to the date of determination, less the amount of all dividends paid
pursuant to Section 3 upon the relevant shares of Series A Preferred Stock.
"SERIES A CONVERSION PRICE" shall initially mean $4.00; PROVIDED, HOWEVER,
that the Series A Conversion Price shall be subject to adjustment as set
forth in Section 7(a)(iv).
"SERIES A EVENT OF CONVERSION" shall mean the consummation of a Qualified
IPO.
"SERIES A FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of Series
A Preferred Stock (whether or not in respect of which such term is used
there shall have been net profits or net assets of the Corporation legally
available for the payment of such dividends), that amount which shall be
equal to dividends at the full rate fixed for the Series A Preferred Stock
as provided herein for the period of time elapsed from the Series A Initial
Issuance Date to the date as of which Series A Full Cumulative Dividends
are to be computed.
"SERIES A HOLDER" shall mean a holder of shares of Series A Preferred
Stock.
"SERIES A INITIAL ISSUANCE DATE" shall mean December 22nd, 1997.
<PAGE>
-5-
"SERIES A LIQUIDATION AMOUNT" shall mean an amount in cash or property
(valued at its Fair Market Value), or a combination thereof, equal to $4.00
per share of Series A Preferred Stock held by a Holder (which per-share
amount shall be subject to equitable adjustment whenever there shall occur
a stock split, combination, reclassification or other similar event
involving the Series A Preferred Stock or the Common Stock) plus all Series
A Accrued Dividends.
"SERIES A ORIGINAL PURCHASE PRICE" shall mean $4.00 per share of Series A
Preferred Stock.
"SERIES A REDEMPTION DATE" shall have the meaning set forth in Section 4
hereof.
"SERIES A REDEMPTION PRICE" shall have the meaning set forth in Section 4
hereof.
2. NUMBER OF SHARES. The designation of the series of Preferred Stock
provided for herein shall be the Series A Redeemable Convertible Preferred Stock
(hereinafter referred to as the "SERIES A PREFERRED STOCK"), and the number of
authorized shares constituting Series A Preferred Stock is 187,500.
3. DIVIDENDS. The holder of each share of Series A Preferred Stock shall be
entitled to receive, before any dividends shall be declared and paid upon or set
aside for the Junior Securities, when and as declared by the Board of Directors
of the Corporation, out of funds legally available for that purpose, dividends
in cash at the rate per annum per share (the "SERIES A PREFERRED DIVIDEND RATE")
equal to 8% of the Series A Original Purchase Price, adjusted, as applicable,
for any Recapitalization Event, payable upon the earliest of (a) liquidation,
dissolution or winding-up of the Corporation in accordance with Section 4
hereof, (b) upon redemption in accordance with Section 3 hereof or (c) upon the
Series A Event of Conversion. Until December 31, 2000, the Corporation shall
have the option to make any such payment in shares of Common Stock, and in the
event such dividends are paid in Common Stock, for purposes of computing the
number of shares of Common Stock to be issued, the price of the Common Stock
paid to any holder of Series A Preferred Stock shall be valued at the then
Series A Conversion Price. Dividends on shares of Series A Preferred Stock shall
be cumulative from the Series A Initial Issuance Date (whether or not there
shall be net profits or net assets of the Corporation legally available for the
payment of such dividends), so that, if at any time Series A Full Cumulative
Dividends upon the Series A Preferred Stock shall not have been paid or declared
and a sum sufficient for payment thereof set apart, the amount of the deficiency
in such dividends shall be fully paid or dividends in such amount shall be
declared on the shares of the Series A Preferred Stock and a sum sufficient for
the payment thereof shall be set apart for such payment, before any dividend
shall be declared or paid or any other distribution ordered or made upon any
Junior Securities and before any sum or sums shall be set aside for or applied
to the purchase or redemption of Junior Securities. With respect to rights to
dividends, the Series A Preferred Stock shall rank prior to the Common Stock.
All dividends declared upon the Series A Preferred Stock shall be declared pro
rata per share. All payments due under this Section to any holder of shares of
Series A Preferred Stock shall be made to the nearest cent.
<PAGE>
-6-
4. REDEMPTION.
(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event the Corporation shall (to the extent
allowed by law) redeem, at the option of the holders of at least seventy-five
percent (75%) of the voting power of the Series A Preferred Stock then
outstanding, exercised by delivery of written notice to the Corporation by such
holders at least 15 days prior to the date of the consummation of the
Liquidation Event (any date upon which Series A Preferred Stock is to be
redeemed pursuant to this Section 4 being hereinafter referred to in this
context as a "SERIES A REDEMPTION DATE"), all the shares of Series A Preferred
Stock then outstanding, out of funds legally available therefor. The amount per
share payable upon any redemption of shares of Series A Preferred Stock pursuant
to this subsection shall be equal to the Series A Redemption Price, as
determined below. The Corporation shall deliver to each holder of Series A
Preferred Stock, not later than 30 days prior to the consummation of a
Liquidation Event, notice of such proposed Liquidation Event, including the date
on which such Liquidation Event is expected to be consummated. To the extent
that one or more redemptions and/or a liquidation are occurring concurrently and
the Corporation is legally prohibited from effecting all such redemptions and/or
liquidation, any redemption of the Series A Preferred Stock shall be deemed to
occur simultaneously and prior to any other redemptions and/or liquidations.
(ii) The amount per share payable upon any redemption of shares of
Series A Preferred Stock pursuant to this subsection shall be an amount equal to
the Series A Original Purchase Price plus all Series A Accrued Dividends (the
"LIQUIDATION REDEMPTION PRICE").
(b) SERIES A ANNUAL REDEMPTION. The Corporation shall (to the extent
allowed by law) redeem, at the option of the holders of at least seventy-five
percent (75%) of the voting power of the Series A Preferred Stock then
outstanding, exercised by delivery of written notice to the Corporation by such
holders at least 60 days prior to the applicable redemption date, the following
shares of Series A Preferred Stock on the following dates, out of funds legally
available therefor:
(i) at any time on or after December ___, 2002, one-third of the
shares of the Series A Preferred Stock then outstanding.
(ii) at any time on or after December ___, 2003, an additional number
of shares of Series A Preferred Stock equal to one-third of the shares of the
Series A Preferred Stock outstanding as of December ___, 2002.
(iii) at any time on or after December ___, 2004, all outstanding
shares of Series A Preferred Stock.
The amount per share payable upon any redemption of shares of Series A Preferred
Stock pursuant to this subsection shall be an amount equal to the Series A
Original Purchase Price plus (a) all Series A Accrued Dividends AND (b) an
amount equal to a 12% cumulative, annual return on (1) the Series A Original
Purchase Price from the Series A Initial Issuance Date to the date of
<PAGE>
-7-
payment and (2) all Series A Accrued Dividends from the date of accrual under
Section 3 to the date of payment (the "SCHEDULED REDEMPTION PRICE" and
collectively with the Liquidation Redemption Price, the "SERIES A REDEMPTION
PRICE").
(c) PRO RATA. If, on any Series A Redemption Date, fewer than all shares
of Series A Preferred Stock then outstanding are to be redeemed in accordance
with this Section, the shares to be redeemed shall be allocated pro rata among
the Holders of Series A Preferred Stock and the Redemption Notice mailed to each
Holder shall specify the number of shares to be redeemed from such Holder.
Notwithstanding the delivery of a Redemption Notice, Series A Holders subject to
redemption may convert such shares pursuant to Section 7 on or before the
Redemption Date by delivering written notice thereof to the Corporation not
later than ten days prior to the Redemption Date.
(d) PAYMENT OF SERIES A REDEMPTION PRICE; TERMINATION OF RIGHTS. On any
Series A Redemption Date, the applicable Series A Redemption Price in respect of
the shares represented by the certificate or certificates surrendered to the
Corporation by the Holder thereof pursuant to the Redemption Notice shall be
paid to the order of the person whose name appears on such certificate or
certificates. Each surrendered certificate shall be canceled and retired and a
new certificate, representing the remaining, unredeemed shares of Series A
Preferred Stock, if any, shall be issued to the Holder of such shares. On any
Series A Redemption Date, the rights of a Holder with respect to shares redeemed
shall cease, other than such Holder's right to payment of the Series A
Redemption Price as of the Series A Redemption Date, upon surrender of the
certificate or certificates.
5. LIQUIDATION. Upon a Liquidation Event, the Series A Holders shall be
entitled, before any assets of the Corporation shall be distributed among or
paid over to the holders of Junior Securities, but after distribution of such
assets among, or payment thereof over to, creditors of the Corporation, to
receive from the assets of the Corporation available for distribution to
stockholders, the Series A Liquidation Amount. If the assets of the Corporation
legally available for distribution shall be insufficient to permit the payment
in full of the Series A Liquidation Amount to the Series A Holders, then the
entire assets of the Corporation legally available for distribution shall be
distributed ratably among the Series A Holders in proportion to the respective
amounts which would have been payable upon such Liquidation Event on such shares
of Series A Preferred Stock if all amounts payable thereon had been paid in
full. In the event that such distribution of assets is other than in cash, such
distribution of cash and other assets (including securities) shall be made
ratably among the holders of the shares of Series A Preferred Stock based upon
the fair market value of any such assets as determined by a nationally
recognized valuation consultant selected mutually by the holders of a majority
in voting power of the Series A Preferred Stock then outstanding and the
Corporation (or if such selection cannot be made, by a nationally recognized
independent valuation consultant selected by the American Arbitration
Association in accordance with its rules). In the event of any liquidation,
dissolution or winding-up of the Corporation, after payment shall have been made
to the holders of shares of Series A Preferred Stock of the full amount to which
they shall be entitled as aforesaid, the holders of any Junior Stock and the
holders of the Series A Preferred Stock shall be entitled to
<PAGE>
-8-
participate equally, on an as-converted basis in the case of the Series A
Preferred Stock and any Junior Stock convertible into Common Stock, in all
remaining assets of the Corporation available for distribution to its
stockholders. The provisions of this Section 5 shall not be applicable to the
Series A Preferred Stock if the holders thereof have exercised their rights to
cause the Series A Preferred Stock to be redeemed pursuant to Section 4(a)
hereof in connection with such Liquidation Event, and such shares have been so
redeemed.
6. VOTING.
(a) VOTES GENERALLY WITH COMMON STOCK. In addition to the rights specified
in Sections 6(b) and (c) below and any other rights provided in the
Corporation's By-Laws, the shares of Series A Preferred Stock shall entitle each
Holder thereof to such number of votes as shall equal the number of shares of
Common Stock (rounded to the nearest whole number) into which the shares of
Series A Preferred Stock held by such Holder are then convertible pursuant to
Section 7 and shall entitle each such Holder to vote on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such holders of Common Stock, voting together with the
holders of Common Stock as one class.
(b) DIRECTOR ELECTION RIGHT.
(i) Until the Series A Event of Conversion, the holders of a majority
of the outstanding shares of Series A Preferred Stock, voting as a
separate class, shall be entitled to elect one director of the
Corporation (the "SERIES A DIRECTOR"). At any annual or special
meeting of the Corporation (or in a written consent in lieu thereof)
held for the purpose of electing directors, the presence in person or
by proxy (or by written consent) of the holders of a majority of the
outstanding shares of Series A Preferred Stock shall constitute a
quorum for the election of the Series A Director. The holders of a
majority of the shares of Series A Preferred Stock present in person
or by proxy at any meeting relating to the election of directors
(calculated after the determination of a quorum) shall then be
entitled to elect the Series A Director.
(ii) The Series A Director may be removed with or without cause during
his or her term of office by the affirmative vote or written consent
of the holders of a majority of the outstanding shares of Series A
Preferred Stock. A vacancy in the seat held by the Series A Director
shall be filled by a vote or written consent of the holders of a
majority of the outstanding shares of Series A Preferred Stock present
in person at any meeting (calculated after the determination of a
quorum as provided above) or by written consent.
(iii) In lieu of their right to elect the Series A Director, the
holders of a majority of the outstanding shares of Series A Preferred
Stock shall have the right to send one representative (without voting
rights) to each meeting of the Board of Directors of the Corporation
and all committees of such Board. The Corporation shall give each
holder of shares of Series A Preferred Stock notice of each such
meeting in the form and manner such notice is given to the
Corporation's directors. The Corporation shall
<PAGE>
-9-
not permit its directors or shareholders to conduct any material
business by written consent without giving as much written notice
thereof (including the matters to be acted upon) to such holders as is
reasonably practicable.
(iv) As long as the holders of Series A Preferred Stock have the right
to elect any directors under this subsection, the Board of Directors
of the Corporation shall have up to seven members, unless the holders
of a majority of the outstanding shares of Series A Preferred Stock
shall consent to a different number.
(c) SEPARATE CLASS VOTE. So long as any shares of the Series A Preferred
Stock are outstanding, the consent of the holders of a majority of all of the
outstanding shares of Series A Preferred Stock, voting as a single and separate
class in person or by proxy, at a special or annual meeting called for the
purpose, or by written consent in lieu of a meeting, shall be required before
the Corporation may:
(i) authorize or issue any class or series of capital stock, ranking
prior to the Series A Preferred Stock with respect to rights to
receive dividends, redemption payments or distributions upon
liquidation or winding up of the Corporation or with respect to
antidilution provisions;
(ii) authorize, declare or distribute any dividend, whether in cash or
in kind, payable to any class or series of the Corporation's common or
preferred stock (except payment of dividends on Series A Preferred
Stock) or to any other equity security of the Corporation;
(iii) approve any merger, combination, liquidation, dissolution or
sale of all or substantially all of the assets of the Corporation
requiring a vote of the Corporation's stockholders; or
(iv) cancel, repeal or change any of the provisions of this
Certificate of Designations or of any amendment hereto, or of the
Certificate of Incorporation of the Corporation in such a way as to
have a material adverse effect on the powers, preferences or special
rights of shares of the Series A Preferred Stock, except that the
Corporation may issue additional shares of Series A Preferred Stock
and other Preferred Stock, subject to clause (i) above, and make
appropriate changes to this Certificate of Designation and its
Certificate of Incorporation.
<PAGE>
-10-
7. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) The holder of any shares of Series A Preferred Stock shall have
the right, at such holder's option, at any time or from time to time
to convert any or all such holder's shares of Series A Preferred Stock
into such whole number of fully paid and nonassessable shares of
Common Stock as equals (I) the product of (x) the Series A Original
Purchase Price, multiplied by (y) the number of shares of Series A
Preferred Stock being converted, divided by (II) the Series A
Conversion Price (as last adjusted and then in effect) for the shares
of the Series A Preferred Stock being converted, by surrender of the
certificates representing the shares of Series A Preferred Stock so to
be converted in the manner provided Section 7(a)(ii) below. The Series
A Conversion Price shall initially be equal to the Series A Original
Purchase Price; PROVIDED, HOWEVER, that such Series A Conversion Price
shall be subject to adjustment as set forth in Section 7(a)(iv) below.
The holder of any shares of Series A Preferred Stock exercising the
aforesaid right to convert such shares into shares of Common Stock
shall not be entitled to payment of Series A Accrued Dividends with
respect to the shares of Series A Preferred Stock so converted, and
shall be deemed to have waived any such Series A Accrued Dividends
upon such conversion.
(ii) The holder of any shares of Series A Preferred Stock may exercise
such holder's conversion right pursuant to this Section by delivering
to the Corporation during regular business hours at the office of any
transfer agent of the Corporation for the Series A Preferred Stock or
at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly
endorsed or assigned in blank or to the Corporation (if required by
it) accompanied by written notice stating that such holder elects to
convert such shares and stating the name or names (with address) in
which the certificate or certificates for the shares of Common Stock
are to be issued. Conversion shall be deemed to have been effected
with respect to conversion under (a) Section 7(a)(i) above, on the
date when the aforesaid delivery is made and (b) Section 7(b) on the
date of occurrence of a Series A Event of Conversion, as the case may
be, and any such date is referred to herein as the "SERIES A
CONVERSION DATE." As promptly as practicable thereafter the
Corporation shall issue and deliver to or upon the written order of
such holder, to the place designated by such holder, a certificate or
certificates for the number of full shares of Common Stock to which
the such holder is entitled and a check or cash in respect of any
fractional interest in a share of Common Stock, as provided in Section
7(a)(iii) below, payable with respect to the shares of Series A
Preferred Stock so converted up to and including the Series A
Conversion Date. The person in whose names the certificate or
certificates for Common Stock are to be issued shall be deemed to have
become a holder of Common Stock on the applicable Series A Conversion
Date unless the transfer books of the Corporation are closed on that
date, in which event such holder shall be deemed to have become a
holder of Common Stock on the next succeeding date on which the
transfer books are open, but the Series
<PAGE>
-11-
A Preferred Conversion Price shall be that in effect on the Series A
Conversion Date. Upon conversion of only a portion of the number of
shares covered by a certificate representing shares of Series A
Preferred Stock surrendered for conversion, the Corporation shall
issue and deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Series
A Preferred Stock representing the unconverted portion of the
certificate so surrendered, which new certificate shall entitle the
holder thereof to dividends on the shares of Series A Preferred Stock
represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been surrendered
for conversion.
(iii) No fractional shares of Common Stock or scrip shall be issued
upon conversion of shares of Series A Preferred Stock. If more than
one share of Series A Preferred Stock shall be surrendered for
conversion at any one time by the same holder, the number of full
shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A
Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal
to the then current Fair Market Value of a share of Common Stock
multiplied by such fractional interest. Fractional interests shall not
be entitled to dividends, and the holders of a fractional interest
shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interest.
(iv) The Series A Conversion Price shall be subject to adjustment from
time to time as follows:
(A) ADJUSTMENTS FOR CERTAIN ISSUANCES. If the Corporation shall
at any time or from time to time after the Series A Initial
Issuance Date issue or be deemed (by virtue of any of the
provisions of Section 7(a)(iv)), to have issued any capital stock
(including, without limitation, each class of common stock of the
Corporation) or other equity interests (including, without
limitation, warrants, rights, calls or options exercisable for or
convertible into such capital stock or equity interests) in the
Corporation, other than Excluded Stock, , without consideration
or for a consideration per share (the "LAST PREFERRED PRICE")
less than the Series A Conversion Price in effect immediately
prior to each such issuance , the Series A Conversion Price in
effect immediately prior thereto shall forthwith be adjusted, as
of the opening of business on the date of such issuance, (I) if
the date of such issuance is on or before the date which is 120
days after the Series A Initial Issuance Date, to a price per
share equal to such Last Preferred Price or (II) if the date of
such issuance is after the date which is 120 days after the
Series A Initial Issuance Date but prior to the date which is 240
days after the Series A Initial Issuance Date, to a price per
share equal to eighty percent (80%) of such Last Preferred Price.
For the purposes of any
<PAGE>
-12-
adjustment of the Series A Conversion Price pursuant to this
clause (A), the provisions of 7(iv)(B)(1) and (2) shall be
applicable:
(B) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. If the Corporation shall at any time or from time
to time after the date which is 240 days after the Series A
Initial Issuance Date issue or be deemed (by virtue of any of the
provisions of Section 7(a)(iv)), to have issued any capital stock
(including, without limitation, each class of common stock of the
Corporation) or other equity interests (including, without
limitation, warrants, rights, calls or options exercisable for or
convertible into such capital stock or equity interests) in the
Corporation, other than Excluded Stock, without consideration or
for a consideration per share (the "LAST ISSUE PRICE") less than
the Series A Conversion Price in effect immediately prior to each
such issuance or deemed issuance, the Series A Conversion Price
in effect immediately prior thereto shall forthwith be adjusted,
as of the opening of business on the date of such issuance or
deemed issuance, to such Last Issue Price.
Notwithstanding the immediately preceding paragraph of this
subsection (B), in the event that a holder of Series A Preferred
Stock has been given written notice pursuant to Section 8 hereof
and the opportunity to purchase the pro rata share (as defined in
Section 8(a) hereof) of stock to be issued without consideration
or for a consideration per share less than the Series A
Conversion Price in effect immediately prior to such issuance or
deemed issuance and does not purchase its entire pro rata share
(as defined in Section 8(a) hereof) of the stock to be issued,
the Series A Conversion Price shall not be reduced for said
issuance pursuant to this subsection. This paragraph shall not
apply to any issuance occurring on or before 240 days from the
Series A Initial Issuance Date.
For the purposes of any adjustment of the Series A Conversion
Price pursuant to this subsection (B), the following provisions
shall be applicable:
(1) In the case of the issuance of stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefor.
(2) In the case of the issuance of stock for a consideration
in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value
thereof as determined in good faith by the Board of
Directors of the Corporation, irrespective of any accounting
treatment; PROVIDED, HOWEVER, that the aggregate fair market
value of such non-cash and cash consideration shall not
exceed the current Fair Market Value of the shares of stock
being issued.
<PAGE>
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(3) In case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock; (ii) securities by
their terms convertible into or exchangeable for Common
Stock; or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
(a) the aggregate number of shares of Common Stock
deliverable upon exercise of such options to purchase
or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights
were issued and for a consideration equal to the
consideration (determined in the manner provided in
subdivisions (1) and (2) above), if any, received by
the Corporation upon the issuance of such options or
rights plus the purchase price provided in such options
or rights for the Common Stock covered thereby;
(b) the aggregate number of shares of Common Stock
deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities
were issued or such options or rights were issued and
for a consideration equal to the consideration received
by the Corporation for any such securities and related
options or rights (excluding any cash received on
accounts of accrued interest or accrued dividends),
plus the additional consideration, if any, to be
received by the Corporation upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in each
case to be determined in the manner provided in
subdivisions (1) and (2) above, with the proviso to
subdivision (2) being applied to the number of shares
of Common Stock deliverable upon such exercise);
<PAGE>
-14-
(c) on any change in the number of shares or exercise
price of Common Stock deliverable upon the exercise of
any such options or rights or conversions of or
exchange for such convertible or exchangeable
securities, other than a change resulting from the
antidilution provisions thereof, the Series A
Conversion Price shall forthwith be readjusted to such
Series A Conversion Price as would have obtained had
the adjustment made upon the issuance of such options,
rights or securities not converted prior to such change
or options or rights related to such securities not
converted prior to such change been made upon the basis
of such change; and
(d) on the expiration of any such options or rights,
the termination of any such rights to convert or
exchange or the expiration of any options or rights
related to such convertible or exchangeable securities,
the Series A Conversion Price shall forthwith be
readjusted to such Series A Conversion Price as would
have obtained had such options, rights, securities or
options or rights related to such securities not been
issued.
(C) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR SPLIT-UPS.
If, at any time after the Series A Initial Issuance Date, the
number of shares of Common Stock outstanding is increased by a
stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, upon the
record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend, subdivision or
split-up, the Series A Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock issuable
on conversion of each share of Series A Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(D) ADJUSTMENTS FOR COMBINATIONS. If, at any time after the
Series A Initial Issuance Date, the number of shares of Common
Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, upon the record date
for such combination, the Series A Conversion Price shall be
appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of Series A Preferred
Stock shall be decreased in proportion to such decrease in
outstanding shares.
<PAGE>
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(E) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS, CONSOLIDATIONS,
ETC. In case, at any time after the Series A Initial Issuance
Date, of any capital reorganization, or any reclassification of
the stock of the Corporation (other than a change in par value or
from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the
Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any change in
the Common Stock or Series A Preferred Stock) or of the sale or
other disposition of all or substantially all the properties and
assets of the Corporation as an entirety to any other person,
each share of Series A Preferred Stock shall, after such
reorganization, reclassification, consolidation, merger, sale or
other disposition, be convertible into the kind and number of
shares of stock or other securities or property of the
Corporation or of the corporation resulting from such
consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed
to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale or
other disposition) upon conversion of such share would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions
of this subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers,
sales or other dispositions.
(F) All calculations under this subsection (iv) shall be made to
the nearest one cent ($.01) or to the nearest one-tenth (1/10) of
a share, as the case may be.
(G) In any case in which the provisions of this subsection (iv)
shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (i) issuing to the
holder of any share of Series A Preferred Stock converted after
such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such conversion
by reason of the adjustment required by such event over and above
the shares of capital stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such holder
any amount in cash in lieu of a fractional share of capital stock
pursuant to Section 7(a)(iii) above; PROVIDED, HOWEVER, that the
Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive
such additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.
<PAGE>
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(v) Whenever the Series A Conversion Price shall be adjusted as
provided in Section 7(a)(iv), the Corporation shall forthwith file, at
the office of the transfer agent for the Series A Preferred Stock or
at such other place as may be designated by the Corporation, a
statement, signed by its independent certified public accountants,
showing in detail the facts requiring such adjustment and the Series A
Conversion Price that shall be in effect after such adjustment. The
Corporation shall also cause a copy of such statement to be sent by
first class, certified mail, return receipt requested, postage
prepaid, to each holder of shares of Series A Preferred Stock at such
holder's address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as
part of a notice required to be mailed under the provisions of Section
7(a)(vi) below.
(vi) In the event the Corporation shall propose to take any action of
the types described in clauses (A), (B), (C), (D) or (E) of Section
7(a)(iv) above, the Corporation shall give notice to each holder of
shares of Series A Preferred Stock, in the manner set forth in Section
7(a)(v) above, which notice shall specify the record date, if any,
with respect to any such action and the date on which such action is
to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the
effect of such action (to the extent such effect may be known at the
date of such notice) on the Series A Conversion Price and the number,
kind or class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series A Preferred Stock. In
the case of any action which would require the fixing of a record
date, such notice shall be given at least 20 days prior to the date so
fixed, and in case of all other action, shall notice shall be given at
least 30 days prior to the taking of such proposed action. Failure to
give such notice, or any defect therein, shall not affect the legality
or validity of any such action.
(vii) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares
of capital stock of the Corporation upon conversion of any shares of
Series A Preferred Stock; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of
the shares of Series A Preferred Stock in respect of which such shares
are being issued.
(viii) The Corporation shall reserve, free from preemptive rights, out
of its authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of Series A
Preferred Stock, sufficient shares to provide for the conversion of
all outstanding shares of Series A Preferred Stock.
(ix) All shares of Common Stock which may be issued in connection with
the conversion provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, and free from
all taxes, liens or charges with respect thereto.
<PAGE>
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(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series A Event of
Conversion, all shares of Series A Preferred Stock then outstanding shall,
by virtue of, and simultaneously with, the occurrence of the Series A Event
of Conversion and without any action on the part of the holders thereof, be
deemed automatically converted into such whole number of fully paid and
nonassessable shares of Common Stock as equals (I) the product of (x) the
Series A Original Purchase Price multiplied by (y) the number of shares of
Series A Preferred Stock being converted divided by (II) the Series A
Conversion Price as last adjusted pursuant to Section 7(a)(iv) and then in
effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the Series A Event of
Conversion, the Series A Holders shall have the pre-emptive right to purchase,
on a pro rata basis, all or any part of any New Securities which the Corporation
may, from time to time, propose to issue and sell, at any time while any Series
A Preferred Stock is outstanding and subject to the terms and conditions set
forth below. The pro rata share of each Series A Holder, for purposes of this
pre-emptive right to purchase, shall be determined by dividing (x) the total
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock owned by such Holder plus the total number of shares of Common
Stock then owned by such Holder, by (y) the total number of shares of Common
Stock (Common Stock not being deemed for purposes of this paragraph to include
warrants, options or other convertible instruments (other than the Series A
Preferred Stock) which have not then been exercised or converted, as applicable)
then outstanding, plus the total number of shares of Common Stock issuable upon
conversion of the then outstanding Series A Preferred Stock.
(b) PROCEDURE. In the event the Corporation shall determine to offer, sell
or exchange New Securities, it shall give each Series A Holder written notice of
such intention, describing the price of such New Securities and the general
terms upon which the Corporation proposes to effect such issuance. Each such
Holder shall have forty-five(45) business days from the date of any such notice
to agree to purchase all or part of its pro rata share of such New Securities,
for the purchase price and upon the general terms and conditions specified in
the Corporation's notice, by giving written notice to the Corporation stating
the quantity of New Securities to be so purchased. Each such Holder shall have a
right of over-allotment such that if any Holder fails to exercise its right
hereunder to purchase its total pro rata portion of New Securities, the other
Series A Holders may purchase such portion on a pro rata basis, by giving
written notice to the Corporation within ten (10) business days from the date
that the Corporation provides written notice to the other Series A Holders of
the amount of New Securities with respect to which such nonpurchasing Holder has
failed to exercise its rights hereunder.
<PAGE>
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(c) RIGHT OF CORPORATION. In the event any Series A Holder or Holders fail
to exercise the foregoing pre-emptive right to purchase with respect to any New
Securities within such forty-five (45) business day period (or the additional 10
business day period provided for overallotment), the Corporation may within one
hundred twenty (120) business days thereafter sell any or all of such New
Securities not agreed to be purchased by such Holders, at a price and upon
general terms no more favorable to the purchasers thereof than specified in the
notice given to each Holder pursuant to Section 8(b). In the event the
Corporation has not sold such New Securities within such one hundred twenty
(120) business day period, the Corporation shall not thereafter issue or sell
any New Securities without first offering such New Securities to the Series A
Holders in the manner provided above.
<PAGE>
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by its President and attested by its Secretary this
22nd day of December, 1997.
By: /s/ GUALBERTO RUANO
-------------------------------
Name: Gualberto Ruano
Title: President
ATTEST:
/s/ KEVIN L. RAKIN
- ------------------------------
Kevin L. Rakin
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. This Certificate of Amendment amends the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), by amending Article 4 to effect changes in the capital
structure of the Corporation.
2. The text of Article 4 of the Certificate of Incorporation is
amended hereby to read as set forth in EXHIBIT A attached hereto and hereby made
a part hereof.
3. The foregoing amendment to the Certificate of Incorporation was
duly adopted by written consent of the stockholders in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
4. This Amendment to the Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Gualberto Ruano, its President, and attested to by Kevin L. Rakin, its
Secretary, this 24th day of August, 1998.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
-------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
-------------------------------
Kevin L. Rakin
Secretary
<PAGE>
EXHIBIT A
Amendment to
Certificate of Incorporation
of
Genaissance Pharmaceuticals, Inc.
pursuant to
Section 242 of the
Delaware General Corporation Law
The Certificate of Incorporation of Genaissance Pharmaceuticals, Inc., a
Delaware corporation, has been amended by striking out the whole of Article 4
thereof as it now exists and substituting new Article 4 to read as follows:
4. The total authorized capital stock of the corporation consists of
20,000,000 shares, of which 9,500,000 are shares of Common Stock, $.001 par
value (the "Common Stock"), 500,000 are shares of Nonvoting Common Stock, $.001
par value, (the "Nonvoting Common Stock"), and 10,000,000 are shares of
Preferred Stock, $.001 par value ("Preferred Stock"). The designations and the
powers, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of the
Preferred Stock and the Common Stock shall be as follows:
A. The Preferred Stock may be issued, from time to time, in one or
more series, with such designations, voting powers, if any, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors. The Board of Directors, in such resolution or resolutions (a
copy of which shall be filed and recorded as required by law), is also expressly
authorized to fix:
(i) the distinctive serial designations and the division of such
shares into series and the number of shares of a particular series, which may be
increased or decreased, but not below the number of shares thereof then
outstanding, by a certificate made, signed, filed and recorded as required by
law;
(ii) the annual dividend rate (or method of determining such rate) for
the particular series, the date or dates upon which such dividends shall be
payable, and the date or dates or method of determining the date or dates and if
dividends on stock of the particular series shall be cumulative;
(iii) the price or prices at which, the period or periods within which
and the terms and conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option, if any, of the corporation;
(iv) the right, if any, of the holders of a particular series or the
corporation to convert such stock into other classes or series of stock or to
exchange such stock for shares of any other
<PAGE>
class of stock or series thereof, and the terms and conditions, if any,
including the price or prices or the rates of conversion and the terms and
conditions of any adjustments of such conversion prices or rates;
(v) the obligation, if any, of the corporation to purchase and retire
and redeem, in whole or in part, shares of a particular series as a sinking fund
or redemption or purchase account, the terms thereof and the redemption price or
prices per share for such series redeemed pursuant to the sinking fund or
redemption account;
(vi) the voting rights, if any, of the shares of such series in
addition to those required by law, including the number of votes per share
and any requirement for the approval by the holders of Preferred Stock, or of
the shares of one or more series, or of both, as a condition to specified
corporate action or amendments to the certificate of incorporation;
(vii)
(viii) any other rights, obligations, or provisions which may be so
determined to the fullest extent by Delaware law.
All shares of any one series of Preferred Stock shall be alike in every
particular and all series shall rank equally and be identical in all respects
except in so far as they may vary with respect to the matters which the Board of
Directors is hereby expressly authorized to determine in the resolution or
resolutions providing for the issue of any series of the Preferred Stock.
B. Except as specified otherwise in any Certificate of
Designation, all shares of Preferred Stock shall rank senior to the Common
Stock in respect of the right to receive dividends and the right to receive
payments out of the assets of the corporation upon voluntary or involuntary
liquidation, dissolution or winding up of the corporation. The shares of any
one series of Preferred Stock shall be identical with each other in all
respects except as to the dates from and after which dividends thereon shall
be cumulative. All shares of Preferred Stock redeemed, purchased or otherwise
acquired by the corporation (including shares surrendered for conversion)
shall be canceled and thereupon restored to the status of authorized but
unissued Preferred Stock undesignated as to series.
C. All shares of Common Stock and Nonvoting Common Stock shall be
alike in every particular and shall rank equally and be identical in all
respects, except as follows:
(i) Holders of Nonvoting Common Stock shall not be entitled to vote at
any time or under any circumstances except as otherwise required by law or by
this Certificate of Incorporation.
(ii) Each outstanding share of Nonvoting Common Stock shall
automatically be converted into fully paid and nonassessable shares of Common
Stock at the rate (subject to equitable adjustment as may be necessary to
account for stock splits, stock dividends or any
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<PAGE>
reorganization, recapitalization, combination of shares or similar capital
adjustment) of one share of Common Stock for each share of Nonvoting Common
Stock surrendered for conversion, without any act by the corporation or the
holders of Nonvoting Common Stock, concurrently with the closing of (i) a
public offering by the corporation of shares of Common Stock of the
corporation registered under the Securities Act of 1933, as amended; (ii) any
recapitalization, reorganization, spin-off, sale of all or substantially all
of the corporation's assets, liquidation, dissolution, merger or
consolidation with or into another company, tender offer or any transaction
or series of transactions which has been approved by the Board of Directors
of the corporation and in which more than fifty percent (50%) of the
Company's voting power is transferred, provided that the conversion of the
Nonvoting Common Stock into Common Stock is deemed necessary by the Board of
Directors to allow for the PARI PASSU treatment of the Nonvoting Common Stock
with the Common Stock in such event; or (iii) the sale of the Nonvoting
Common Stock by the original purchaser thereof to a party or parties
unaffiliated with such original purchaser in amounts which would not exceed
two percent (2%) of the shares of Common Stock then outstanding. Promptly
following a conversion pursuant to the terms of this paragraph, the holders
of Nonvoting Common Stock shall surrender the certificates representing their
shares of Nonvoting Common Stock to the corporation. Upon receipt of such
certificates, the corporation shall promptly issue and deliver to such holder
or such holder's nominee or nominees a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid.
(iii) subject to applicable banking regulations, the holders of
record of Nonvoting Common Stock may at any time or from time to time, in
such holders sole discretion and at such holders option, convert any whole
number or all of such holder's Nonvoting Common Stock into fully paid and
nonassessable shares of Common Stock at the rate (subject to equitable
adjustment as may be necessary to account for stock splits, stock dividends
or any reorganization, recapitalization, combination of shares or similar
capital adjustments) of one share of Common Stock for each share of Nonvoting
Common Stock surrendered for conversion. Any such conversion may be effected
by any holder of Nonvoting Common Stock surrendering such holder's
certificate or certificates for the Nonvoting Common Stock to be converted,
duly endorsed, at the office of the corporation, together with a written
notice to the corporation at such office that such holder elects to convert
all or a specified number of shares of Nonvoting Common Stock and stating the
names or names in which such holder desires the certificate or certificates
for such shares of Common Stock to be issued. Promptly thereafter, the
corporation shall issue and deliver to such holder or such holder's nominee
or nominees a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made at the close of business on the date of
such surrender and the person or persons entitled to receive the shares of
Common Stock issued on such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on that date.
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<PAGE>
GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
PREFERRED STOCK
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), DOES HEREBY
CERTIFY:
1. The following resolution was duly adopted by action of the Board
of Directors of the Corporation at a special meeting duly held August 22, 1998
pursuant to authority conferred upon the Board of Directors by the provisions of
Article 4 of the Certificate of Incorporation of the Corporation, as amended,
(referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 10,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value (the "PREFERRED
STOCK").
RESOLVED: That the provisions of the Certificate of Designations,
Preferences and Other Special Rights and Qualifications, Limitations and
Restrictions of Preferred Stock of the Corporation (the "CERTIFICATE OF
DESIGNATIONS"), approved by the Directors on December 20, 1997, shall be
amended by deleting its text in its entirety and substituting therefor
the text set forth in EXHIBIT I attached hereto. Said Certificate of
Designations, as amended hereby, shall apply to 2,437,500 shares
constituting Series A Redeemable Convertible Preferred Stock and
2,437,500 shares of Series A1 Redeemable Convertible Preferred Stock.
2. Such resolution also was duly approved by written consent of the
holder of the outstanding shares of Preferred Stock issued pursuant to the
Certificate of Designations.
3. This amendment to the Certificate of Designations was duly adopted
in accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, this 24th day of August, 1998.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
-----------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
-----------------------------
Kevin L. Rakin
Secretary
<PAGE>
EXHIBIT I
There is hereby designated two (2) series of the Preferred Stock (as that
term is defined in Article 4 of the Amended Certificate of Incorporation of the
Corporation), consisting of 4,875,000 shares, which will be issuable, equally,
in series entitled "SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK" (referred
to as the "SERIES A PREFERRED STOCK") and "SERIES A1 REDEEMABLE CONVERTIBLE
PREFERRED STOCK" (referred to as the ("SERIES A1 PREFERRED STOCK"), and that the
preferences and privileges, relative, participating, optional and other special
rights, and qualifications, limitations and restrictions of all shares of such
series, in addition to those set forth in the Certificate of Incorporation of
the Corporation, as amended, are as set forth hereafter.
1. DEFINITIONS. As used in this Certificate of Designations, the
following terms have the meanings specified below:
"AFFILIATE" shall mean a person (other than a subsidiary):
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Corporation;
(ii) which beneficially owns or holds 5% or more of any class of
the voting stock of the Corporation; or
(iii) 5% or more of the voting stock (or in the case of a person
which is not a corporation, 5% or more of the equity interest) of
which is beneficially owned or held by the Corporation or one of
its subsidiaries.
The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Corporation.
"DILUTED STOCK" shall have the meaning ascribed to it in Section
7(a)(iv)(A) hereof.
"DILUTING ISSUANCE" shall mean an issuance of capital stock described in
Section 7(a)(iv)(A) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other subdivision or
combination of the outstanding shares of Common Stock (including, without
limitation, any stock issued pursuant to Section 3 hereof);
(ii) up to an aggregate 1,297,000 shares of Common Stock issued or
issuable to employees pursuant to an employee stock option plan approved
by the Board;
(iii) upon conversion of any of the Series A Stock; or
(iv) as approved in writing as "EXCLUDED STOCK" by the holders of not
less than 66-2/3% in voting power of the Series A Stock at the time
outstanding.
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification that
took effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the average of the last reported bid and
asked prices, as reported by the Nasdaq on such day, or if, on any day in
question, the security shall not be quoted on the Nasdaq, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is traded in such
manner that the quotations referred to in this clause are not available for the
period required hereunder, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the voting power of the Series A Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent banking firm selected by the American
Arbitration Association in accordance with its rules).
"HOLDER" shall mean a holder of shares of Series A Stock, as applicable,
as reflected in the stock records of the Corporation; and each Holder's address
shall be as it appears in the stock records of the Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series A Stock, each other
class or series of capital stock (including, without limitation, each class of
common stock of the Corporation and each other series of Preferred Stock) or
other equity interests (including, without limitation, warrants, rights, calls
or options exercisable for or convertible into such capital stock or equity
interests) in the Corporation.
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"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a third
party or parties, whether voluntary or involuntary; provided, however, that a
merger or consolidation shall not be considered a Liquidation Event if the
Corporation is the survivor or continuing corporation of such merger or
consolidation and as a result thereof there is no change in the Common Stock or
Series A Stock.
"LISTED RIGHTS" shall mean all patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade names, trade
name rights, service marks and copyrights (whether registered or not) owned or
possessed by the Corporation and any improvements thereon.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional shares
of Series A Stock, each other series of Preferred Stock and any shares of
capital stock held by the Corporation in its treasury upon the disposition
thereof) or other equity interests (including, without limitation, warrants,
rights, calls or options exercisable for or convertible into such capital stock
or equity interests) in the Corporation issued after the Series A Initial Issue
Date; PROVIDED, HOWEVER, that such term shall not include (i) securities offered
to the public pursuant to a registration statement filed in accordance with the
provisions of the Securities Act; (ii) securities issued (x) pursuant to the
approval of a majority of the members of the Board, (y) in connection with the
acquisition of another corporation by the Corporation by merger, purchase of
substantially all assets or other reorganization whereby the Corporation owns,
upon consummation of such acquisition, greater than fifty percent (50%) of the
voting power to elect the directors of such corporation or (z) in connection
with joint ventures or corporate collaborations; (iii) securities issued to
consultants, vendors, lenders, equipment lessors, landlords and independent
directors as consideration to such persons in such capacities; (iv) securities
issued pursuant to any stock option plan, stock purchase or stock bonus
agreement up to a maximum of 2,000,000 shares; (v) securities issued pursuant to
any other stock option plan, stock purchase or stock bonus arrangement, or
grant, which are approved by the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the voting power of the Series A Stock; and (vi) securities
issued in connection with research agreements to which the Corporation is a
party, including, but not limited to, collaboration and licensing agreements.
"NON-PARTICIPATING PERCENTAGE" shall have the meaning ascribed to it in
Section 7(a)(iv)(A) hereof.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"PREEMPTIVE SHARE" shall mean, immediately prior to any issue of shares
of New Securities, and as to each Series A Holder, the percentage which
expresses the ratio between (i) the total number of shares of New Securities
issuable upon conversion of the Series A Stock owned by such Series A Holder
plus the total number of shares of Common Stock then owned by
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such Series A Holder, and (ii) the total number of shares of Common Stock then
outstanding (Common Stock not being deemed for such purposes to include
warrants, options or other convertible instruments, which have not then been
exercised or converted, as applicable), plus the total number of shares of
Common Stock issuable upon conversion of the then outstanding Series A Stock.
"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in aggregate gross cash proceeds to the Corporation
of not less than TWENTY MILLION DOLLARS ($20,000,000) and pursuant to which the
offering price per share is equal to or greater than two and one half times the
Series A Original Purchase Price (adjusted for any Recapitalization Event).
"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications, and similar events.
"RELATED PARTY" shall mean any officer, director, significant employee or
consultant of the Corporation or any holder (other than any Series A Holder) of
5% or more of any class of capital stock of the Corporation or any member of the
immediate family of any such officer, director, employee, consultant or
shareholder or any entity controlled by any such officer, director, employee,
consultant or shareholder or a member of the immediate family of any such
officer, director, employee, consultant or shareholder.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A ACCRUED DIVIDENDS" shall mean Series A Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3, upon the relevant shares of Series A Stock.
"SERIES A CONVERSION PRICE" shall initially mean $4.00; PROVIDED,
HOWEVER, that the Series A Conversion Price shall be subject to adjustment as
set forth in Section 7(a)(iv).
"SERIES A EVENT OF CONVERSION" shall mean the consummation of a Qualified
IPO.
"SERIES A FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series A Stock (whether or not in respect of which such term is used there shall
have been net profits or net assets of the Corporation legally available for the
payment of such dividends), that amount which shall be equal to dividends at the
full rate fixed for the Series A Stock as provided herein for the period of time
elapsed from the Series A Initial Issuance Date to the date as of which Series A
Full Cumulative Dividends are to be computed.
"SERIES A HOLDER" shall mean a holder of shares of Series A Stock.
"SERIES A INITIAL ISSUANCE DATE" shall mean August 24th, 1998.
"SERIES A LIQUIDATION AMOUNT" shall mean an amount in cash or property
(valued at its Fair Market Value), or a combination thereof, equal to $4.00
per share of Series A Stock held by a Holder (which per share amount shall be
subject to equitable adjustment whenever there shall
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<PAGE>
occur a stock split, combination, reclassification or other similar event
involving the Series A Stock or the Common Stock) plus all Series A Accrued
Dividends.
"SERIES A ORIGINAL PURCHASE PRICE" shall mean $4.00 per share of Series A
Stock.
"SERIES A REDEMPTION DATE" shall have the meaning set forth in Section 4
hereof.
"SERIES A REDEMPTION PRICE" shall have the meaning set forth in Section 4
hereof.
"SERIES A STOCK" shall mean all of the outstanding shares of the Series A
Preferred Stock and the Series A1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price.
"SUBSIDIARY" shall mean an entity a majority of the capital stock or
other ownership interest in which is owned directly or indirectly by the
Corporation, except that 100% "SUBSIDIARY" shall mean a subsidiary that is 100%
owned by the Corporation.
2. NUMBER OF SHARES. The designation of the series of Preferred Stock
provided for herein shall be the Series A Redeemable Convertible Preferred Stock
(hereinafter referred to as the "SERIES A PREFERRED STOCK"), and the number of
authorized shares constituting Series A Preferred Stock is 2,437,500 and Series
A1 Redeemable Convertible Preferred Stock (hereinafter referred to as the
"SERIES A1 PREFERRED STOCK"), and the number of authorized shares constituting
Series A1 Preferred Stock is 2,437,500.
3. DIVIDENDS. The holder of each share of Series A Stock shall be
entitled to receive, before any dividends shall be declared and paid upon or
set aside for the Junior Securities, when and as declared by the Board, out
of funds legally available for that purpose, dividends in cash at the rate
per annum per share (the "SERIES A DIVIDEND RATE") equal to 8% of the Series
A Original Purchase Price, adjusted, as applicable, for any Recapitalization
Event, payable upon the earliest of (a) liquidation, dissolution or
winding-up of the Corporation in accordance with Section 4 hereof, (b) upon
redemption in accordance with Section 4 hereof or (c) upon the Series A Event
of Conversion. Until the third anniversary of the Series A Initial Issuance
Date, the Corporation shall have the option to make any such payment in
shares of Common Stock, and in the event such dividends are paid in Common
Stock, for purposes of computing the number of shares of Common Stock to be
issued and the amount of the dividend paid, the value of the Common Stock
paid to any holder of shares of Series A Stock shall be valued at the then
Series A Conversion Price. Each Series A Holder shall have the right to elect
to receive any such dividends in shares of nonvoting common stock of the
Corporation by giving notice in writing to the Corporation of such election.
Dividends on shares of Series A Stock shall be cumulative from the Series A
Initial Issuance Date (whether or not there shall be net profits or net
assets of the Corporation legally available for the payment of such
dividends), so that, if at any time Series A Full Cumulative Dividends upon
the Series A Stock shall not have been paid or declared and a sum sufficient
for payment thereof set apart, the amount of the deficiency in such dividends
shall be fully paid or dividends in such amount shall be declared on the
shares of the Series A Stock and a sum sufficient for the payment thereof
shall be set apart for such payment, before any dividend shall be declared or
paid or any other distribution ordered or made upon any Junior Securities and
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before any sum or sums shall be set aside for or applied to the purchase or
redemption of Junior Securities. With respect to rights to dividends, the
Series A Stock shall rank prior to the Common Stock. All dividends declared
upon the Series A Stock shall be declared pro rata per share. All payments
due under this Section to any holder of shares of Series A Stock shall be
made to the nearest cent.
4. REDEMPTION.
(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event, the Corporation shall (to the extent
allowed by law) redeem, except as set forth hereafter, all the shares of Series
A Stock then outstanding, out of funds legally available therefor. The amount
per share payable upon any redemption of shares of Series A Stock pursuant to
this subsection shall be an amount in cash equal to the Series A Redemption
Price, as determined below. The Corporation shall deliver to each holder of
shares of Series A Stock, not later than 30 days prior to the consummation of a
Liquidation Event, notice of such proposed Liquidation Event, including the date
on which such Liquidation Event is expected to be consummated. To the extent
that one or more redemptions and/or a liquidation are occurring concurrently and
the Corporation is legally prohibited from effecting all such redemptions and/or
liquidation, any redemption of the shares of Series A Stock shall be deemed to
occur simultaneously and prior to any other redemptions and/or liquidations.
Notwithstanding the foregoing, any Series A Holder may elect to retain its
outstanding shares of Series A Stock and not to subject such shares to
redemption by delivery of written notice to the Corporation at least 15 days
prior to the date of the consummation of the Liquidation Event.
(ii) The amount per share payable upon any redemption of shares of
Series A pursuant to this subsection shall be an amount equal to the Series A
Original Purchase Price plus all Series A Accrued Dividends (the "LIQUIDATION
REDEMPTION PRICE").
(iii) Any date upon which Series A Stock is to be redeemed
pursuant to this Section 4 being hereinafter referred to in this context as a
"SERIES A REDEMPTION DATE".
(b) SERIES A ANNUAL REDEMPTION. Except as set forth hereafter, the
Corporation shall (to the extent allowed by law) redeem the following shares of
Series A Stock on the following dates, out of funds legally available therefor:
(i) at any time on or after August 24, 2003, one-third of the
shares of the Series A Stock then outstanding.
(ii) at any time on or after August 24, 2004, an additional number
of shares of Series A Stock equal to one-third of the shares, of the Series A
Stock outstanding as of August 24, 2003.
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<PAGE>
(iii) at any time on or after August 24, 2005, all outstanding
shares of Series A Stock.
The amount per share payable upon any redemption of shares of Series A Stock
pursuant to this subsection shall be an amount in cash equal to the Series A
Original Purchase Price plus (a) all Series A Accrued Dividends AND (b) an
amount equal to a 12% cumulative, annual return on (1) the Series A Original
Purchase Price from the Series A Initial Issuance Date to the date of payment
and (2) all Series A Accrued Dividends from the date of accrual under Section 3
to the date of payment (the "SCHEDULED REDEMPTION PRICE" and collectively with
the Liquidation Redemption Price, the "SERIES A REDEMPTION PRICE").
Notwithstanding the foregoing, any Series A Holder may elect to retain
its outstanding shares of Series A Stock and not to subject such shares to
redemption by delivery of written notice to the Corporation at least 15 days
prior to the applicable redemption date set forth above.
(c) PRO RATA. If, on any Series A Redemption Date, fewer than all
shares of Series A Stock then outstanding are to be redeemed in accordance with
this Section, the shares to be redeemed shall be allocated pro rata among the
Series A Holders and the Redemption Notice mailed to each Holder shall specify
the number of shares to be redeemed from such Holder. Notwithstanding the
delivery of a Redemption Notice, Series A Holders subject to redemption may
convert such shares pursuant to Section 7 on or before the Redemption Date by
delivering written notice thereof to the Corporation not later than 10 days
prior to the Redemption Date.
(d) PAYMENT OF SERIES A REDEMPTION PRICE; TERMINATION OF RIGHTS. On
any Series A Redemption Date, the applicable Series A Redemption Price in
respect of the shares represented by the certificate or certificates surrendered
to the Corporation by the Holder thereof pursuant to the Redemption Notice shall
be paid to the order of the person whose name appears on such certificate or
certificates. Each surrendered certificate shall be canceled and retired and a
new certificate, representing the remaining, unredeemed shares of Series A
Stock, if any, shall be issued to the Holder of such shares. On any Series A
Redemption Date, the rights of a Holder with respect to shares redeemed shall
cease, other than such Holder's right to payment of the Series A Redemption
Price as of the Series A Redemption Date, upon surrender of the certificate or
certificates.
5. LIQUIDATION. Upon a Liquidation Event, the Series A Holders shall
be entitled, before any assets of the Corporation shall be distributed among or
paid over to the holders of Junior Securities, but after distribution of such
assets among, or payment thereof over to, creditors of the Corporation, to
receive from the assets of the Corporation available for distribution to
stockholders in cash, the Series A Liquidation Amount. If the assets of the
Corporation legally available for distribution shall be insufficient to permit
the payment in full of the Series A Liquidation Amount to the Series A Holders,
then the entire assets of the Corporation legally available for distribution
shall be distributed ratably among the Series A Holders in proportion to the
respective amounts which would have been payable upon such Liquidation Event on
such shares of Series A Stock if all amounts payable thereon had been paid in
full. In the event that such distribution of assets is other than in cash, such
distribution of cash
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and other assets (including securities) shall be made ratably among the holders
of the shares of Series A Stock based upon the fair market value of any such
assets as determined by a nationally recognized valuation consultant selected
mutually by the holders of a majority in voting power of the Series A Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent valuation consultant selected by the American
Arbitration Association in accordance with its rules). In the event of any
liquidation, dissolution or winding-up of the Corporation, after payment shall
have been made to the holders of shares of Series A Stock of the full amount to
which they shall be entitled as aforesaid, the holders of any Junior Securities
and the Series A Holders shall be entitled to participate equally, on an
as-converted basis in the case of the Series A Stock and any Junior Securities
convertible into Common Stock, in all remaining assets of the Corporation
available for distribution to its stockholders. The provisions of this Section 5
shall not be applicable to any shares of Series A Stock that have been redeemed
pursuant to Section 4(a) hereof in connection with such Liquidation Event.
6. VOTING.
(a) VOTES GENERALLY WITH COMMON STOCK. In addition to the rights
specified in Section 6(b) below and any other rights provided in the
Corporation's By-Laws, the shares of Series A Stock shall entitle each Holder
thereof to such number of votes as shall equal the number of shares of Common
Stock (rounded to the nearest whole number) into which the shares of Series A
Stock held by such Holder are then convertible pursuant to Section 7 and shall
entitle each such Holder to vote on all matters as to which holders of Common
Stock shall be entitled to vote, in the same manner and with the same effect as
such holders of Common Stock, voting together with the holders of Common Stock
as one class.
(b) SEPARATE CLASS VOTE. So long as any shares of Series A Stock are
outstanding, the consent of the holders of a majority of all of the outstanding
shares of Series A Stock, voting as a single and separate class in person or by
proxy, at a special or annual meeting called for the purpose, or by written
consent in lieu of a meeting, shall be required before the Corporation may:
(i) authorize or issue any class or series of capital stock
ranking prior to the Series A Stock with respect to rights to
receive dividends, redemption payments or distributions upon
liquidation or winding up of the Corporation or with respect to
antidilution provisions;
(ii) authorize, declare or distribute any dividend, whether in
cash or in kind, payable to any class or series of the
Corporation's common or preferred stock (except payment of
dividends on Series A Stock) or to any other equity security of
the Corporation;
(iii) approve any merger, combination, liquidation, dissolution,
sale, lease or license of all or substantially all of the assets
or business, or of the assets or business of any subsidiary, of
the Corporation;
(iv) cancel, repeal or change any of the provisions of this
Certificate of Designations or of any amendment hereto, or of the
Certificate of Incorporation of
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<PAGE>
the Corporation in such a way as to have a material adverse effect
on the powers, preferences or special rights of shares of the
Series A Stock, except that the Corporation may issue additional
shares of Series A Stock and other Preferred Stock, subject to
clause (i) above, and make appropriate changes to this Certificate
of Designations and its Certificate of Incorporation;
(v) permit to lapse any of the following: its corporate
existence, rights, government approvals or franchises or all
licenses, Listed Rights (which the Board deems useful in the
Corporation's business) and other rights to use patents,
processes, licenses, trademarks, trade names or copyrights owned
or possessed by it (which the Board deems useful in the
Corporation's business);
(vi) transfer, assign or license (except end-user licenses
granted in the ordinary course of business) any of the
Corporation's Listed Rights or know-how, technology or trade
secrets now owned or hereafter acquired by the Corporation;
(vii) voluntarily dissolve, liquidate or wind-up or carry out any
partial liquidation or distribution or transaction in the nature
of a partial liquidation or distribution;
(viii) purchase, lease or otherwise acquire capital stock in any
corporation or equity interest in any other entity or lend money
to any person or entity or purchase a substantial part of the
operating assets of any person or entity;
(ix) consolidate with or merge into or with any other person or
entity or permit any other person or entity to consolidate with or
merge into it (except that a 100% subsidiary may consolidate with
or merge into the Corporation or another 100% subsidiary);
provided that the foregoing restriction does not apply to the
merger of another corporation into the Corporation if:
(A) The Corporation is the surviving entity and more than
50% of the outstanding common stock of the surviving entity
is owned by persons who prior to such merger owned Common
Stock of the Corporation; and
(B) After giving effect to the proposed merger or
consolidation the surviving entity will be engaged in
substantially the same lines of business as are engaged in
by the Corporation immediately prior thereto.
(x) permit any subsidiary (except a 100% subsidiary) to make
any (i) direct or indirect redemption, retirement, purchase or
other acquisition of any of the Corporation's capital stock (or
any warrant, option or other right with respect to such stock), or
(ii) repayment of the Corporation's debt held by any Related Party
or by any Affiliate or subsidiary debt held by any Related Party
or by any Affiliate except that any such subsidiary may pay the
Corporation's outstanding obligations under loans extended to it
by Connecticut Innovations, Incorporated; or
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<PAGE>
(xi) issue (which term shall include without limitation the
issuance of any shares of, or the grant of any warrants, options
or other rights to purchase any shares of, or any commitment to
issue) any shares of its capital stock (which term shall include
without limitation, securities convertible into capital stock, or
rights to acquire capital stock) to employees or officers or
directors of the Corporation or any subsidiary thereof, except the
number of shares of Common Stock (as adjusted for stock dividends,
stock splits and similar corporate events) issued or reserved for
issuance pursuant to any stock option plan approved by the Board
and then only at prices equal to no less than 50% of the Fair
Market Value of such stock at the time of the grant of the
applicable option.
7. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) The holder of any shares of Series A Stock shall have the
right, at such holder's option, at any time or from time to time
to convert any or all such holder's shares of Series A Stock into
such whole number of fully paid and nonassessable shares of Common
Stock as equals (I) the product of (x) the Series A Original
Purchase Price, multiplied by (y) the number of shares of Series A
Stock being converted, divided by (II) the Series A Conversion
Price (as last adjusted and then in effect) for the shares of the
Series A Stock being converted, by surrender of the certificates
representing the shares of Series A Stock so to be converted in
the manner provided Section 7(a)(ii) below. The Series A
Conversion Price shall initially be equal to the Series A Original
Purchase Price; PROVIDED, HOWEVER, that such Series A Conversion
Price shall be subject to adjustment as set forth in Section
7(a)(iv) below. The holder of any shares of Series A Stock
exercising the aforesaid right to convert such shares into shares
of Common Stock shall not be entitled to payment of Series A
Accrued Dividends with respect to the shares of Series A Stock so
converted, and shall be deemed to have waived any such Series A
Accrued Dividends upon such conversion.
(ii) The holder of any shares of Series A Stock may exercise
such holder's conversion right pursuant to this Section by
delivering to the Corporation during regular business hours at the
office of any transfer agent of the Corporation for the Series A
Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or to the
Corporation (if required by it) accompanied by written notice
stating that such holder elects to convert such shares and stating
the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected with respect to
conversion under (a) Section 7(a)(i) above, on the date when the
aforesaid delivery is made and (b) Section 7(b) on the date of
occurrence of a Series A Event of Conversion, as the case may be,
and any such date is referred to herein as the "SERIES A
CONVERSION DATE". As promptly as practicable
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<PAGE>
thereafter the Corporation shall issue and deliver to or upon the
written order of such holder, to the place designated by such
holder, a certificate or certificates for the number of full
shares of Common Stock to which the such holder is entitled and a
check or cash in respect of any fractional interest in a share of
Common Stock, as provided in Section 7(a)(iii) below, payable with
respect to the shares of Series A Stock so converted up to and
including the Series A Conversion Date. The person in whose names
the certificate or certificates for Common Stock are to be issued
shall be deemed to have become a holder of Common Stock on the
applicable Series A Conversion Date unless the transfer books of
the Corporation are closed on that date, in which event such
holder shall be deemed to have become a holder of Common Stock on
the next succeeding date on which the transfer books are open, but
the Series A Conversion Price shall be that in effect on the
Series A Conversion Date. Upon conversion of only a portion of the
number of shares covered by a certificate representing shares of
Series A Stock surrendered for conversion, the Corporation shall
issue and deliver to or upon the written order of the holder of
the certificate so surrendered for conversion, at the expense of
the Corporation, a new certificate covering the number of shares
of Series A Stock representing the unconverted portion of the
certificate so surrendered, which new certificate shall entitle
the holder thereof to dividends on the shares of Series A Stock
represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been
surrendered for conversion.
(iii) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series A Stock. If more than
one share of Series A Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on
the basis of the aggregate number of shares of Series A Stock so
surrendered. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon conversion of any shares of
Series A Stock, the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the then
current Fair Market Value of a share of Common Stock multiplied by
such fractional interest. Fractional interests shall not be
entitled to dividends, and the holders of a fractional interest
shall not be entitled to any rights as stockholders of the
Corporation in respect of such fractional interest.
(iv) The Series A Conversion Price shall be subject to
adjustment from time to time as follows:
(A) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. If the Corporation shall at any time or from
time to time after the Series A Initial Issuance Date issue
or be deemed (by virtue of any of the provisions of Section
7(a)(iv)), to have issued any capital stock (including,
without limitation, each class of common stock of the
Corporation) or other equity interests (including, without
limitation, warrants,
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<PAGE>
rights, calls or options exercisable for or convertible
into such capital stock or equity interests) in the
Corporation, other than Excluded Stock, without
consideration or for a consideration per share (the "LAST
ISSUE PRICE") less than the Series A Conversion Price in
effect immediately prior to each such issuance or deemed
issuance (a "DILUTING ISSUANCE"), the Series A Conversion
Price in effect immediately prior thereto shall forthwith
be adjusted, as of the opening of business on the date of
such issuance or deemed issuance, to such Last Issue Price.
Notwithstanding the immediately preceding paragraph of this
subsection (A), if a Series A Holder has been given written
notice pursuant to Section 8 hereof and the opportunity to
purchase its Preemptive Share of such Diluting Issuance and
does not purchase its entire Preemptive Share of such
Diluting Issuance, but purchases a lesser share of such
Diluting Issuance or none, the Series A Conversion Price
for that portion of the shares of Series A Stock of said
Series A Holder equal to the Non-Participating Percentage
(as hereinafter defined) (the "Diluted Stock") shall not be
reduced for said issuance pursuant to this subsection but
each share of the Diluted Stock which each such Series A
Holder holds shall be automatically converted immediately
prior to the closing of the applicable Diluting Issuance
into one (1) share of Series A1 Preferred Stock which shall
be convertible into Common Stock at the same price per
share that applied to the Diluted Stock immediately prior
to such Diluting Issuance, subject, however, to further
adjustment as herein provided. As used herein, the term
"NON-PARTICIPATING PERCENTAGE" means a percentage equal to
one hundred percent (100%) minus the percentage determined
by dividing the number of shares of the Diluting Issuance
which such Holder actually purchased by the maximum number
of shares of the Diluting Issuance which such Holder was
entitled to purchase on the basis of such Holder's
Preemptive Shares and expressing the resulting quotient as
a percentage.
Upon the conversion of Diluted Stock held by a Series A
Holder as set forth herein, such shares of Diluted Stock
shall no longer be outstanding on the books of the
Corporation and the Series A Holder shall be treated, to
the extent that said holder held such Diluted Stock, as the
record holder of such shares of Series A1 Preferred Stock
on the date of closing of the applicable Diluting Issuance.
For the purposes of any adjustment of the Series A
Conversion Price pursuant to this subsection (A), the
following provisions shall be applicable:
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<PAGE>
(1) In the case of the issuance of stock for
cash, the consideration shall be deemed to be the
amount of cash paid therefor.
(2) In the case of the issuance of stock for a
consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to
be the fair market value thereof as determined in
good faith by the Board, irrespective of any
accounting treatment; PROVIDED, HOWEVER, that the
aggregate fair market value of such non-cash and
cash consideration shall not exceed the current Fair
Market Value of the shares of stock being issued.
(3) In case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock;
(ii) securities by their terms convertible into or
exchangeable for Common Stock; or (iii) options to
purchase or rights to subscribe for such convertible
or exchangeable securities:
(a) the aggregate number of shares of
Common Stock deliverable upon exercise of
such options to purchase or rights to
subscribe for Common Stock shall be deemed to
have been issued at the time such options or
rights were issued and for a consideration
equal to the consideration (determined in the
manner provided in subdivisions (1) and (2)
above), if any, received by the Corporation
upon the issuance of such options or rights
plus the purchase price provided in such
options or rights for the Common Stock
covered thereby;
(b) the aggregate number of shares of
Common Stock deliverable upon conversion of
or in exchange for any such convertible or
exchangeable securities or upon the exercise
of options to purchase or rights to subscribe
for such convertible or exchangeable
securities and subsequent conversion or
exchange thereof shall be deemed to have been
issued at the time such securities were
issued or such options or rights were issued
and for a consideration equal to the
consideration received by the Corporation for
any such securities and related options or
rights (excluding any cash received on
accounts of accrued interest or accrued
dividends), plus the additional
consideration, if any, to be received by the
Corporation upon the conversion or exchange
of such securities or the exercise of any
related options or rights (the consideration
in each case to be determined in the manner
provided in subdivisions (1) and
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<PAGE>
(2) above, with the proviso to subdivision
(2) being applied to the number of shares of
Common Stock deliverable upon such exercise);
(c) on any change in the number of shares
or exercise price of Common Stock deliverable
upon the exercise of any such options or
rights or conversions of or exchange for such
convertible or exchangeable securities, other
than a change resulting from the antidilution
provisions thereof, the Series A Conversion
Price, if previously adjusted, shall
forthwith be readjusted to such Series A
Conversion Price as would have obtained had
the adjustment made upon the issuance of such
options, rights or securities not converted
prior to such change or options or rights
related to such securities not converted
prior to such change having been made upon
the basis of such change; and
(d) on the expiration of any such options
or rights, the termination of any such rights
to convert or exchange or the expiration of
any options or rights related to such
convertible or exchangeable securities, the
Series A Conversion Price, if previously
adjusted, shall forthwith be readjusted to
such Series A Conversion Price as would have
obtained had such options, rights, securities
or options or rights related to such
securities not been issued.
(B) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR
SPLIT-UPS. If, at any time after the Series A Initial
Issuance Date, the number of shares of Common Stock
outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, upon the record date fixed
for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up,
the Series A Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock
issuable on conversion of each share of Series A Stock
shall be increased in proportion to such increase in
outstanding shares.
(C) ADJUSTMENTS FOR COMBINATIONS. If, at any time after
the Series A Initial Issuance Date, the number of shares of
Common Stock outstanding is decreased by a combination of
the outstanding shares of Common Stock, then, upon the
record date for such combination, the Series A Conversion
Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each
share of Series A Stock shall be decreased in proportion to
such decrease in outstanding shares.
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<PAGE>
(D) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS,
CONSOLIDATIONS, ETC. In case, at any time after the Series
A Initial Issuance Date, of any capital reorganization, or
any reclassification of the stock of the Corporation (other
than a change in par value or from par value to no par
value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Corporation
with or into another person (other than a consolidation or
merger in which the Corporation is the continuing
corporation and which does not result in any change in the
Common Stock or Series A Stock) or of the sale or other
disposition of all or substantially all of the properties
and assets of the Corporation as an entirety to any other
person, each share of Series A Stock shall, after such
reorganization, reclassification, consolidation, merger,
sale or other disposition, be convertible into the kind and
number of shares of stock or other securities or property
of the Corporation or of the corporation resulting from
such consolidation or surviving such merger or to which
such properties and assets shall have been sold or
otherwise disposed to which the holder of the number of
shares of Common Stock deliverable (immediately prior to
the time of such reorganization, reclassification,
consolidation, merger, sale or other disposition) upon
conversion of such share would have been entitled upon such
reorganization, reclassification, consolidation, merger,
sale or other disposition. The provisions of this
subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(E) All calculations under this subsection (iv) shall be
made to the nearest one cent ($.01) or to the nearest
one-tenth (1/10) of a share, as the case maybe.
(F) In any case in which the provisions of this
subsection (iv) shall require that an adjustment shall
become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of
such event (i) issuing to the holder of any share of Series
A Stock converted after such record date and before the
occurrence of such event the additional shares of capital
stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares
of capital stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 7(a)(iii) above,
PROVIDED, HOWEVER, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event
requiring such adjustment.
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<PAGE>
(v) Whenever the Series A Conversion Price shall be adjusted as
provided in Section 7(a)(iv), the Corporation shall forthwith
file, at the office of the transfer agent for the Series A Stock
or at such other place as may be designated by the Corporation, a
statement, signed by its independent certified public accountants,
showing in detail the facts requiring such adjustment and the
Series A Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such
statement to be sent by first class, certified mail, return
receipt requested, postage prepaid, to each Series A Holder at
such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the
provisions of Section 7(a)(vi) below.
(vi) In the event the Corporation shall propose to take any
action of the types described in clauses (A), (B), (C), or (D) of
Section 7(a)(iv) above, the Corporation shall give notice to each
holder of shares of Series A Stock, in the manner set forth in
Section 7(a)(v) above, which notice shall specify the record date,
if any, with respect to, any such action and the date on which
such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Series A
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion
of shares of Series A Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at
least 20 days prior to the date so fixed, and in case of all other
action, notice shall be given at least 30 days prior to the taking
of such proposed action. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any
such action.
(vii) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any
shares of Series A Stock; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the
holder of the shares of Series A Stock in respect of which such
shares are being issued.
(viii) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of
Series A Stock, sufficient shares to provide for the conversion of
all outstanding shares of Series A Stock.
(ix) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid
and nonassessable, with no personal liability attaching to
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<PAGE>
the ownership thereof, and free from all taxes, liens or charges
with respect thereto.
(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series A Event of
Conversion, all shares of Series A Stock then outstanding shall, by virtue of,
and simultaneously with, the occurrence of the Series A Event of Conversion and
without any action on the part of the holders thereof, be deemed automatically
converted into such whole number of fully paid and nonassessable shares of
Common Stock as equals (1) the product of (x) the Series A Original Purchase
Price multiplied by (y) the number of shares of Series A Stock being converted
divided by (2) the Series A Conversion Price as last adjusted pursuant to
Section 7(a)(iv) and then in effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the occurrence of
a Series A Event of Conversion, the Series A Holders shall be entitled to
subscribe for their respective Preemptive Share of any New Securities which the
Corporation may, from time to time, propose to issue and sell, at any time while
any Series A Stock is outstanding and subject to the terms, conditions and
procedures set forth below.
(b) The Corporation shall first deliver to each Series A Holder a
written Notice of Intention to Sell offering to each Series A Holder the right
to purchase up to the Preemptive Share of such of such Series A Holder of such
shares of New Securities at the purchase price and on the terms specified
therein. Each Series A Holder shall have the right and option, for a period of
twenty (20) days after delivery to said Series A Holder of such Notice of
Intention to Sell, to purchase all or any part of the Preemptive Share of such
Series A Holder of the shares of New Securities so offered at the purchase price
and on the terms stated therein. Such acceptance shall be made by delivering a
written Notice of Acceptance to the Corporation within the aforesaid twenty (20)
day period.
The closing of any sales of shares of New Securities under the terms of
Section 8 shall be made at the offices of the Corporation on a mutually
satisfactory business day within five (5) business days after the expiration of
the aforesaid period. Delivery of certificates or other instruments evidencing
such shares of New Securities duly endorsed for transfer to the appropriate
Series A Holder shall be made on such date against payment of the purchase price
therefor.
(c) The Corporation may issue and sell all or any part of the
remaining shares of New Securities so offered for sale but not purchased
pursuant to Section 8 hereof at a price not less than the price offered, and
on terms not more favorable, to the purchaser thereof than the terms stated
in the original Notice of Intention to Sell, at any time within one hundred
twenty (120) days after the expiration of the offer required by Section 8. In
the event the remaining shares of New Securities are not sold by the
Corporation during such one hundred twenty (120) day period, the right of the
Corporation to sell such remaining shares of New Securities shall expire and
the obligations of this Section 8 shall be reinstated; PROVIDED, HOWEVER,
that in the event the Corporation determines, at any time during such one
hundred twenty (120) day period, that the sale of all or any part of the
remaining shares of New Securities on the terms set forth in the Notice of
Intention to Sell is impractical, the Corporation can terminate the offer and
reinstate the procedure provided in this Section 8 without waiting for the
expiration of such one hundred twenty (120) day period.
9. FURTHER DILUTING ISSUANCES. The Corporation shall not permit or
cause to occur more than one Diluting Issuance unless the Corporation (I) has
taken all necessary action to create a new subseries of the Series A Preferred
Stock, which shall be PARI PASSU with the Series A Preferred Stock and the
Series A1 Preferred Stock for all purposes except conversion price, and (II)
shall have amended this Certificate to provide that the shares of Series A Stock
held by any Holder thereof who fails to purchase its full Preemptive Share of
such additional Diluting Issuance shall be converted automatically into such new
subseries. The shares of such subseries shall be convertible into Common Stock
immediately after such Diluting Issuance at the same price per share that
applied to the shares which were so converted immediately prior to such Diluting
Issuance. The consent of the Holders of the Series A Stock shall not be required
in order to effect such new subseries.
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GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES KBL NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SERIES KBL1 NONVOTING REDEEMABLE CONVERTIBLE
PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Genaissance Pharmaceuticals, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), hereby certifies
that, pursuant to authority conferred upon the Board of Directors by the
provisions of Article 4 of the Certificate of Incorporation of the Corporation,
as amended, (referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 10,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value (the "PREFERRED
STOCK"), the following resolution was duly adopted by the Board of Directors of
the Corporation by action of the Board of Directors at a special meeting duly
held on August __, 1998.
RESOLVED: That there is hereby designated a series of the Preferred Stock
(as that term is defined in Article 4 of the Certificate of Incorporation of the
Corporation, as amended), consisting of 330,500 shares, which will be issued in
a series entitled "SERIES KBL NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK"
(referred to as the "SERIES KBL PREFERRED STOCK") and 330,500 shares, which will
be issued in a series entitled "SERIES KBL1 NONVOTING REDEEMABLE CONVERTIBLE
PREFERRED STOCK" (referred to as the "SERIES KBL1 PREFERRED STOCK") and that the
preferences and privileges, relative, participating, optional and other special
rights, and qualifications, limitations and restrictions of all shares of such
series, in addition to those set forth in the Certificate of Incorporation of
the Corporation, as amended, are as set forth in the attached EXHIBIT II.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by Gualberto Ruano, its President and attested to by
Kevin L. Rakin, its Secretary this 24th of August, 1998.
By /s/ GUALBERTO RUANO
---------------------------
Name: Gualberto Ruano
Title: President
ATTEST:
/s/ KEVIN RAKIN
- ---------------------------
Kevin Rakin
Secretary
<PAGE>
EXHIBIT II
1. DEFINITIONS. As used in this Certificate of Designations, the
following terms have the meanings specified below:
"AFFILIATE" shall mean a person (other than a subsidiary):
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under
common control with, the Corporation;
(ii) which beneficially owns or holds 5% or more of any class of
the voting stock of the Corporation; or
(iii) 5% or more of the voting stock (or in the case of a person
which is not a corporation, 5% or more of the equity interest) of
which is beneficially owned or held by the Corporation or one of
its subsidiaries.
The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMON STOCK" shall mean the Voting Common Stock, $.001 par value, and
the Nonvoting Common Stock, $.001 par value, of the Corporation.
"DILUTED STOCK" shall have the meaning ascribed to it in Section
7(a)(iv)(A) hereof.
"DILUTING ISSUANCE" shall mean an issuance of capital stock described in
Section 7(a)(iv)(A) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other
subdivision or combination of the outstanding shares of Common
Stock (including, without limitation, any stock issued pursuant to
Section 3 hereof);
(ii) up to an aggregate 1,297,000 shares of Common Stock issued
or issuable to employees pursuant to an employee stock option plan
approved by the Board;
(iii) upon conversion of any of the Series KBL Stock; or
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(iv) as approved in writing as "EXCLUDED STOCK" by the holders
of not less than 66-2/3% in voting power of the Series KBL Stock
at the time outstanding.
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification that
took effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the average of the last reported bid and
asked prices, as reported by the Nasdaq on such day, or if, on any day in
question, the security shall not be quoted on the Nasdaq, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is traded in such
manner that the quotations referred to in this clause are not available for the
period required hereunder, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the voting power of the Series KBL Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent banking firm selected by the American
Arbitration Association in accordance with its rules).
"HOLDER" shall mean a holder of shares of Series KBL Stock, as
applicable, as reflected in the stock records of the Corporation; and each
Holder's address shall be as it appears in the stock records of the Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series KBL Stock, each other
class or series of capital stock (including, without limitation, each class of
common stock of the Corporation and each other series of Preferred Stock) or
other equity interests (including, without limitation, warrants, rights, calls
or options exercisable for or convertible into such capital stock or equity
interests) in the Corporation.
"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a third
party or parties, whether voluntary or involuntary; provided, however, that a
merger or consolidation shall not be considered a Liquidation Event if the
Corporation is the survivor or continuing corporation of such merger or
consolidation and as a result thereof there is no change in the Common Stock or
Series KBL Stock.
"LISTED RIGHTS" shall mean all patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade names, trade
name rights, service marks and copyrights (whether registered or not) owned or
possessed by the Corporation and any improvements thereon.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional shares
of Series KBL Stock, each other
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series of Preferred Stock and any shares of capital stock held by the
Corporation in its treasury upon the disposition thereof) or other equity
interests (including, without limitation, warrants, rights, calls or options
exercisable for or convertible into such capital stock or equity interests) in
the Corporation issued after the Series KBL Initial Issue Date; PROVIDED,
HOWEVER, that such term shall not include (i) securities offered to the public
pursuant to a registration statement filed in accordance with the provisions of
the Securities Act; (ii) securities issued (x) pursuant to the approval of a
majority of the members of the Board, (y) in connection with the acquisition of
another corporation by the Corporation by merger, purchase of substantially all
assets or other reorganization whereby the Corporation owns, upon consummation
of such acquisition, greater than fifty percent (50%) of the voting power to
elect the directors of such corporation or (z) in connection with joint ventures
or corporate collaborations; (iii) securities issued to consultants, vendors,
lenders, equipment lessors, landlords and independent directors as consideration
to such persons in such capacities; (iv) securities issued pursuant to any stock
option plan, stock purchase or stock bonus agreement up to a maximum of
2,000,000 shares; (v) securities issued pursuant to any other stock option plan,
stock purchase or stock bonus arrangement, or grant, which are approved by the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of the Series KBL Stock; and (vi) securities issued in connection with
research agreements to which the Corporation is a party, including, but not
limited to, collaboration and licensing agreements.
"NON-PARTICIPATING PERCENTAGE" shall have the meaning ascribed to it in
Section 7(a)(iv)(A) hereof.
"NONVOTING COMMON STOCK" shall mean the common stock, $.001 par value, of
the Corporation, which has no right to vote, except as set forth in the
Certificate of Incorporation.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"PREEMPTIVE SHARE" shall mean, immediately prior to any issue of shares
of New Securities, and as to each Series KBL Holder, the percentage which
expresses the ratio between (i) the total number of shares of New Securities
issuable upon conversion of the Series KBL Stock owned by such Series KBL Holder
plus the total number of shares of Common Stock then owned by such Series KBL
Holder, and (ii) the total number of shares of Common Stock then outstanding
(Common Stock not being deemed for such purposes to include warrants, options or
other convertible instruments, which have not then been exercised or converted,
as applicable), plus the total number of shares of Common Stock issuable upon
conversion of the then outstanding Series KBL Stock.
"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in aggregate gross cash proceeds to the Corporation
of not less than TWENTY MILLION DOLLARS ($20,000,000) and pursuant to which the
offering price per share is equal to or greater than two and one half times the
Series KBL Original Purchase Price (adjusted for any Recapitalization Event).
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"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications, and similar events.
"RELATED PARTY" shall mean any officer, director, significant employee or
consultant of the Corporation or any holder (other than any Series KBL Holder)
of 5% or more of any class of capital stock of the Corporation or any member of
the immediate family of any such officer, director, employee, consultant or
shareholder or any entity controlled by any such officer, director, employee,
consultant or shareholder or a member of the immediate family of any such
officer, director, employee, consultant or shareholder.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES KBL ACCRUED DIVIDENDS" shall mean Series KBL Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3, upon the relevant shares of Series KBL Stock.
"SERIES KBL CONVERSION PRICE" shall initially mean $4.00; PROVIDED,
HOWEVER, that the Series KBL Conversion Price shall be subject to adjustment as
set forth in Section 7(a)(iv).
"SERIES KBL EVENT OF CONVERSION" shall mean the consummation of a
Qualified IPO.
"SERIES KBL FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series KBL Stock (whether or not in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally available
for the payment of such dividends), that amount which shall be equal to
dividends at the full rate fixed for the Series KBL Stock as provided herein for
the period of time elapsed from the Series KBL Initial Issuance Date to the date
as of which Series KBL Full Cumulative Dividends are to be computed.
"SERIES KBL HOLDER" shall mean a holder of shares of Series KBL Stock.
"SERIES KBL INITIAL ISSUANCE DATE" shall mean August __, 1998.
"SERIES KBL LIQUIDATION AMOUNT" shall mean an amount in cash or property
(valued at its Fair Market Value), or a combination thereof, equal to $4.00 per
share of Series KBL Stock held by a Holder (which per share amount shall be
subject to equitable adjustment whenever there shall occur a stock split,
combination, reclassification or other similar event involving the Series KBL
Stock or the Common Stock) plus all Series KBL Accrued Dividends.
"SERIES KBL ORIGINAL PURCHASE PRICE" shall mean $4.00 per share of Series
KBL Stock.
"SERIES KBL REDEMPTION DATE" shall have the meaning set forth in Section
4 hereof.
"SERIES KBL REDEMPTION PRICE" shall have the meaning set forth in Section
4 hereof.
"SERIES KBL STOCK" shall mean all of the outstanding shares of the Series
KBL Preferred Stock and the Series KBL1 Preferred Stock, together, at the time
in question, which shares shall be PARI PASSU for all purposes except conversion
price.
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"SUBSIDIARY" shall mean an entity a majority of the capital stock or
other ownership interest in which is owned directly or indirectly by the
Corporation, except that 100% "SUBSIDIARY" shall mean a subsidiary that is 100%
owned by the Corporation.
"VOTING COMMON STOCK" shall mean the common stock, $.001 par value, of
the Corporation, which has the right to vote as set forth in the Certificate of
Incorporation.
2. NUMBER OF SHARES. The designation of the series of Preferred Stock
provided for herein shall be the Series KBL Redeemable Convertible Preferred
Stock (hereinafter referred to as the "SERIES KBL PREFERRED STOCK"), and the
number of authorized shares constituting Series KBL Preferred Stock is 330,500
and Series KBL1 Redeemable Convertible Preferred Stock (hereinafter referred to
as the "SERIES KBL1 PREFERRED STOCK"), and the number of authorized shares
constituting Series KBL1 Preferred Stock is 330,500.
3. DIVIDENDS. The holder of each share of Series KBL Stock shall be
entitled to receive, before any dividends shall be declared and paid upon or set
aside for the Junior Securities, when and as declared by the Board, out of funds
legally available for that purpose, dividends in cash at the rate per annum per
share (the "SERIES KBL DIVIDEND RATE") equal to 8% of the Series KBL Original
Purchase Price, adjusted, as applicable, for any Recapitalization Event, payable
upon the earliest of (a) liquidation, dissolution or winding-up of the
Corporation in accordance with Section 4 hereof, (b) upon redemption in
accordance with Section 4 hereof or (c) upon the Series KBL Event of Conversion.
Until the third anniversary of the Series KBL Initial Issuance Date, the
Corporation shall have the option to make any such payment in shares of
Nonvoting Common Stock, and in the event such dividends are paid in Nonvoting
Common Stock, for purposes of computing the number of shares of Nonvoting Common
Stock to be issued and the amount of the dividend paid, the value of the
Nonvoting Common Stock paid to any holder of shares of Series KBL Stock shall be
valued at the then Series KBL Conversion Price. Dividends on shares of Series
KBL Stock shall be cumulative from the Series KBL Initial Issuance Date (whether
or not there shall be net profits or net assets of the Corporation legally
available for the payment of such dividends), so that, if at any time Series KBL
Full Cumulative Dividends upon the Series KBL Stock shall not have been paid or
declared and a sum sufficient for payment thereof set apart, the amount of the
deficiency in such dividends shall be fully paid or dividends in such amount
shall be declared on the shares of the Series KBL Stock and a sum sufficient for
the payment thereof shall be set apart for such payment, before any dividend
shall be declared or paid or any other distribution ordered or made upon any
Junior Securities and before any sum or sums shall be set aside for or applied
to the purchase or redemption of Junior Securities. With respect to rights to
dividends, the Series KBL Stock shall rank prior to the Common Stock. All
dividends declared upon the Series KBL Stock shall be declared pro rata per
share. All payments due under this Section to any holder of shares of Series KBL
Stock shall be made to the nearest cent.
4. REDEMPTION.
(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event, the Corporation shall (to the extent
allowed by law) redeem, except as set forth hereafter, all the shares of Series
KBL Stock then outstanding, out of funds legally available therefor. The amount
per share payable upon any redemption of shares of Series KBL Stock pursuant to
this subsection shall be an amount in cash equal to the Series KBL
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Redemption Price, as determined below. The Corporation shall deliver to each
holder of shares of Series KBL Stock, not later than 30 days prior to the
consummation of a Liquidation Event, notice of such proposed Liquidation Event,
including the date on which such Liquidation Event is expected to be
consummated. To the extent that one or more redemptions and/or a liquidation are
occurring concurrently and the Corporation is legally prohibited from effecting
all such redemptions and/or liquidation, any redemption of the shares of Series
KBL Stock shall be deemed to occur simultaneously and prior to any other
redemptions and/or liquidations. Notwithstanding the foregoing, any Series KBL
Holder may elect to retain its outstanding shares of Series KBL Stock and not to
subject such shares to redemption by delivery of written notice to the
Corporation at least 15 days prior to the date of the consummation of the
Liquidation Event.
(ii) The amount per share payable upon any redemption of shares
of Series KBL pursuant to this subsection shall be an amount equal
to the Series KBL Original Purchase Price plus all Series KBL
Accrued Dividends (the "LIQUIDATION REDEMPTION PRICE").
(iii) Any date upon which Series KBL Stock is to be redeemed
pursuant to this Section 4 being hereinafter referred to in this
context as a "SERIES KBL REDEMPTION DATE".
(b) SERIES KBL ANNUAL REDEMPTION. Except as set forth hereafter, the
Corporation shall (to the extent allowed by law) redeem the following shares of
Series KBL Stock on the following dates, out of funds legally available
therefor:
(i) at any time on or after August __, 2003, one-third of the
shares of the Series KBL Stock then outstanding.
(ii) at any time on or after August __, 2004, an additional
number of shares of Series KBL Stock equal to one-third of the shares, of
the Series KBL Stock outstanding as of August __, 2003.
(iii) at any time on or after August __, 2005, all outstanding
shares of Series KBL Stock.
The amount per share payable upon any redemption of shares of Series KBL Stock
pursuant to this subsection shall be an amount in cash equal to the Series KBL
Original Purchase Price plus (a) all Series KBL Accrued Dividends AND (b) an
amount equal to a 12% cumulative, annual return on (1) the Series KBL Original
Purchase Price from the Series KBL Initial Issuance Date to the date of payment
and (2) all Series KBL Accrued Dividends from the date of accrual under Section
3 to the date of payment (the "SCHEDULED REDEMPTION PRICE" and collectively with
the Liquidation Redemption Price, the "SERIES KBL REDEMPTION PRICE").
Notwithstanding the foregoing, any Series KBL Holder may elect to retain
its outstanding shares of Series KBL Stock and not to subject such shares to
redemption by delivery of written notice to the Corporation at least 15 days
prior to the applicable redemption date set forth above.
(c) PRO RATA. If, on any Series KBL Redemption Date, fewer than all
shares of Series KBL Stock then outstanding are to be redeemed in accordance
with this Section, the shares to be redeemed shall be allocated pro rata among
the Series KBL Holders and the Redemption Notice mailed to each Holder shall
specify the number of shares to be redeemed from such Holder. Notwithstanding
the delivery of a Redemption Notice, Series KBL Holders
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subject to redemption may convert such shares pursuant to Section 7 on or before
the Redemption Date by delivering written notice thereof to the Corporation not
later than 10 days prior to the Redemption Date.
(d) PAYMENT OF SERIES KBL REDEMPTION PRICE; TERMINATION OF RIGHTS. On
any Series KBL Redemption Date, the applicable Series KBL Redemption Price in
respect of the shares represented by the certificate or certificates surrendered
to the Corporation by the Holder thereof pursuant to the Redemption Notice shall
be paid to the order of the person whose name appears on such certificate or
certificates. Each surrendered certificate shall be canceled and retired and a
new certificate, representing the remaining, unredeemed shares of Series KBL
Stock, if any, shall be issued to the Holder of such shares. On any Series KBL
Redemption Date, the rights of a Holder with respect to shares redeemed shall
cease, other than such Holder's right to payment of the Series KBL Redemption
Price as of the Series KBL Redemption Date, upon surrender of the certificate or
certificates.
5. LIQUIDATION. Upon a Liquidation Event, the Series KBL Holders
shall be entitled, before any assets of the Corporation shall be distributed
among or paid over to the holders of Junior Securities, but after distribution
of such assets among, or payment thereof over to, creditors of the Corporation,
to receive from the assets of the Corporation available for distribution to
stockholders in cash, the Series KBL Liquidation Amount. If the assets of the
Corporation legally available for distribution shall be insufficient to permit
the payment in full of the Series KBL Liquidation Amount to the Series KBL
Holders, then the entire assets of the Corporation legally available for
distribution shall be distributed ratably among the Series KBL Holders in
proportion to the respective amounts which would have been payable upon such
Liquidation Event on such shares of Series KBL Stock if all amounts payable
thereon had been paid in full. In the event that such distribution of assets is
other than in cash, such distribution of cash and other assets (including
securities) shall be made ratably among the holders of the shares of Series KBL
Stock based upon the fair market value of any such assets as determined by a
nationally recognized valuation consultant selected mutually by the holders of a
majority in voting power of the Series KBL Stock then outstanding and the
Corporation (or if such selection cannot be made, by a nationally recognized
independent valuation consultant selected by the American Arbitration
Association in accordance with its rules). In the event of any liquidation,
dissolution or winding-up of the Corporation, after payment shall have been made
to the holders of shares of Series KBL Stock of the full amount to which they
shall be entitled as aforesaid, the holders of any Junior Securities and the
Series KBL Holders shall be entitled to participate equally, on an as-converted
basis in the case of the Series KBL Stock and any Junior Securities convertible
into Common Stock, in all remaining assets of the Corporation available for
distribution to its stockholders. The provisions of this Section 5 shall not be
applicable to any shares of Series KBL Stock that have been redeemed pursuant to
Section 4(a) hereof in connection with such Liquidation Event.
6. VOTING. Except as set forth in the Certificate of Incorporation,
the shares of Series KBL Stock shall not entitle any Holder thereof to vote on
matters as to which holders of Common Stock shall be entitled to vote.
7. CONVERSION.
(a) OPTIONAL CONVERSION.
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(i) The holder of any shares of Series KBL Stock shall have the
right, at such holder's option, at any time or from time to time
to convert any or all such holder's shares of Series KBL Stock
into such whole number of fully paid and nonassessable shares of
Nonvoting Common Stock as equals (I) the product of (x) the Series
KBL Original Purchase Price, multiplied by (y) the number of
shares of Series KBL Stock being converted, divided by (II) the
Series KBL Conversion Price (as last adjusted and then in effect)
for the shares of the Series KBL Stock being converted, by
surrender of the certificates representing the shares of Series
KBL Stock so to be converted in the manner provided Section
7(a)(ii) below. The Series KBL Conversion Price shall initially be
equal to the Series KBL Original Purchase Price; PROVIDED,
HOWEVER, that such Series KBL Conversion Price shall be subject to
adjustment as set forth in Section 7(a)(iv) below. The holder of
any shares of Series KBL Stock exercising the aforesaid right to
convert such shares into shares of Nonvoting Common Stock shall
not be entitled to payment of Series KBL Accrued Dividends with
respect to the shares of Series KBL Stock so converted, and shall
be deemed to have waived any such Series KBL Accrued Dividends
upon such conversion.
(ii) The holder of any shares of Series KBL Stock may exercise
such holder's conversion right pursuant to this Section by
delivering to the Corporation during regular business hours at the
office of any transfer agent of the Corporation for the Series KBL
Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or to the
Corporation (if required by it) accompanied by written notice
stating that such holder elects to convert such shares and stating
the name or names (with address) in which the certificate or
certificates for the shares of Nonvoting Common Stock are to be
issued. Conversion shall be deemed to have been effected with
respect to conversion under (a) Section 7(a)(i) above, on the date
when the aforesaid delivery is made and (b) Section 7(b) on the
date of occurrence of a Series KBL Event of Conversion, as the
case may be, and any such date is referred to herein as the
"SERIES KBL CONVERSION DATE". As promptly as practicable
thereafter the Corporation shall issue and deliver to or upon
the written order of such holder, to the place designated by such
holder, a certificate or certificates for the number of full
shares of Nonvoting Common Stock to which the such holder is
entitled and a check or cash in respect of any fractional
interest in a share of Nonvoting Common Stock, as provided in
Section 7(a)(iii) below, payable with respect to the shares of
Series KBL Stock so converted up to and including the Series KBL
Conversion Date. The person in whose names the certificate or
certificates for Nonvoting Common Stock are to be issued shall be
deemed to have become a holder of Nonvoting Common Stock on the
applicable Series KBL Conversion Date unless the transfer books
of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a holder of Nonvoting Common
Stock on the next succeeding date on which the transfer books are
open, but the Series KBL Conversion Price shall be that in effect
on the Series KBL Conversion Date. Upon conversion of only a
portion of the number of shares covered by a certificate
representing shares of Series KBL Stock surrendered for
conversion, the Corporation shall issue and
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deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of
Series KBL Stock representing the unconverted portion of the
certificate so surrendered, which new certificate shall entitle
the holder thereof to dividends on the shares of Series KBL Stock
represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been
surrendered for conversion.
(iii) No fractional shares of Nonvoting Common Stock or scrip
shall be issued upon conversion of shares of Series KBL Stock. If
more than one share of Series KBL Stock shall be surrendered for
conversion at any one time by the same holder, the number of full
shares of Nonvoting Common Stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of shares
of Series KBL Stock so surrendered. Instead of any fractional
shares of Nonvoting Common Stock which would otherwise be issuable
upon conversion of any shares of Series KBL Stock, the Corporation
shall pay a cash adjustment in respect of such fractional interest
in an amount equal to the then current Fair Market Value of a
share of Nonvoting Common Stock multiplied by such fractional
interest. Fractional interests shall not be entitled to dividends,
and the holders of a fractional interest shall not be entitled to
any rights as stockholders of the Corporation in respect of such
fractional interest.
(iv) The Series KBL Conversion Price shall be subject to
adjustment from time to time as follows:
(A) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. If the Corporation shall at any time or from
time to time after the Series KBL Initial Issuance Date
issue or be deemed (by virtue of any of the provisions of
Section 7(a)(iv)), to have issued any capital stock
(including, without limitation, each class of common stock
of the Corporation) or other equity interests (including,
without limitation, war-rants, rights, calls or options
exercisable for or convertible into such capital stock or
equity interests) in the Corporation, other than Excluded
Stock, without consideration or for a consideration per
share (the "LAST ISSUE PRICE") less than the Series KBL
Conversion Price in effect immediately prior to each such
issuance or deemed issuance (a "DILUTING ISSUANCE"), the
Series KBL Conversion Price in effect immediately prior
thereto shall forthwith be adjusted, as of the opening of
business on the date of such issuance or deemed issuance,
to such Last Issue Price.
Notwithstanding the immediately preceding paragraph of this
subsection (A), if a Series KBL Holder has been given
written notice pursuant to Section 8 hereof and the
opportunity to purchase its Preemptive Share of such
Diluting Issuance and does not purchase its entire
Preemptive Share of such Diluting Issuance, but purchases a
lesser share of such Diluting Issuance or none, the Series
KBL Conversion Price for that portion of the shares of
Series KBL Stock of said Series KBL Holder equal to the
Non-Participating Percentage (as hereinafter defined) (the
"Diluted Stock")
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shall not be reduced for said issuance pursuant to this
subsection but each share of the Diluted Stock which each
such Series KBL Holder holds shall be automatically
converted immediately prior to the closing of the
applicable Diluting Issuance into one (1) share of Series
KBL1 Preferred Stock which shall be convertible into
Nonvoting Common Stock at the same price per share that
applied to the Diluted Stock immediately prior to such
Diluting Issuance, subject, however, to further adjustment
as herein provided. As used herein, the term
"NON-PARTICIPATING PERCENTAGE" means a percentage equal to
one hundred percent (100%) minus the percentage determined
by dividing the number of shares of the Diluting Issuance
which such Holder actually purchased by the maximum number
of shares of the Diluting Issuance which such Holder was
entitled to purchase on the basis of such Holder's
Preemptive Share and expressing the resulting quotient as a
percentage.
Upon the conversion of Diluted Stock held by a Series KBL
Holder as set forth herein, such shares of Diluted Stock
shall no longer be outstanding on the books of the
Corporation and the Series KBL Holder shall be treated, to
the extent that said holder held such Diluted Stock, as the
record holder of such shares of Series KBL1 Preferred Stock
on the date of closing of the applicable Diluting Issuance.
For the purposes of any adjustment of the Series KBL
Conversion Price pursuant to this subsection (A), the
following provisions shall be applicable:
(1) In the case of the issuance of stock for
cash, the consideration shall be deemed to be the
amount of cash paid therefor.
(2) In the case of the issuance of stock for a
consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to
be the fair market value thereof as determined in
good faith by the Board, irrespective of any
accounting treatment; PROVIDED, HOWEVER, that the
aggregate fair market value of such non-cash and
cash consideration shall not exceed the current Fair
Market Value of the shares of stock being issued.
(3) In case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock;
(ii) securities by their terms convertible into or
exchangeable for Common Stock; or (iii) options to
purchase or rights to subscribe for such convertible
or exchangeable securities:
(a) the aggregate number of shares of
Common Stock deliverable upon exercise of
such options to purchase or rights to
subscribe for Common Stock shall be deemed to
have been issued at the time such options or
rights were
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issued and for a consideration equal to the
consideration (determined in the manner
provided in subdivisions (1) and (2) above),
if any, received by the Corporation upon the
issuance of such options or rights plus the
purchase price provided in such options or
rights for the Common Stock covered thereby;
(b) the aggregate number of shares of
Common Stock deliverable upon conversion of
or in exchange for any such convertible or
exchangeable securities or upon the exercise
of options to purchase or rights to subscribe
for such convertible or exchangeable
securities and subsequent conversion or
exchange thereof shall be deemed to have been
issued at the time such securities were
issued or such options or rights were issued
and for a consideration equal to the
consideration received by the Corporation for
any such securities and related options or
rights (excluding any cash received on
accounts of accrued interest or accrued
dividends), plus the additional
consideration, if any, to be received by the
Corporation upon the conversion or exchange
of such securities or the exercise of any
related options or rights (the consideration
in each case to be determined in the manner
provided in subdivisions (1) and (2) above,
with the proviso to subdivision (2) being
applied to the number of shares of Common
Stock deliverable upon such exercise);
(c) on any change in the number of shares
or exercise price of Common Stock deliverable
upon the exercise of any such options or
rights or conversions of or exchange for such
convertible or exchangeable securities, other
than a change resulting from the antidilution
provisions thereof, the Series KBL Conversion
Price, if previously adjusted, shall
forthwith be readjusted to such Series KBL
Conversion Price as would have obtained had
the adjustment made upon the issuance of such
options, rights or securities not converted
prior to such change or options or rights
related to such securities not converted
prior to such change having been made upon
the basis of such change; and
(d) on the expiration of any such options
or rights, the termination of any such rights
to convert or exchange or the expiration of
any options or rights related to such
convertible or exchangeable securities, the
Series KBL Conversion Price, if previously
adjusted, shall forthwith be readjusted to
such Series KBL Conversion Price as would
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<PAGE>
have obtained had such options, rights,
securities or options or rights related to
such securities not been issued.
(B) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR
SPLIT-UPS. If, at any time after the Series KBL Initial
Issuance Date, the number of shares of Common Stock
outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, upon the record date fixed
for the determination of holders of Common Stock entitled
to receive such stock dividend, subdivision or split-up,
the Series KBL Conversion Price shall be appropriately
decreased so that the number of shares of Nonvoting Common
Stock issuable on conversion of each share of Series KBL
Stock shall be increased in proportion to such increase in
outstanding shares.
(C) ADJUSTMENTS FOR COMBINATIONS. If, at any time after
the Series KBL Initial Issuance Date, the number of shares
of Common Stock outstanding is decreased by a combination
of the outstanding shares of Common Stock, then, upon the
record date for such combination, the Series KBL Conversion
Price shall be appropriately increased so that the number
of shares of Nonvoting Common Stock issuable on conversion
of each share of Series KBL Stock shall be decreased in
proportion to such decrease in outstanding shares.
(D) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS,
CONSOLIDATIONS, ETC. In case, at any time after the Series
KBL Initial Issuance Date, of any capital reorganization,
or any reclassification of the stock of the Corporation
(other than a change in par value or from par value to no
par value or from no par value to par value or as a result
of a stock dividend or subdivision, split-up or combination
of shares), or the consolidation or merger of the
Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any
change in the Common Stock or Series KBL Stock) or of the
sale or other disposition of all or substantially all of
the properties and assets of the Corporation as an entirety
to any other person, each share of Series KBL Stock shall,
after such reorganization, reclassification, consolidation,
merger, sale or other disposition, be convertible into the
kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting
from such consolidation or surviving such merger or to
which such properties and assets shall have been sold or
otherwise disposed to which the holder of the number of
shares of Common Stock deliverable (immediately prior to
the time of such reorganization, reclassification,
consolidation, merger, sale or other disposition) upon
conversion of such share would have been entitled upon such
reorganization, reclassification, consolidation, merger,
sale or other disposition. The provisions of this
subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
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<PAGE>
(E) All calculations under this subsection (iv) shall be
made to the nearest one cent ($.01) or to the nearest
one-tenth (1/10) of a share, as the case maybe.
(F) In any case in which the provisions of this
subsection (iv) shall require that an adjustment shall
become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of
such event (i) issuing to the holder of any share of Series
KBL Stock converted after such record date and before the
occurrence of such event the additional shares of capital
stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares
of capital stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 7(a)(iii) above,
PROVIDED, HOWEVER, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event
requiring such adjustment.
(v) Whenever the Series KBL Conversion Price shall be adjusted
as provided in Section 7(a)(iv), the Corporation shall forthwith
file, at the office of the transfer agent for the Series KBL Stock
or at such other place as may be designated by the Corporation, a
statement, signed by its independent certified public accountants,
showing in detail the facts requiring such adjustment and the
Series KBL Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such
statement to be sent by first class, certified mail, return
receipt requested, postage prepaid, to each Series KBL Holder at
such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the
provisions of Section 7(a)(vi) below.
(vi) In the event the Corporation shall propose to take any
action of the types described in clauses (A), (B), (C), or (D) of
Section 7(a)(iv) above, the Corporation shall give notice to each
holder of shares of Series KBL Stock, in the manner set forth in
Section 7(a)(v) above, which notice shall specify the record date,
if any, with respect to, any such action and the date on which
such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Series KBL
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion
of shares of Series KBL Stock. In the case of any action which
would require the fixing of a record date, such notice shall be
given at least 20 days prior to the date so fixed, and in case of
all other action, notice shall be given at least 30 days prior to
the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity
of any such action.
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<PAGE>
(vii) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any
shares of Series KBL Stock; PROVIDED, HOWEVER, that the
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series KBL Stock in respect of
which such shares are being issued.
(viii) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Nonvoting Common
Stock, solely for the purpose of effecting the conversion of the
shares of Series KBL Stock, sufficient shares to provide for the
conversion of all outstanding shares of Series KBL Stock.
(ix) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid
and nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens or charges with
respect thereto.
(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series KBL Event of
Conversion, all shares of Series KBL Stock then outstanding shall, by virtue of,
and simultaneously with, the occurrence of the Series KBL Event of Conversion
and without any action on the part of the holders thereof, be deemed
automatically converted into such whole number of fully paid and nonassessable
shares of Nonvoting Common Stock as equals (1) the product of (x) the Series KBL
Original Purchase Price multiplied by (y) the number of shares of Series KBL
Stock being converted divided by (2) the Series KBL Conversion Price as last
adjusted pursuant to Section 7(a)(iv) and then in effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the occurrence of
a Series KBL Event of Conversion, the Series KBL Holders shall be entitled to
subscribe for their respective Preemptive Share of any New Securities which the
Corporation may, from time to time, propose to issue and sell, at any time while
any Series KBL Stock is outstanding and subject to the terms, conditions and
procedures set forth below.
(b) The Corporation shall first deliver to each Series KBL Holder a
written Notice of Intention to Sell offering to each Series KBL Holder the right
to purchase up to the Preemptive Share of such of such Series KBL Holder of such
shares of New Securities at the purchase price and on the terms specified
therein. Each Series KBL Holder shall have the right and option, for a period of
twenty (20) days after delivery to said Series KBL Holder of such Notice of
Intention to Sell, to purchase all or any part of the Preemptive Share of such
Series KBL Holder of the shares of New Securities so offered at the purchase
price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Corporation within the
aforesaid twenty (20) day period.
The closing of any sales of shares of New Securities under the terms of
Section 8 shall be made at the offices of the Corporation on a mutually
satisfactory business day within five (5) business days after the expiration of
the aforesaid period. Delivery of certificates or other
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<PAGE>
instruments evidencing such shares of New Securities duly endorsed for transfer
to the appropriate Series KBL Holder shall be made on such date against payment
of the purchase price therefor.
(c) The Corporation may issue and sell all or any part of the
remaining shares of New Securities so offered for sale but not purchased
pursuant to Section 8 hereof at a price not less than the price offered, and on
terms not more favorable, to the purchaser thereof than the terms stated in the
original Notice of Intention to Sell, at any time within one hundred twenty
(120) days after the expiration of the offer required by Section 8. In the event
the remaining shares of New Securities are not sold by the Corporation during
such one hundred twenty (120) day period, the right of the Corporation to sell
such remaining shares of New Securities shall expire and the obligations of this
Section 8 shall be reinstated; PROVIDED, HOWEVER, that in the event the
Corporation determines, at any time during such one hundred twenty (120) day
period, that the sale of all or any part of the remaining shares of New
Securities on the terms set forth in the Notice of Intention to Sell is
impractical, the Corporation can terminate the offer and reinstate the procedure
provided in this Section 8 without waiting for the expiration of such one
hundred twenty (120) day period.
9. FURTHER DILUTING ISSUANCES. The Corporation shall not permit or
cause to occur more than one Diluting Issuance unless the Corporation (I) has
taken all necessary action to create a new subseries of the Series KBL Preferred
Stock, which shall be PARI PASSU with the Series KBL Preferred Stock and the
Series KBL1 Preferred Stock for all purposes except conversion price, and (II)
shall have amended this Certificate to provide that the shares of Series KBL
Stock held by any Holder thereof who fails to purchase its full Preemptive Share
of such additional Diluting Issuance shall be converted automatically into such
new subseries. The shares of such subseries shall be convertible into Nonvoting
Common Stock immediately after such Diluting Issuance at the same price per
share that applied to the shares which were so converted immediately prior to
such Diluting Issuance. The consent of the Holders of the Series KBL Stock shall
not be required in order to effect such new subseries.
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GENAISSANCE PHARMACEUTICALS, INC.
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. This Certificate of Amendment amends the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), by amending Article 4 to effect changes in the capital
structure of the Corporation.
2. The first sentence of Article 4 of the Certificate of
Incorporation, as amended, is amended hereby to read as follows:
"The total authorized capital stock of the corporation consists of
44,500,000 shares, of which 17,500,000 are shares of Common Stock,
$.001 par value (the "Common Stock"), 2,000,000 are shares of
Nonvoting Common Stock, $.001 par value (the "Nonvoting Common
Stock"), and 25,000,000 are shares of Preferred Stock, $.001 par
value ("Preferred Stock")."
3. The foregoing amendment to the Certificate of Incorporation was
duly adopted by written consent of the stockholders in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
4. This Amendment to the Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Gualberto Ruano, its President, and attested to by Kevin L. Rakin, its
Secretary, this 17th day of February, 2000.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
-------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
-------------------------------
Kevin L. Rakin, Secretary
<PAGE>
GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATES OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES A1 REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES KBL NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES KBL1 NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), DOES HEREBY
CERTIFY:
1. The following resolution was duly adopted by action of the Board
of Directors of the Corporation at a special meeting duly held on February 12,
2000, pursuant to authority conferred upon the Board of Directors by the
provisions of Article 4 of the Certificate of Incorporation of the Corporation,
as amended, (referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 25,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value (the "PREFERRED
STOCK").
RESOLVED: That the provisions of the two Certificates of Designations,
Preferences and Other Special Rights and Qualifications, Limitations and
Restrictions of Preferred Stock of the Corporation (the first such
certificate relating to the Series A and Series A1 Redeemable Convertible
Preferred Stock, and the second such certificate relating to the Series
KBL and Series KBL1 Nonvoting Redeemable Convertible Preferred Stock)
(the "CERTIFICATES OF DESIGNATIONS"), both approved by the Board of
Directors on August 22, 1998, shall be amended by deleting the text of
each in its entirety and substituting therefor the text set forth in
EXHIBIT I attached hereto. Said Certificates of Designations, as amended
hereby, shall apply to 2,437,500 shares Series A Redeemable Convertible
Preferred Stock, 2,437,500 shares of Series A1 Redeemable Convertible
Preferred Stock, 330,500 shares Series KBL Nonvoting Redeemable
Convertible Preferred Stock, and 330,500 shares of Series KBL1 Nonvoting
Redeemable Convertible Preferred Stock.
2. Such resolution also was duly approved by the written consent of
the holders of the requisite number of shares of the Series A and Series A1
Preferred Stock and the Series KBL and Series KBL1 Preferred Stock.
<PAGE>
3. This amendment to the Certificates of Designations was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, as of this 17th day of February, 2000.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
-------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
-------------------------------
Kevin L. Rakin
Secretary
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<PAGE>
EXHIBIT I
There are hereby designated four series of preferred stock of the
Corporation, the first consisting of 2,437,500 shares, as issued in a series
entitled "SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK" (referred to as the
"SERIES A PREFERRED STOCK"); the second consisting of 2,437,500 shares, as
issued in a series entitled "SERIES A1 REDEEMABLE CONVERTIBLE PREFERRED STOCK"
(referred to as the "SERIES A1 PREFERRED STOCK"); the third consisting of
330,500 shares, as issued in a series entitled "SERIES KBL NONVOTING REDEEMABLE
CONVERTIBLE PREFERRED STOCK" (referred to as the "SERIES KBL PREFERRED Stock");
and the fourth consisting of 330,500 shares, as issued in a series entitled
"SERIES KBL1 NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK" (referred to as
the "SERIES KBL1 PREFERRED STOCK"); and that the preferences and privileges,
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions of the shares of each such series, in addition to
those set forth in the Certificate of Incorporation of the Corporation, as
amended, are as set forth below:
1. DEFINITIONS. As used in this Certificate of Designations, the
following terms have the meanings specified below: "AFFILIATE" shall mean a
person (other than a subsidiary):
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Corporation;
(ii) which beneficially owns or holds 10% or more of any class
of the voting stock of the Corporation; or
(iii) 10% or more of the voting stock (or in the case of a person
which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the Corporation or one of
its subsidiaries.
The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Corporation.
"DILUTED STOCK" shall have the meaning ascribed to it in Section
7(a)(iv)(A) hereof.
<PAGE>
"DILUTING ISSUANCE" shall mean an issuance of capital stock described in
Section 7(a)(iv)(A) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other
subdivision or combination of the outstanding shares of Common
Stock;
(ii) up to an aggregate of 1,557,375 shares of Common Stock
issued or issuable to employees pursuant to an employee stock
option plan approved by the Board; or
(iii) upon conversion of any Preferred Stock, warrants or other
convertible securities and set forth on Schedule 3.4 to the Series
B/KBH Stock Purchase Agreement.
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification that
took effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the average of the last reported bid and
asked prices, as reported by the Nasdaq on such day, or if, on any day in
question, the security shall not be quoted on the Nasdaq, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is traded in such
manner that the quotations referred to in this clause are not available for the
period required hereunder, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the voting power of the Series A/KBL Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent banking firm selected by the American
Arbitration Association in accordance with its rules). With respect to the
Series A/KBL Stock, Fair Market Value shall be determined by a nationally
recognized independent investment banking firm selected mutually by the holders
of more than 50% of the voting power of the Series A/KBL Stock then outstanding
and the Corporation (or if such selection cannot be made, by a nationally
recognized independent banking firm selected by the American Arbitration
Association in accordance with its rules).
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<PAGE>
"HOLDER" shall mean a holder of shares of Series A/KBL Stock, as
applicable, as reflected in the stock records of the Corporation; and each
Holder's address shall be as it appears in the stock records of the Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series A/KBL Stock, each other
class or series of capital stock (including, without limitation, each class of
common stock of the Corporation and each other series of preferred stock) or
other equity interests (including, without limitation, warrants, rights, calls
or options exercisable for or convertible into such capital stock or equity
interests) in the Corporation, except Junior Securities shall not include the
Series B/KBH Stock.
"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a third
party or parties, whether voluntary or involuntary, or the sale by the
stockholders of the Corporation of a majority of the voting capital stock of the
Corporation; PROVIDED, HOWEVER, that a merger or consolidation shall not be
considered a Liquidation Event if the Corporation is the survivor or continuing
corporation of such merger or consolidation and as a result thereof there is no
change in the Common Stock or Preferred Stock or the ownership thereof.
"LIQUIDATION REDEMPTION PRICE" shall have the meaning ascribed to it in
Section 4(a).
"LISTED RIGHTS" shall mean all patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade names, trade
name rights, service marks and copyrights (whether registered or not) owned or
possessed by the Corporation and any improvements thereon.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional shares
of Preferred Stock, each other series of preferred stock of the Corporation and
any shares of capital stock held by the Corporation in its treasury upon the
disposition thereof) or other equity interests (including, without limitation,
warrants, rights, calls or options exercisable for or convertible into such
capital stock or equity interests) in the Corporation issued after the Series
A/KBL Initial Issue Date; PROVIDED, HOWEVER, that such term shall not include
Excluded Stock and shall not include Series B/KBH Stock.
"NON-PARTICIPATING PERCENTAGE" shall have the meaning ascribed to it in
Section 7(a)(iv)(A) hereof.
"NON-VOTING COMMON STOCK" shall mean the Non-voting Common Stock, $.001
par value, of the Corporation.
"ORIGINAL CERTIFICATES OF DESIGNATION" shall mean the original
Certificate of Designations, Preferences and Other Special Rights and
Qualifications, Limitations and Restrictions of the Series A and Series A1
Redeemable Convertible Preferred Stock of the Corporation, dated August 24,
1998, and the original Certificate of Designations, Preferences and Other
Special Rights and Qualifications, Limitations and Restrictions of the Series
KBL and
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<PAGE>
Series KBL1 Non-voting Redeemable Convertible Preferred Stock of the
Corporation, dated August 24, 1998.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"PREEMPTIVE SHARE" shall mean, immediately prior to any issue of shares
of New Securities, and as to each Series A/KBL Holder, the percentage which
expresses the ratio between (i) the total number of shares of Common Stock
(and/or Non-voting Common Stock, in the case of the Series KBL Stock) issuable
upon conversion of the Series A/KBL Stock owned by such Series A/KBL Holder,
plus the total number of shares of Common Stock (and Non-voting Common Stock, if
any) then owned by such Series A/KBL Holder that was received upon conversion of
Series A/KBL Stock, and (ii) the total number of shares of Common Stock and
Non-voting Common Stock then outstanding, plus the total number of shares of
Common Stock and Non-voting Common Stock issuable upon conversion of the then
outstanding Preferred Stock.
"PREFERRED STOCK" shall mean all of the outstanding shares of the Series
A Stock, Series KBL Stock, Series B Stock and Series KBH Stock, together, at the
time in question.
"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in aggregate gross cash proceeds to the Corporation
of not less than forty million dollars ($40,000,000) and pursuant to which the
offering price per share is equal to or greater than $16.50 ($11.00 per share in
the event that the registration statement with respect to such offering shall be
filed with the Commission on or before February 11, 2001), equitably adjusted
for any Recapitalization Event.
"QUALIFIED LIQUIDATION EVENT" shall have the meaning ascribed to it in
Section 3(b).
"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications, and similar events.
"RELATED PARTY" shall mean any officer, director, significant employee or
consultant of the Corporation or any holder (other than any Series A/KBL Holder
or Series B/KBH Holder) of 10% or more of any class of capital stock of the
Corporation or any member of the immediate family of any such officer, director,
employee, consultant or shareholder or any entity controlled by any such
officer, director, employee, consultant or shareholder or a member of the
immediate family of any such officer, director, employee, consultant or
shareholder.
"SCHEDULED REDEMPTION PRICE" shall have the meaning ascribed to it in
Section 4(b).
"SECOND ROUND SERIES B/KBH STOCK" shall mean those shares of Series B/KBH
Stock that may be issued by the Corporation to certain investors (the "SECOND
ROUND INVESTORS") in the Second Closing as such term is defined in the Series
B/KBH Stock Purchase Agreement.
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<PAGE>
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Redeemable Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A1 PREFERRED STOCK" shall mean the Series A1 Redeemable
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A STOCK" shall mean all of the outstanding shares of the Series A
Preferred Stock and the Series A1 Preferred Stock, together, at the time in
question, and any new subseries of the Series A Preferred Stock created pursuant
to Section 9 hereof.
"SERIES A/KBL ACCRUED DIVIDENDS" shall mean Series A/KBL Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3, upon the relevant shares of Series A/KBL Stock.
"SERIES A/KBL AMENDMENT DATE" shall mean the date that this Amendment to
the Certificate of Certificates of Designations, Preferences and Other Special
Rights and Qualifications, Limitations and Restrictions of the Series A and
Series A1 Redeemable Convertible Preferred Stock of the Corporation, and the
Series KBL and Series KBL1 Nonvoting Redeemable Convertible Preferred Stock of
the Corporation, is filed with the Delaware Secretary of State.
"SERIES A/KBL CONVERSION DATE" shall have the meaning set forth in
Section 7(a)(ii).
"SERIES A/KBL CONVERSION PRICE" shall initially mean $4.00; PROVIDED,
HOWEVER, that the Series A/KBL Conversion Price shall be subject to adjustment
as set forth in Section 7(a)(iv).
"SERIES A/KBL EVENT OF CONVERSION" shall mean the consummation of a
Qualified IPO.
"SERIES A/KBL FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series A/KBL Stock (whether or not in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally available
for the payment of such dividends), that amount which shall be equal to
dividends at the full rate fixed for the Series A/KBL Stock as provided herein
for the period of time elapsed from the Series A/KBL Initial Issuance Date to
the date as of which Series A/KBL Full Cumulative Dividends are to be computed.
"SERIES A/KBL HOLDER" shall mean a holder of shares of Series A Stock or
Series KBL Stock.
"SERIES A/KBL INITIAL ISSUANCE DATE" shall mean August 24, 1998.
"SERIES A/KBL LIQUIDATION AMOUNT" shall mean an amount in cash or
property (valued at its Fair Market Value), or a combination thereof, equal to
$4.00 per share of Series A/KBL Stock held by a Holder (which per share amount
shall be subject to equitable adjustment whenever there shall occur a stock
split, combination, reclassification or other similar event involving the Series
A/KBL Stock) plus all Series A/KBL Accrued Dividends.
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"SERIES A/KBL ORIGINAL PURCHASE PRICE" shall mean $4.00 per share of
Series A/KBL Stock.
"SERIES A/KBL REDEMPTION DATE" shall have the meaning set forth in
Section 4 hereof.
"SERIES A/KBL REDEMPTION PRICE" shall have the meaning set forth in
Section 4 hereof.
"SERIES A/KBL STOCK" shall mean all of the outstanding shares of the
Series A Stock and Series KBL Stock, together, at the time in question, which
shares are PARI PASSU for all purposes except voting (the Series KBL Stock being
non-voting) and conversion (the Series KBL Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES B1 PREFERRED STOCK" shall mean the Series B1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES B STOCK" shall mean all of the outstanding shares of the Series B
Preferred Stock and the Series B1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series B Preferred Stock created pursuant to
Section 9 of the Series B/KBH Certificate of Designations.
"SERIES B/KBH CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series B and Series B1 Convertible Preferred
Stock of the Corporation, and Series KBH and Series KBH1 Non-voting Convertible
Preferred Stock of the Corporation, dated as of February 17, 2000.
"SERIES B/KBH HOLDER" shall mean a holder of shares of Series B Stock or
Series KBH Stock.
"SERIES B/KBH LIQUIDATION AMOUNT" shall mean the amount due to the Series
B/KBH Holders upon a Liquidation of the Company pursuant to the Series B/KBH
Certificate of Designations.
"SERIES B/KBH STOCK" shall mean all of the outstanding shares of the
Series B Stock and Series KBH Stock, together, at the time in question, which
shares shall be PARI PASSU for all purposes except voting (the Series KBH Stock
being non-voting) and conversion (the Series KBH Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B/KBH STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of February 17, 2000, by and among the Corporation
and the Purchasers (as defined therein).
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"SERIES KBH PREFERRED STOCK" shall mean the Series KBH Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH1 PREFERRED STOCK" shall mean the Series KBH1 Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH STOCK" shall mean all of the outstanding shares of the Series
KBH Preferred Stock and the Series KBH1 Preferred Stock, together, at the time
in question, and any new subseries of the Series KBH Preferred Stock created
pursuant to Section 9 of the Series B/KBH Certificate of Designations.
"SERIES KBL PREFERRED STOCK" shall mean the Series KBL Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL1 PREFERRED STOCK" shall mean the Series KBL1 Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL STOCK" shall mean all of the outstanding shares of the Series
KBL Preferred Stock and the Series KBL1 Preferred Stock, together, at the time
in question, and any new subseries of the Series KBL Preferred Stock created
pursuant to Section 9 hereof.
"SUBSIDIARY" shall mean an entity a majority of the capital stock or
other ownership interest in which is owned directly or indirectly by the
Corporation, except that 100% "SUBSIDIARY" shall mean a subsidiary that is 100%
owned by the Corporation and/or its 100% subsidiaries.
2. NUMBER OF SHARES. The designation of the four series of preferred
stock provided for herein shall be as follows: Series A Preferred Stock, of
which 2,437,500 shares shall be authorized; Series A1 Preferred Stock, of which
2,437,500 shares shall be authorized; Series KBL Preferred Stock, of which
330,500 shares shall be authorized; Series KBL1 Preferred Stock, of which
330,500 shares shall be authorized.
3. DIVIDENDS.
(a) For the period beginning on the Series A/KBL Initial Issuance Date
and ending on the Series A/KBL Amendment Date, the holders of each share of
Series A/KBL Stock shall be entitled to receive dividends as provided under the
Original Certificate of Designations; PROVIDED, HOWEVER, that no such dividends
shall be paid in cash, rather than stock, without the prior approval of a
majority of the holders of the Series B Stock, voting as a separate class.
(b) From and after the Series A/KBL Amendment Date, the holder of each
share of Series A/KBL Stock shall be entitled to receive, before any dividends
shall be declared and paid upon or set aside for the Junior Securities, but
after any dividends shall be declared and paid upon or set aside for the Series
B/KBH Stock, out of funds legally available for that purpose, dividends in cash
at the rate per annum per share (the "SERIES A DIVIDEND RATE") equal to 8% of
the Series A/KBL Original Purchase Price, adjusted, as applicable, for any
Recapitalization
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Event, payable, when and as declared by the Board, upon the earliest of (a) a
Liquidation Event in accordance with Section 5 hereof, (b) upon redemption in
accordance with Section 4 hereof or (c) upon the Series A/KBL Event of
Conversion; PROVIDED, HOWEVER, that so long as any shares of Series B/KBH Stock
shall remain outstanding, no such dividends shall be paid on the Series A/KBL
Stock unless approved by a majority of the holders of the Series B Stock, voting
as a separate class. Until the third anniversary of the Series A/KBL Amendment
Date, the Corporation shall have the option to make any such payment in shares
of Common Stock (Non-voting Common Stock in the case of the Series KBL). After
the third anniversary of the Series A/KBL Amendment Date, the Holder shall have
the option to receive any such payment in shares of Common Stock (Non-voting
Common Stock in the case of the Series KBL). In the event such dividends are
paid in Common Stock (Non-voting Common Stock in the case of the Series KBL),
for purposes of computing the number of shares of Common Stock (Non-voting
Common Stock in the case of the Series KBL) to be issued and the amount of the
dividend paid, the value of the Common Stock (Non-voting Common Stock in the
case of the Series KBL) paid to any holder of shares of Series A/KBL Stock shall
be valued at the then Series A/KBL Conversion Price. Dividends on shares of
Series A/KBL Stock shall be cumulative from the Series A/KBL Amendment Date
(whether or not there shall be net profits or net assets of the Corporation
legally available for the payment of such dividends), so that, if at any time
Series A/KBL Full Cumulative Dividends upon the Series A/KBL Stock shall not
have been paid or declared and a sum sufficient for payment thereof set apart,
the amount of the deficiency in such dividends shall be fully paid or dividends
in such amount shall be declared on the shares of the Series A/KBL Stock and a
sum sufficient for the payment thereof shall be set apart for such payment,
before any dividend shall be declared or paid or any other distribution ordered
or made upon any Junior Securities (but after any dividends shall be declared
and paid upon or set aside for the Series B/KBH) or applied to the purchase or
redemption of Junior Securities. With respect to rights to dividends, the Series
A/KBL Stock shall rank prior to the Common Stock and all other Junior
Securities, but shall rank junior to the Series B/KBH Stock. All dividends
declared upon the Series A/KBL Stock shall be declared pro rata per share. All
payments due under this Section to any holder of shares of Series A/KBL Stock
shall be made to the nearest cent. Notwithstanding the foregoing, the holders of
the Series A/KBL Stock shall not be entitled to dividends on the Series A/KBL
Stock pursuant to this Section 3(b) in the event that on or before August 11,
2001 (i) there shall be filed with the Commission a registration statement with
respect to a Qualified Public Offering (which registration statement shall have
become effective within three months of filing); or (ii) there shall occur a
Qualified Liquidation Event. The term "QUALIFIED LIQUIDATION EVENT" shall mean a
Liquidation Event in which the holders of the Series A/KBL Stock receive (per
share) cash or other property with a fair market value equal to at least 200% of
the Series A/KBL Original Purchase Price (as adjusted for any stock split,
combination, reclassification or other similar event involving the Series A/KBL
Stock) if the Qualified Liquidation Event occurs within one year after the
Series A/KBL Amendment Date, and 300% of the Series A/KBL Original Purchase
Price (as adjusted for any stock split, combination, reclassification or other
similar event involving the Series A/KBL Stock) if the Qualified Liquidation
Event occurs more than one year after the Series A/KBL Amendment Date (but
before August 12, 2001).
(c) From and after the Series A/KBL Amendment Date, in the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock
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(or Non-voting Common Stock) entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock (or Non-voting
Common Stock) or any other Junior Securities (based on "as if converted"
amounts) payable in (i) securities of the Corporation other than shares of
Common Stock (or Non-voting Common Stock), or (ii) cash, then, and in each such
event, provision shall be made so that the holders of the Series A/KBL Stock
shall receive, subject to the prior payment in full of any amounts due to the
holders of the Series B/KBH Stock in connection with such event, the number of
securities or such other assets of the Corporation which they would have
received had their Series A/KBL Stock been converted into Common Stock (or
Non-voting Common Stock in the case of the Series KBL) on the date of such
event.
4. REDEMPTION.
(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event, the Corporation shall (to the extent
allowed by law) redeem, except as set forth hereafter, all the shares of Series
A/KBL Stock then outstanding, out of funds legally available therefor. The
amount per share payable upon any redemption of shares of Series A/KBL Stock
pursuant to this subsection shall be an amount in cash equal to the Liquidation
Redemption Price, as determined below. The Corporation shall deliver to each
holder of shares of Series A/KBL Stock, not later than 45 days prior to the
consummation of a Liquidation Event, notice of such proposed Liquidation Event,
including the date on which such Liquidation Event is expected to be
consummated. To the extent that one or more redemptions and/or a liquidation are
occurring concurrently, any redemption of the shares of Series A/KBL Stock shall
be deemed to occur and shall be paid after any redemption of shares of the
Series B/KBH Stock, and prior to any other redemptions and/or liquidations.
Notwithstanding the foregoing, any Series A/KBL Holder may elect to retain its
outstanding shares of Series A/KBL Stock and not to subject such shares to
redemption by delivery of written notice to the Corporation at least 15 days
prior to the date of the consummation of the Liquidation Event.
(ii) The amount per share payable upon any redemption of shares
of Series A/KBL pursuant to this subsection shall be an amount
equal to the greater of (a) the Series A/KBL Original Purchase
Price (subject to equitable adjustment for any stock split,
combination, reclassification or other similar event involving the
Series A/KBL Stock) plus all Series A/KBL Accrued Dividends, or
(b) the Fair Market Value of such share (the "LIQUIDATION
REDEMPTION PRICE").
(iii) Any date upon which Series A/KBL Stock is to be redeemed
pursuant to this Section 4 shall be referred to in this context as
a "SERIES A/KBL REDEMPTION DATE".
(b) SERIES A/KBL ANNUAL REDEMPTION. Except as set forth hereafter, the
Corporation shall (to the extent allowed by law) redeem the following shares of
Series A Stock and Series KBL Stock on the following dates, out of funds legally
available therefor:
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(i) at any time on or after February 11, 2005, one-third of the
shares of each of the Series A Stock and Series KBL Stock then
outstanding;
(ii) at any time on or after February 11, 2006, an additional
number of shares of each of the Series A Stock and Series KBL
Stock equal to one-third of the shares of the Series A Stock and
Series KBL Stock, respectively, outstanding as of February 11,
2005;
(iii) at any time on or after February 11, 2007, all outstanding
shares of Series A Stock and Series KBL Stock;
PROVIDED, HOWEVER, that no such redemption provided for in Sections 4(b)(i),
(ii) or (iii) shall occur in the event that any shares of Series B/KBH Stock
shall remain outstanding.
The amount per share payable upon any redemption of shares of Series A
Stock and Series KBL Stock pursuant to this subsection shall be an amount in
cash equal to the greater of (a) the Series A/KBL Original Purchase Price
(subject to equitable adjustment for any stock split, combination,
reclassification or other similar event involving the Series A/KBL Stock) plus
all Series A/KBL Accrued Dividends, or (b) the Fair Market Value of such share
(the "SCHEDULED REDEMPTION PRICE" and collectively with the Liquidation
Redemption Price, the "SERIES A/KBL REDEMPTION PRICE").
To the extent that one or more annual or other redemptions are occurring
concurrently, any redemption of the shares of Series A/KBL Stock shall be deemed
to occur and shall be paid after any redemption of shares of the Series B/KBH
Stock, but prior to any other redemptions.
Notwithstanding the foregoing, any Series A/KBL Holder may elect to
retain its outstanding shares of Series A/KBL Stock and not to subject such
shares to redemption by delivery of written notice to the Corporation at least
15 days prior to the applicable redemption date set forth above.
(c) PRO RATA. If, on any Series A/KBL Redemption Date, fewer than all
shares of Series A/KBL Stock then outstanding are to be redeemed in accordance
with this Section, the shares to be redeemed shall be allocated pro rata among
the Series A/KBL Holders and the Redemption Notice mailed to each Holder shall
specify the number of shares to be redeemed from such Holder. Notwithstanding
the delivery of a Redemption Notice, Series A/KBL Holders subject to redemption
may convert such shares pursuant to Section 7 on or before the Series A/KBL
Redemption Date by delivering written notice thereof to the Corporation not
later than 10 days prior to the Series A/KBL Redemption Date.
(d) PAYMENT OF SERIES A/KBL REDEMPTION PRICE; TERMINATION OF RIGHTS.
On any Series A/KBL Redemption Date, the applicable Series A/KBL Redemption
Price in respect of the shares represented by the certificate or certificates
surrendered to the Corporation by the Holder thereof pursuant to the Redemption
Notice shall be paid to the order of the person whose name appears on such
certificate or certificates. Each surrendered certificate shall be canceled and
retired and a new certificate, representing the remaining, unredeemed shares of
Series
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A/KBL Stock, if any, shall be issued to the Holder of such shares. On any Series
A/KBL Redemption Date, the rights of a Holder with respect to shares redeemed
shall cease, other than such Holder's right to payment of the Series A/KBL
Redemption Price as of the Series A/KBL Redemption Date, upon surrender of the
certificate or certificates.
5. LIQUIDATION. In the event of any liquidation, dissolution or
winding-up of the Corporation, the Series A/KBL Holders shall be entitled,
before any assets of the Corporation shall be distributed among or paid over to
the holders of Junior Securities, but after distribution of such assets among,
or payment thereof over to, creditors of the Corporation and the holders of the
Series B/KBH Stock, to receive from the assets of the Corporation available for
distribution to stockholders in cash, the Series A/KBL Liquidation Amount. If
the assets of the Corporation legally available for distribution shall be
insufficient to permit the payment in full of the Series A/KBL Liquidation
Amount to the Series A/KBL Holders, then the assets of the Corporation legally
available for distribution shall be distributed ratably among the Series A/KBL
Holders in proportion to the respective amounts which would have been payable
upon such Liquidation Event on such shares of Series A/KBL Stock if all amounts
payable thereon had been paid in full. In the event that such distribution of
assets is other than in cash, such distribution of cash and other assets
(including securities) shall be made ratably among the holders of the shares of
Series A/KBL Stock based upon the fair market value of any such assets as
determined by a nationally recognized valuation consultant selected mutually by
the holders of a majority in voting power of the Series A/KBL Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent valuation consultant selected by the American
Arbitration Association in accordance with its rules). In the event of any
liquidation, dissolution or winding-up of the Corporation, after payment shall
have been made to the holders of shares of Series A/KBL Stock of the full amount
to which they shall be entitled as aforesaid, the holders of any Junior
Securities, the Series A/KBL Holders and the Series B/KBH Holders shall be
entitled to participate equally, on an as-converted basis in the case of the
Series A/KBL Stock, the Series B/KBH Stock and any Junior Securities convertible
into Common Stock, in all remaining assets of the Corporation available for
distribution to its stockholders. The provisions of this Section 5 shall not be
applicable to any shares of Series A/KBL Stock that have been redeemed pursuant
to Section 4(a) hereof in connection with such Liquidation Event. The holders of
the Series A/KBL Stock shall have the right to treat any merger, consolidation,
sale of all or substantially all of the assets of the Corporation, or sale of a
majority of the voting capital stock of the Corporation, as a liquidation of the
Corporation and, in connection therewith, and subject to the prior payment in
full of any amounts due to the holders of the Series B/KBH Stock in connection
with such event, to receive payment under this Section 5 upon surrender of their
shares to the Corporation; PROVIDED, HOWEVER, that the holders of the Series
A/KBL Stock shall not have the right to treat any merger or consolidation as a
Liquidation Event if the Corporation is the survivor or continuing corporation
of such merger or consolidation and as a result thereof there is no change in
the Common Stock or Preferred Stock or the ownership thereof.
6. VOTING.
(a) VOTES GENERALLY WITH COMMON STOCK. In addition to the rights
specified in Section 6(b) below and any other rights provided in the
Corporation's By-Laws, the shares of
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Series A Stock shall entitle each Holder thereof to such number of votes as
shall equal the number of shares of Common Stock (rounded to the nearest whole
number) into which the shares of Series A Stock held by such Holder are then
convertible pursuant to Section 7 and shall entitle each such Holder to vote on
all matters as to which holders of Common Stock shall be entitled to vote, in
the same manner and with the same effect as such holders of Common Stock, voting
together with the holders of Common Stock as one class.
(b) SEPARATE CLASS VOTE. So long as any shares of Series A Stock are
outstanding, the consent of the holders of a majority of all of the outstanding
shares of Series A Stock and Series B Stock, voting as a single and separate
class in person or by proxy, at a special or annual meeting called for the
purpose, or by written consent in lieu of a meeting, shall be required before
the Corporation may:
(i) authorize or issue any class or series of capital stock
ranking senior or pari passu to the Series B/KBH Stock or the
Series A/KBL Stock with respect to rights to receive dividends,
redemption payments or distributions upon liquidation or winding
up of the Corporation or with respect to voting, antidilution
provisions or preemptive rights; PROVIDED, HOWEVER, that this
provision shall not apply to the issuance of the Second Round
Series B/KBH Stock (which itself shall be Series B/KBH Stock);
(ii) authorize, declare or distribute any dividend, whether in
cash or in kind, payable to any class or series of the
Corporation's common or preferred stock (except payment of
dividends on the Series B/KBH Stock as contemplated by the Series
B/KBH Certificate of Designations or payment of dividends on the
Series A/KBL Stock as contemplated (and only to the extent
permitted) herein) or to any other equity security of the
Corporation;
(iii) approve any liquidation, dissolution, sale, lease or
license of all or substantially all of the assets or business, or
of the assets or business of any subsidiary, of the Corporation;
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(iv) cancel, repeal or change any of the provisions of this
Certificate of Designations (or of any amendment hereto), any
other certificate of designations of the Corporation (or any
amendment thereto), the Certificate of Incorporation of the
Corporation, or the By-laws of the Corporation;
(v) permit to lapse any of the following: its corporate
existence, essential rights, government approvals or franchises or
any licenses or Listed Rights (which the Board deems essential to
the Corporation's business) or other rights to use patents,
processes, licenses, trademarks, trade names or copyrights owned
or possessed by it (which the Board deems essential to the
Corporation's business);
(vi) transfer, assign or license (except end-user licenses
granted in the ordinary course of business) any of the
Corporation's Listed Rights or know-how, technology or trade
secrets now owned or hereafter acquired by the Corporation;
(vii) voluntarily dissolve, liquidate or wind-up or carry out any
partial liquidation or distribution or transaction in the nature
of a partial liquidation or distribution;
(viii) purchase, lease or otherwise acquire capital stock in any
corporation or equity interest in any other entity or lend money
to any person or entity (other than loans to any one person that,
individually or in the aggregate, shall not exceed $100,000 or
loans to any one employee that, individually or in the aggregate,
shall not exceed $200,000) or purchase a substantial part of the
operating assets of any person or entity;
(ix) consolidate with or merge into or with any other person or
entity or permit any other person or entity to consolidate with or
merge into it (except that a 100% subsidiary may consolidate with
or merge into the Corporation or another 100% subsidiary);
(x) permit any subsidiary (except a 100% subsidiary) to make
any (i) direct or indirect redemption, retirement, purchase or
other acquisition of any of the Corporation's capital stock (or
any warrant, option or other right with respect to such stock),
(ii) repayment of the Corporation's debt held by any Related Party
or by any Affiliate or subsidiary debt held by any Related Party
or by any Affiliate, or (iii) sale of any capital stock of the
Corporation to any third party;
(xi) issue (which term shall include without limitation the
issuance of any shares of, or the grant of any warrants, options
or other rights to purchase any shares of, or any commitment to
issue) any shares of its capital stock (which term shall include
without limitation, securities convertible into capital stock, or
rights to acquire capital stock), other than Excluded Stock, at a
price per share less than $5.50;
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(xii) redeem any shares of any capital stock of the Corporation
(except redemptions of Series B/KBH Stock as contemplated in the
Series B/KBH Certificate of Designations or redemptions of Series
A/KBL Stock as contemplated (and only to the extent permitted)
herein); or
(xiii) increase the size of the Board of Directors of the Company
above eight (8) members.
7. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) The holder of any shares of Series A/KBL Stock shall have
the right, at such holder's option, at any time or from time to
time to convert any or all such holder's shares of Series A/KBL
Stock into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of
Series KBL Stock) as equals (I) the product of (x) the Series
A/KBL Original Purchase Price plus, after the third anniversary of
the Series A/KBL Amendment Date at the option of any Holder, any
unpaid Series A/KBL Accrued Dividends with respect to the shares
being converted, multiplied by (y) the number of shares of Series
A/KBL Stock being converted, divided by (II) the Series A/KBL
Conversion Price (as last adjusted and then in effect) for the
shares of the Series A/KBL Stock being converted, by surrender of
the certificates representing the shares of Series A/KBL Stock so
to be converted in the manner provided Section 7(a)(ii) below. The
Series A/KBL Conversion Price shall initially be equal to the
Series A/KBL Original Purchase Price; PROVIDED, HOWEVER, that such
Series A/KBL Conversion Price shall be subject to adjustment as
set forth in Section 7(a)(iv) below.
(ii) The holder of any shares of Series A/KBL Stock may exercise
such holder's conversion right pursuant to this Section by
delivering to the Corporation during regular business hours at the
office of any transfer agent of the Corporation for the Series
A/KBL Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or to the
Corporation (if required by it) accompanied by written notice
stating that such holder elects to convert such shares and stating
the name or names (with address) in which the certificate or
certificates for the shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) are to be issued.
Conversion shall be deemed to have been effected with respect to
conversion under (a) Section 7(a)(i) above, on the date when the
aforesaid delivery is made and (b) Section 7(b) on the date of
occurrence of a Series A/KBL Event of Conversion, as the case may
be, and any such date is referred to herein as the "SERIES A/KBL
CONVERSION DATE". As promptly as practicable thereafter the
Corporation shall issue and deliver to or upon the written order
of such holder, to the place designated by such holder, a
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certificate or certificates for the number of full shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBL Stock) to which such holder is entitled and a check or cash in
respect of any fractional interest in a share of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock), as
provided in Section 7(a)(iii) below, payable with respect to the
shares of Series A/KBL Stock so converted up to and including the
Series A/KBL Conversion Date. The person in whose names the
certificate or certificates for Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) are to be issued shall be
deemed to have become a holder of Common Stock (or Non-voting
Common Stock, in the case of Series KBL Stock) on the applicable
Series A/KBL Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such holder
shall be deemed to have become a holder of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock) on the
next succeeding date on which the transfer books are open, but the
Series A/KBL Conversion Price shall be that in effect on the
Series A/KBL Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares
of Series A/KBL Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate covering the number of
shares of Series A/KBL Stock representing the unconverted portion
of the certificate so surrendered.
(iii) No fractional shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) or scrip shall be issued
upon conversion of shares of Series A/KBL Stock. If more than one
share of Series A/KBL Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBL Stock) issuable upon conversion thereof shall be computed on
the basis of the aggregate number of shares of Series A/KBL Stock
so surrendered. Instead of any fractional shares of Common Stock
(or Non-voting Common Stock, in the case of Series KBL Stock)
which would otherwise be issuable upon conversion of any shares of
Series A/KBL Stock, the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the then
current Fair Market Value of a share of Common Stock multiplied by
such fractional interest.
(iv) The Series A/KBL Conversion Price shall be subject to
adjustment from time to time as follows:
(A) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. Unless the Corporation has requested and received a
waiver from the holders of a majority of the Series A Stock and
the Series B Stock, voting together as a single class, if the
Corporation shall at any time or from time to time after the
Series A/KBL Initial Issuance Date issue or be deemed (by virtue
of any of the provisions of Section 7(a)(iv)), to have issued any
capital stock (including, without limitation, each class of common
stock of the Corporation) or other equity
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interests (including, without limitation, warrants, rights, calls
or options exercisable for or convertible into such capital stock
or equity interests) in the Corporation, other than Excluded Stock
or Second Round Series B/KBH Stock, without consideration or for a
consideration per share (the "LAST ISSUE PRICE") less than the
Series A/KBL Conversion Price in effect immediately prior to each
such issuance or deemed issuance (a "DILUTING ISSUANCE"), the
Series A/KBL Conversion Price in effect immediately prior thereto
shall forthwith be adjusted, as of the opening of business on the
date of such issuance or deemed issuance, to such Last Issue
Price.
Notwithstanding the immediately preceding paragraph of this
subsection (A), if a Series A/KBL Holder has been given written
notice pursuant to Section 8 hereof and the opportunity to
purchase its Preemptive Share of such Diluting Issuance and does
not purchase its entire Preemptive Share of such Diluting
Issuance, but purchases a lesser share of such Diluting Issuance
or none, the Series A/KBL Conversion Price for that portion of the
shares of Series A/KBL Stock of said Series A/KBL Holder equal to
the Non-Participating Percentage (as hereinafter defined) (the
"DILUTED STOCK") shall not be reduced for said issuance pursuant
to this subsection but each share of the Diluted Stock which each
such Series A/KBL Holder holds shall be automatically converted
immediately prior to the closing of the applicable Diluting
Issuance into one (1) share of Series A1 Preferred Stock (or
Series KBL1 Preferred Stock, in the case of Series KBL Stock)
which shall be convertible into Common Stock (or Non-voting Common
Stock, in the case of Series KBL1 Stock) at the same price per
share that applied to the Diluted Stock immediately prior to such
Diluting Issuance, subject, however, to further adjustment as
herein provided. As used herein, the term "NON-PARTICIPATING
PERCENTAGE" means a percentage equal to one hundred percent (100%)
minus the percentage determined by dividing the number of shares
of the Diluting Issuance which such Holder actually purchased by
the maximum number of shares of the Diluting Issuance which such
Holder was entitled to purchase on the basis of such Holder's
Preemptive Shares and expressing the resulting quotient as a
percentage.
Upon the conversion of Diluted Stock held by a Series A/KBL Holder
as set forth herein, such shares of Diluted Stock shall no longer
be outstanding on the books of the Corporation and the Series
A/KBL Holder shall be treated, to the extent that said holder held
such Diluted Stock, as the record holder of such shares of Series
A1 Preferred Stock (or Series KBL1 Stock, in the case of Series
KBL Stock) on the date of closing of the applicable Diluting
Issuance.
For the purposes of any adjustment of the Series A/KBL Conversion
Price pursuant to this subsection (A), the following provisions
shall be applicable:
(1) In the case of the issuance of stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefor.
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(2) In the case of the issuance of stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by
the Board, irrespective of any accounting treatment;
PROVIDED, HOWEVER, that the aggregate fair market value of
such non-cash and cash consideration shall not exceed the
current Fair Market Value of the shares of stock being
issued.
(3) In case of the issuance of (i) options to purchase
or rights to subscribe for Common Stock (or Non-voting
Common Stock, in the case of Series KBL Stock); (ii)
securities by their terms convertible into or exchangeable
for Common Stock (or Non-voting Common Stock, in the case
of Series KBL Stock); or (iii) options to purchase or
rights to subscribe for such convertible or exchangeable
securities:
(a) the aggregate number of shares of Common
Stock (or Non-voting Common Stock, in the case of
Series KBL Stock) deliverable upon exercise of such
options to purchase or rights to subscribe for
Common Stock (or Non-voting Common Stock, in the
case of Series KBL Stock) shall be deemed to have
been issued at the time such options or rights were
issued and for a consideration equal to the
consideration (determined in the manner provided in
subdivisions (1) and (2) above), if any, received by
the Corporation upon the issuance of such options or
rights plus the purchase price provided in such
options or rights for the Common Stock (or
Non-voting Common Stock, in the case of Series KBL
Stock) covered thereby;
(b) the aggregate number of shares of Common
Stock (or Non-voting Common Stock, in the case of
Series KBL Stock) deliverable upon conversion of or
in exchange for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been
issued at the time such securities were issued or
such options or rights were issued and for a
consideration equal to the consideration received by
the Corporation for any such securities and related
options or rights (excluding any cash received on
accounts of accrued interest or accrued dividends),
plus the additional consideration, if any, to be
received by the Corporation upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in each
case to be determined in the manner provided in
subdivisions (1) and (2) above, with the proviso to
subdivision (2) being applied to the number of
shares of Common Stock (or
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Non-voting Common Stock, in the case of Series KBL
Stock) deliverable upon such exercise);
(c) on any change in the number of shares or
exercise price of Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) deliverable
upon the exercise of any such options or rights or
conversions of or exchange for such convertible or
exchangeable securities, other than a change
resulting from the antidilution provisions thereof,
the Series A/KBL Conversion Price, if previously
adjusted, shall forthwith be readjusted to such
Series A/KBL Conversion Price as would have obtained
had the adjustment made upon the issuance of such
options, rights or securities not converted prior to
such change or options or rights related to such
securities not converted prior to such change having
been made upon the basis of such change; and
(d) on the expiration of any such options or
rights, the termination of any such rights to
convert or exchange or the expiration of any options
or rights related to such convertible or
exchangeable securities, the Series A/KBL Conversion
Price, if previously adjusted, shall forthwith be
readjusted to such Series A/KBL Conversion Price as
would have obtained had such options, rights,
securities or options or rights related to such
securities not been issued.
(B) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR
SPLIT-UPS. If, at any time after the Series A/KBL Initial Issuance
Date, the number of shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) outstanding is increased
by a stock dividend payable in shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock) or by a
subdivision or split-up of shares of Common Stock (or Non-voting
Common Stock, in the case of Series KBL Stock), then, upon the
record date fixed for the determination of holders of Common Stock
(or Non-voting Common Stock, in the case of Series KBL Stock)
entitled to receive such stock dividend, subdivision or split-up,
the Series A/KBL Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) issuable on conversion of
each share of Series A/KBL Stock shall be increased in proportion
to such increase in outstanding shares.
(C) ADJUSTMENTS FOR COMBINATIONS. If, at any time after the
Series A/KBL Initial Issuance Date, the number of shares of Common
Stock (or Non-voting Common Stock, in the case of Series KBL
Stock) outstanding is decreased by a combination of the
outstanding shares of Common Stock (or Non-voting Common Stock, in
the case of Series KBL Stock), then, upon the record date for
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such combination, the Series A/KBL Conversion Price shall be
appropriately increased so that the number of shares of Common
Stock (or Non-voting Common Stock, in the case of Series KBL
Stock) issuable on conversion of each share of Series A/KBL Stock
shall be decreased in proportion to such decrease in outstanding
shares.
(D) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS, CONSOLIDATIONS,
ETC. In case, at any time after the Series A/KBL Initial Issuance
Date, of any capital reorganization, or any reclassification of
the stock of the Corporation (other than a change in par value or
from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the
Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any change in the Common
Stock or Preferred Stock or the ownership thereof or of the sale
or other disposition of all or substantially all of the properties
and assets of the Corporation as an entirety to any other person),
each share of Series A/KBL Stock shall, after such reorganization,
reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of
stock or other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been sold
or otherwise disposed to which the holder of the number of shares
of Common Stock (or Non-voting Common Stock, in the case of Series
KBL Stock) deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale or
other disposition) upon conversion of such share would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions
of this subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales
or other dispositions.
(E) All calculations under this subsection (iv) shall be made
to the nearest one cent ($.01) or to the nearest one-tenth (1/10)
of a share, as the case maybe.
(F) In any case in which the provisions of this subsection (iv)
shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (i) issuing to the holder
of any share of Series A/KBL Stock converted after such record
date and before the occurrence of such event the additional shares
of capital stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of
capital stock issuable upon such conversion before giving effect
to such adjustment and (ii) paying to such holder any amount in
cash in lieu of a fractional share of capital stock pursuant to
Section 7(a)(iii) above, PROVIDED, HOWEVER, that the Corporation
shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.
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<PAGE>
(v) Whenever the Series A/KBL Conversion Price shall be
adjusted as provided in Section 7(a)(iv), the Corporation shall
forthwith file, at the office of the transfer agent for the Series
A/KBL Stock or at such other place as may be designated by the
Corporation, a statement, signed by its independent certified
public accountants, showing in detail the facts requiring such
adjustment and the Series A/KBL Conversion Price that shall be in
effect after such adjustment. The Corporation shall also cause a
copy of such statement to be sent by first class, certified mail,
return receipt requested, postage prepaid, to each Series A/KBL
Holder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under
the provisions of Section 7(a)(vi) below.
(vi) In the event the Corporation shall propose to take any
action of the types described in clauses (A), (B), (C), or (D) of
Section 7(a)(iv) above, the Corporation shall give notice to each
holder of shares of Series A/KBL Stock, in the manner set forth in
Section 7(a)(v) above, which notice shall specify the record date,
if any, with respect to, any such action and the date on which
such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Series A/KBL
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion
of shares of Series A/KBL Stock. In the case of any action which
would require the fixing of a record date, such notice shall be
given at least 20 days prior to the date so fixed, and in case of
all other action, notice shall be given at least 30 days prior to
the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity
of any such action.
(vii) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any
shares of Series A/KBL Stock; PROVIDED, HOWEVER, that the
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series A/KBL Stock in respect
of which such shares are being issued.
(viii) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock), solely
for the purpose of effecting the conversion of the shares of
Series A/KBL Stock, sufficient shares to provide for the
conversion of all outstanding shares of Series A/KBL Stock.
(ix) All shares of Common Stock (or Non-voting Common Stock, in
the case of Series KBL Stock) which may be issued in connection
with the conversion
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<PAGE>
provisions set forth herein will, upon issuance by the
Corporation, be validly issued, fully paid and nonassessable, with
no personal liability attaching to the ownership thereof, and free
from all taxes, liens or charges with respect thereto.
(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series A/KBL Event
of Conversion, all shares of Series A/KBL Stock then outstanding shall, by
virtue of, and simultaneously with, the occurrence of the Series A/KBL Event of
Conversion and without any action on the part of the holders thereof, be deemed
automatically converted into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of Series KBL
Stock) as equals (1) the product of (x) the Series A/KBL Original Purchase Price
plus, after the third anniversary of the Series A/KBL Amendment Date at the
option of any Holder, any unpaid Series A/KBL Accrued Dividends with respect to
the shares being converted, multiplied by (y) the number of shares of Series
A/KL Stock being converted divided by (2) the Series A/KBL Conversion Price as
last adjusted pursuant to Section 7(a)(iv) and then in effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the occurrence of
a Series A/KBL Event of Conversion, the Series A/KBL Holders shall be entitled
to subscribe for their respective Preemptive Share of any New Securities which
the Corporation may, from time to time, propose to issue and sell, at any time
while any Series A/KBL Stock is outstanding and subject to the terms, conditions
and procedures set forth below.
(b) The Corporation shall first deliver to each Series A/KBL Holder a
written Notice of Intention to Sell offering to each Series A/KBL Holder the
right to purchase up to the Preemptive Share of such Series A/KBL Holder of such
shares of New Securities at the purchase price and on the terms specified
therein. Each Series A/KBL Holder shall have the right and option, for a period
of twenty (20) days after delivery to said Series A/KBL Holder of such Notice of
Intention to Sell, to purchase all or any part of the Preemptive Share of such
Series A/KBL Holder of the shares of New Securities so offered at the purchase
price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Corporation within the
aforesaid twenty (20) day period.
The closing of any sales of shares of New Securities under the terms of
Section 8 shall be made at the offices of the Corporation on a mutually
satisfactory business day within five (5) business days after the expiration of
the aforesaid period. Delivery of certificates or other instruments evidencing
such shares of New Securities duly endorsed for transfer to the appropriate
Series A/KBL Holder shall be made on such date against payment of the purchase
price therefor.
(c) The Corporation may issue and sell all or any part of the
remaining shares of New Securities so offered for sale but not purchased
pursuant to Section 8 hereof at a price not less than the price offered, and on
terms not more favorable, to the purchaser thereof than the terms stated in the
original Notice of Intention to Sell, at any time within ninety (90) days after
the expiration of the offer required by Section 8. In the event the remaining
shares of New Securities are not sold by the Corporation during such ninety (90)
day period, the right of the Corporation
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to sell such remaining shares of New Securities shall expire and the obligations
of this Section 8 shall be reinstated; PROVIDED, HOWEVER, that in the event the
Corporation determines, at any time during such ninety (90) day period, that the
sale of all or any part of the remaining shares of New Securities on the terms
set forth in the Notice of Intention to Sell is impractical, the Corporation can
terminate the offer and reinstate the procedure provided in this Section 8
without waiting for the expiration of such ninety (90) day period.
9. FURTHER DILUTING ISSUANCES. The Corporation shall not permit or
cause to occur more than one Diluting Issuance unless the Corporation (I) has
taken all necessary action to create a new subseries of the Series A Preferred
Stock, which shall be PARI PASSU with the Series A Preferred Stock and the
Series A1 Preferred Stock for all purposes except conversion price, (II) has
taken all necessary action to create a new subseries of the Series KBL Preferred
Stock, which shall be PARI PASSU with the Series KBL Preferred Stock and the
Series KBL1 Preferred Stock for all purposes except conversion price, (III)
shall have amended this Certificate to provide that the shares of Series A Stock
held by any Holder thereof who fails to purchase its full Preemptive Share of
such additional Diluting Issuance shall be converted automatically into such new
subseries of Series A Stock, and (IV) shall have amended this Certificate to
provide that the shares of Series KBL Stock held by any Holder thereof who fails
to purchase its full Preemptive Share of such additional Diluting Issuance shall
be converted automatically into such new subseries of Series KBL Stock. The
shares of such subseries shall be convertible into Common Stock (or Non-voting
Common Stock, in the case of the Series KBL Stock) immediately after such
Diluting Issuance at the same price per share that applied to the shares which
were so converted immediately prior to such Diluting Issuance. The consent of
the Holders of the Preferred Stock shall not be required in order to effect such
new subseries.
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GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK,
SERIES B1 CONVERTIBLE PREFERRED STOCK,
SERIES KBH CONVERTIBLE PREFERRED STOCK,
SERIES KBH1 CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Genaissance Pharmaceuticals, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), hereby certifies
that, pursuant to authority conferred upon the Board of Directors by the
provisions of Article 4 of the Certificate of Incorporation of the Corporation,
as amended, (referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 25,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value, the following
resolution was duly adopted by the Board of Directors of the Corporation by
action at a special meeting duly held on February 12, 2000.
RESOLVED: That there is hereby designated a series of the Preferred Stock
(as that term is defined in Article 4 of the Certificate of Incorporation of the
Corporation, as amended), consisting of 8,200,000 shares, which will be issued
in a series entitled "SERIES B CONVERTIBLE PREFERRED STOCK" (referred to as the
"SERIES B PREFERRED STOCK"), and 8,200,000 shares, which will be issued in a
series entitled "SERIES B1 CONVERTIBLE PREFERRED STOCK" (referred to as the
"SERIES B1 PREFERRED STOCK"), and 550,000 shares, which will be issued in a
series entitled "SERIES KBH CONVERTIBLE PREFERRED STOCK" (referred to as the
"SERIES KBH PREFERRED STOCK"), and 550,000 shares, which will be issued in a
series entitled "SERIES KBH1 CONVERTIBLE PREFERRED STOCK" (referred to as THE
"SERIES KBH1 PREFERRED STOCK") and that the preferences and privileges,
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions of all shares of each such series, in addition to
those set forth in the Certificate of Incorporation of the Corporation, as
amended, are as set forth in the attached EXHIBIT I.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, as of this 17th day of February, 2000.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
-------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
- -------------------------------
Kevin L. Rakin
Secretary
<PAGE>
EXHIBIT I
1. DEFINITIONS. As used in this Certificate of Designations, the
following terms have the meanings specified below:
"AFFILIATE" shall mean a person (other than a subsidiary):
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Corporation;
(ii) which beneficially owns or holds 10% or more of any class
of the voting stock of the Corporation; or
(iii) 10% or more of the voting stock (or in the case of a person
which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the Corporation or one of
its subsidiaries.
The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Corporation.
"DILUTED STOCK" shall have the meaning ascribed to it in Section
7(a)(iv)(A) hereof.
"DILUTING ISSUANCE" shall mean an issuance of capital stock described in
Section 7(a)(iv)(A) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other
subdivision or combination of the outstanding shares of Common
Stock;
(ii) up to an aggregate of 1,557,375 shares of Common Stock
issued or issuable to employees pursuant to an employee stock
option plan approved by the Board; or
<PAGE>
(iii) upon conversion of any Preferred Stock, warrants or other
convertible securities outstanding as of the Series B/KBH Initial
Issuance Date and set forth on Schedule 3.4 to the Series B/KBH
Stock Purchase Agreement.
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification that
took effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the average of the last reported bid and
asked prices, as reported by the Nasdaq on such day, or if, on any day in
question, the security shall not be quoted on the Nasdaq, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is traded in such
manner that the quotations referred to in this clause are not available for the
period required hereunder, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the voting power of the Series B/KBH Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent banking firm selected by the American
Arbitration Association in accordance with its rules). With respect to the
Series B/KBH Stock, Fair Market Value shall be determined by a nationally
recognized independent investment banking firm selected mutually by the holders
of more than 50% of the voting power of the Series B/KBH Stock then outstanding
and the Corporation (or if such selection cannot be made, by a nationally
recognized independent banking firm selected by the American Arbitration
Association in accordance with its rules).
"HOLDER" shall mean a holder of shares of Series B/KBH Stock, as
applicable, as reflected in the stock records of the Corporation; and each
Holder's address shall be as it appears in the stock records of the Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series B/KBH Stock, each other
class or series of capital stock (including, without limitation, each class of
common stock of the Corporation and each other series of preferred stock of the
Corporation including the Series A/KBL Stock) or other equity interests
(including, without limitation, warrants, rights, calls or options exercisable
for or convertible into such capital stock or equity interests) in the
Corporation.
"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a third
party or parties, whether voluntary or involuntary, or the sale by the
stockholders of the Corporation of a majority of the voting capital stock of the
Corporation; PROVIDED, HOWEVER, that a merger or consolidation shall not be
considered a
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Liquidation Event if the Corporation is the survivor or continuing corporation
of such merger or consolidation and as a result thereof there is no change in
the Common Stock or Preferred Stock or the ownership thereof.
"LIQUIDATION REDEMPTION PRICE" shall have the meaning assigned to such
term in Section 4(a).
"LISTED RIGHTS" shall mean all patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade names, trade
name rights, service marks and copyrights (whether registered or not) owned or
possessed by the Corporation and any improvements thereon.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional shares
of Preferred Stock, each other series of preferred stock of the Corporation and
any shares of capital stock held by the Corporation in its treasury upon the
disposition thereof) or other equity interests (including, without limitation,
warrants, rights, calls or options exercisable for or convertible into such
capital stock or equity interests) in the Corporation issued after the Series
B/KBH Initial Issue Date; PROVIDED, HOWEVER, that such term shall not include
(i) Excluded Stock or (ii) Second Round Series B/KBH Stock.
"NON-PARTICIPATING PERCENTAGE" shall have the meaning ascribed to it in
Section 7(a)(iv)(A) hereof.
"NON-VOTING COMMON STOCK" shall mean the Non-voting Common Stock, $.001
par value, of the Corporation.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"PREEMPTIVE SHARE" shall mean, immediately prior to any issue of shares
of New Securities, and as to each Series B/KBH Holder, the percentage which
expresses the ratio between (i) the total number of shares of Common Stock (or
Non-voting Common Stock, in the case of the Series KBH Stock) issuable upon
conversion of the Series B/KBH Stock owned by such Series B/KBH Holder, plus the
total number of shares of Common Stock (and Non-voting Common Stock, if any)
then owned by such Series B/KBH Holder that was received upon conversion of
Series B/KBH Stock, and (ii) the total number of shares of Common Stock and
Non-voting Common Stock then outstanding, plus the total number of shares of
Common Stock and Non-voting Common Stock issuable upon conversion of the then
outstanding Preferred Stock.
"PREFERRED STOCK" shall mean all of the outstanding shares of the Series
A Stock, Series KBL Stock, Series B Stock and Series KBH Stock, together, at the
time in question.
"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in
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aggregate gross cash proceeds to the Corporation of not less than forty million
dollars ($40,000,000) and pursuant to which the offering price per share is
equal to or greater than $16.50 ($11.00 per share in the event that the
registration statement with respect to such offering shall be filed with the
Commission on or before February 11, 2001), equitably adjusted for any
Recapitalization Event.
"QUALIFIED LIQUIDATION EVENT" shall have the meaning assigned to such
term in Section 3(a).
"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications, and similar events.
"RELATED PARTY" shall mean any officer, director, significant employee or
consultant of the Corporation or any holder (other than any Series A/KBL Holder
or Series B/KBH Holder) of 10% or more of any class of capital stock of the
Corporation or any member of the immediate family of any such officer, director,
employee, consultant or shareholder or any entity controlled by any such
officer, director, employee, consultant or shareholder or a member of the
immediate family of any such officer, director, employee, consultant or
shareholder.
"SCHEDULED REDEMPTION PRICE" shall have the meaning ascribed to it in
Section 4(b).
"SECOND ROUND SERIES B/KBH ISSUANCE DATE" shall mean the issuance date of
the Second Round Series B/KBH Stock.
"SECOND ROUND SERIES B/KBH STOCK" shall mean those shares of Series B/KBH
Stock that may be issued by the Corporation to certain investors (the "SECOND
ROUND INVESTORS") in the Second Closing as such term is defined in the Series
B/KBH Stock Purchase Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Redeemable Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A1 PREFERRED STOCK" shall mean the Series A1 Redeemable
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A STOCK" shall mean all of the outstanding shares of the Series A
Preferred Stock and the Series A1 Preferred Stock, together, at the time in
question, and any new subseries of the Series A Preferred Stock created pursuant
to Section 9 of the Series A/KBL Certificate of Designations.
"SERIES A/KBL CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series A and Series A1 Redeemable Convertible
Preferred Stock of the Corporation, dated as of August 24, 1998, and amended as
of February 17, 2000, and the Certificate of Designations, Preferences and Other
Special Rights and Qualifications, Limitations and Restrictions of Series KBL
and the
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Series KBL1 Non-voting Redeemable Convertible Preferred Stock of the
Corporation, dated as of August 24, 1998, and amended as of February 17, 2000.
"SERIES A/KBL HOLDER" shall mean a holder of shares of Series A Stock or
Series KBL Stock.
"SERIES A/KBL LIQUIDATION AMOUNT" shall mean the amount due to the Series
A/KBL Holders upon a Liquidation of the Company pursuant to the Series A/KBL
Certificate of Designations.
"SERIES A/KBL STOCK" shall mean all of the outstanding shares of the
Series A Stock and Series KBL Stock, together, at the time in question, which
shares are PARI PASSU for all purposes except voting (the Series KBL Stock being
non-voting) and conversion (the Series KBL Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES B1 PREFERRED STOCK" shall mean the Series B1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES B STOCK" shall mean all of the outstanding shares of the Series B
Preferred Stock and the Series B1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series B Preferred Stock created pursuant to
Section 9 hereof.
"SERIES B/KBH ACCRUED DIVIDENDS" shall mean Series B/KBH Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3, upon the relevant shares of Series B/KBH Stock.
"SERIES B/KBH CONVERSION DATE" shall have the meaning set forth in
Section 7(a)(ii).
"SERIES B/KBH CONVERSION PRICE" shall initially mean $5.50; PROVIDED,
HOWEVER, that the Series B/KBH Conversion Price shall be subject to adjustment
as set forth in Section 7(a)(iv).
"SERIES B/KBH EVENT OF CONVERSION" shall mean the consummation of a
Qualified IPO.
"SERIES B/KBH FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series B/KBH Stock (whether or not in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally available
for the payment of such dividends), that amount which shall be equal to
dividends at the full rate fixed for the Series B/KBH Stock as provided herein
for the period of time elapsed from the Series B/KBH Initial Issuance Date (the
Second Round Series B/KBH Issuance Date in the case of the Second Round Series
B/KBH Stock) to the date as of which Series B/KBH Full Cumulative Dividends are
to be computed.
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"SERIES B/KBH HOLDER" shall mean a holder of shares of Series B Stock or
Series KBH Stock.
"SERIES B/KBH INITIAL ISSUANCE DATE" shall mean February 17, 2000.
"SERIES B/KBH LIQUIDATION AMOUNT" shall mean an amount in cash or
property (valued at its Fair Market Value), or a combination thereof, equal to
$5.50 per share of Series B/KBH Stock held by a Holder (which per share amount
shall be subject to equitable adjustment whenever there shall occur a stock
split, combination, reclassification or other similar event involving the Series
B/KBH Stock) plus all Series B/KBH Accrued Dividends.
"SERIES B/KBH ORIGINAL PURCHASE PRICE" shall mean $5.50 per share of
Series B/KBH Stock.
"SERIES B/KBH REDEMPTION DATE" shall have the meaning set forth in
Section 4 hereof.
"SERIES B/KBH REDEMPTION PRICE" shall have the meaning set forth in
Section 4 hereof.
"SERIES B/KBH STOCK" shall mean all of the outstanding shares of the
Series B Stock and Series KBH Stock, together, at the time in question, which
shares shall be PARI PASSU for all purposes except voting (the Series KBH Stock
being non-voting) and conversion (the Series KBH Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B/KBH STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of February 17, 2000, by and among the Corporation
and the Purchasers (as defined therein).
"SERIES KBH PREFERRED STOCK" shall mean the Series KBH Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH1 PREFERRED STOCK" shall mean the Series KBH1 Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH STOCK" shall mean all of the outstanding shares of the
Series KBH Preferred Stock and the Series KBH1 Preferred Stock, together, at the
time in question, and any new subseries of the Series KBH Preferred Stock
created pursuant to Section 9 hereof.
"SERIES KBL PREFERRED STOCK" shall mean the Series KBL Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL1 PREFERRED STOCK" shall mean the Series KBL1 Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL STOCK" shall mean all of the outstanding shares of the Series
KBL Preferred Stock and the Series KBL1 Preferred Stock, together, at the time
in question, and any new
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subseries of the Series KBL Preferred Stock created pursuant to Section 9 of the
Series A/KBL Certificate of Designations.
"SUBSIDIARY" shall mean an entity a majority of the capital stock or
other ownership interest in which is owned directly or indirectly by the
Corporation, except that 100% "SUBSIDIARY" shall mean a subsidiary that is 100%
owned by the Corporation and/or its 100% subsidiaries.
2. NUMBER OF SHARES. The designation of the four series of preferred
stock provided for herein shall be as follows: Series B Preferred Stock, of
which 8,200,000 shares shall be authorized; Series B1 Preferred Stock, of which
8,200,000 shares shall be authorized; Series KBH Preferred Stock, of which
550,000 shares shall be authorized; and Series KBH1 Preferred Stock, of which
550,000 shares shall be authorized.
3. DIVIDENDS.
(a) The holder of each share of Series B/KBH Stock shall be entitled
to receive, before any dividends shall be declared and paid upon or set aside
for the Junior Securities, out of funds legally available for that purpose,
dividends in cash at the rate per annum per share (the "SERIES B DIVIDEND RATE")
equal to 8% of the Series B/KBH Original Purchase Price, adjusted, as
applicable, for any Recapitalization Event, payable, when and as declared by the
Board and, in any event, upon the earliest of (a) a Liquidation Event in
accordance with Section 5 hereof, (b) upon redemption in accordance with Section
4 hereof or (c) upon the Series B/KBH Event of Conversion. Until the third
anniversary of the Series B/KBH Initial Issuance Date, the Corporation shall
have the option to make any such payment in shares of Common Stock (Non-voting
Common Stock in the case of the Series KBH). After the third anniversary of the
Series B/KBH Initial Issuance Date, the Holder shall have the option to receive
any such payment in shares of Common Stock (Non-voting Common Stock in the case
of the Series KBH). In the event such dividends are paid in Common Stock
(Non-voting Common Stock in the case of the Series KBH), for purposes of
computing the number of shares of Common Stock (Non-voting Common Stock in the
case of the Series KBH) to be issued and the amount of the dividend paid, the
value of the Common Stock (Non-voting Common Stock in the case of the Series
KBH) paid to any holder of shares of Series B/KBH Stock shall be valued at the
then Series B/KBH Conversion Price. Dividends on shares of Series B/KBH Stock
shall be cumulative from the Series B/KBH Initial Issuance Date (Second Round
Series B/KBH Issuance Date in the case of the Second Round Series B/KBH Stock),
whether or not there shall be net profits or net assets of the Corporation
legally available for the payment of such dividends, so that, if at any time
Series B/KBH Full Cumulative Dividends upon the Series B/KBH Stock shall not
have been paid or declared and a sum sufficient for payment thereof set apart,
the amount of the deficiency in such dividends shall be fully paid or dividends
in such amount shall be declared on the shares of the Series B/KBH Stock and a
sum sufficient for the payment thereof shall be set apart for such payment,
before any dividend shall be declared or paid or any other distribution ordered
or made upon any Junior Securities and before any sum or sums shall be set aside
for or applied to the purchase or redemption of Junior Securities. With respect
to rights to dividends, the Series B/KBH Stock shall rank prior to the Common
Stock and all other Junior Securities. All
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dividends declared upon the Series B/KBH Stock shall be declared pro rata per
share. All payments due under this Section to any holder of shares of Series
B/KBH Stock shall be made to the nearest cent. Notwithstanding the foregoing,
the holders of the Series B/KBH Stock shall not be entitled to dividends on the
Series B/KBH Stock pursuant to this Section 3(a) in the event that on or before
August 11, 2001(i) there shall be filed with the Commission a registration
statement with respect to a Qualified Public Offering (which registration
statement shall have become effective within three months of filing); or (ii)
there shall occur a Qualified Liquidation Event. The term "QUALIFIED LIQUIDATION
EVENT" shall mean a Liquidation Event in which the holders of the Series B/KBH
Stock receive (per share) cash or other property with a fair market value equal
to at least 200% of the Series B/KBH Original Purchase Price (as adjusted for
any stock split, combination, reclassification or other similar event involving
the Series B/KBH Stock) if the Qualified Liquidation Event occurs within one
year after the Series B/KBH Initial Issuance Date, and 300% of the Series B/KBH
Original Purchase Price (as adjusted for any stock split, combination,
reclassification or other similar event involving the Series B/KBH Stock) if the
Qualified Liquidation Event occurs more than one year after the Series B/KBH
Initial Issuance Date (but before August 12, 2001).
(b) In the event the Corporation shall make or issue, or shall fix a
record date for the determination of holders of Common Stock (or Non-voting
Common Stock) entitled to receive a dividend or other distribution (other than a
distribution in liquidation or other distribution otherwise provided for herein)
with respect to the Common Stock (or Non-voting Common Stock) or any other
Junior Securities (based on "as if converted amounts") other than the Series
A/KBL Stock payable in (i) securities of the Corporation other than shares of
Common Stock (or Non-voting Common Stock), or (ii) cash, then, and in each such
event, provision shall be made so that the holders of the Series B/KBH Stock
shall receive the number of securities or such other assets of the Corporation
which they would have received had their Series B/KBH Stock been converted into
Common Stock (or Non-voting Common Stock in the case of the Series KBH) on the
date of such event.
4. REDEMPTION.
(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event, the Corporation shall (to the extent
allowed by law) redeem, except as set forth hereafter, all the shares of Series
B/KBH Stock then outstanding, out of funds legally available therefor. The
amount per share payable upon any redemption of shares of Series B/KBH Stock
pursuant to this subsection shall be an amount in cash equal to the Liquidation
Redemption Price, as determined below. The Corporation shall deliver to each
holder of shares of Series B/KBH Stock, not later than 45 days prior to the
consummation of a Liquidation Event, notice of such proposed Liquidation Event,
including the date on which such Liquidation Event is expected to be
consummated. To the extent that one or more redemptions and/or a liquidation are
occurring concurrently, any redemption of the shares of Series B/KBH Stock shall
be deemed to occur and shall be paid in full prior to any other redemptions
and/or liquidations, including any other redemption of shares of the Series
A/KBL Stock. Notwithstanding the foregoing, any Series B/KBH Holder may elect to
retain its outstanding shares of Series B/KBH Stock and not to subject such
shares to redemption by delivery of
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written notice to the Corporation at least 15 days prior to the date of the
consummation of the Liquidation Event.
(ii) The amount per share payable upon any redemption of shares
of Series B/KBH pursuant to this subsection shall be an amount
equal to the greater of (a) the Series B/KBH Original Purchase
Price (subject to equitable adjustment for any stock split,
combination, reclassification or other similar event involving the
Series B/KBH Stock) plus all Series B/KBH Accrued Dividends, or
(b) the Fair Market Value of such share (the "LIQUIDATION
REDEMPTION PRICE").
(iii) Any date upon which Series B/KBH Stock is to be redeemed
pursuant to this Section 4 shall be referred to in this context as
a "SERIES B/KBH REDEMPTION DATE".
(b) SERIES B ANNUAL REDEMPTION. Except as set forth hereafter, the
Corporation shall (to the extent allowed by law) redeem the following shares of
Series B Stock and Series KBH Stock on the following dates, out of funds legally
available therefor:
(i) at any time on or after February 11, 2005, one-third of the
shares of each of the Series B Stock and Series KBH Stock then
outstanding.
(ii) at any time on or after February 11, 2006, an additional
number of shares of each of the Series B Stock and Series KBH
Stock equal to one-third of the shares of the Series B Stock and
Series KBH Stock, respectively, outstanding as of February 11,
2005.
(iii) at any time on or after February 11, 2007, all outstanding
shares of Series B Stock and Series KBH Stock.
The amount per share payable upon any redemption of shares of Series B
Stock and Series KBH Stock pursuant to this subsection shall be an amount in
cash equal to the greater of (a) the Series B/KBH Original Purchase Price
(subject to equitable adjustment for any stock split, combination,
reclassification or other similar event involving the Series B/KBH Stock) plus
all Series B/KBH Accrued Dividends, or (b) the Fair Market Value of such share
(the "SCHEDULED REDEMPTION PRICE" and collectively with the Liquidation
Redemption Price, the "SERIES B/KBH REDEMPTION PRICE").
To the extent that one or more annual or other redemptions are occurring
concurrently, any redemption of the shares of Series B/KBH Stock shall be deemed
to occur and shall be paid in full prior to any other redemptions, including any
other redemption of shares of the Series A/KBL Stock.
Notwithstanding the foregoing, any Series B/KBH Holder may elect to
retain its outstanding shares of Series B/KBH Stock and not to subject such
shares to redemption by delivery of written notice to the Corporation at least
15 days prior to the applicable redemption date set forth above.
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(c) PRO RATA. If, on any Series B/KBH Redemption Date, fewer than all
shares of Series B/KBH Stock then outstanding are to be redeemed in accordance
with this Section, the shares to be redeemed shall be allocated pro rata among
the Series B/KBH Holders and the Redemption Notice mailed to each Holder shall
specify the number of shares to be redeemed from such Holder. Notwithstanding
the delivery of a Redemption Notice, Series B/KBH Holders subject to redemption
may convert such shares pursuant to Section 7 on or before the Series B/KBH
Redemption Date by delivering written notice thereof to the Corporation not
later than 10 days prior to the Series B/KBH Redemption Date.
(d) PAYMENT OF SERIES B/KBH REDEMPTION PRICE; TERMINATION OF RIGHTS.
On any Series B/KBH Redemption Date, the applicable Series B/KBH Redemption
Price in respect of the shares represented by the certificate or certificates
surrendered to the Corporation by the Holder thereof pursuant to the Redemption
Notice shall be paid to the order of the person whose name appears on such
certificate or certificates. Each surrendered certificate shall be canceled and
retired and a new certificate, representing the remaining, unredeemed shares of
Series B/KBH Stock, if any, shall be issued to the Holder of such shares. On any
Series B/KBH Redemption Date, the rights of a Holder with respect to shares
redeemed shall cease, other than such Holder's right to payment of the Series
B/KBH Redemption Price as of the Series B/KBH Redemption Date, upon surrender of
the certificate or certificates.
5. LIQUIDATION. In the event of any liquidation, dissolution or
winding-up of the Corporation, the Series B/KBH Holders shall be entitled,
before any assets of the Corporation shall be distributed among or paid over to
the holders of Junior Securities, but after distribution of such assets among,
or payment thereof over to, creditors of the Corporation, to receive from the
assets of the Corporation available for distribution to stockholders in cash,
the Series B/KBH Liquidation Amount. If the assets of the Corporation legally
available for distribution shall be insufficient to permit the payment in full
of the Series B/KBH Liquidation Amount to the Series B/KBH Holders, then the
entire assets of the Corporation legally available for distribution shall be
distributed ratably among the Series B/KBH Holders in proportion to the
respective amounts which would have been payable upon such Liquidation Event on
such shares of Series B/KBH Stock if all amounts payable thereon had been paid
in full. In the event that such distribution of assets is other than in cash,
such distribution of cash and other assets (including securities) shall be made
ratably among the holders of the shares of Series B/KBH Stock based upon the
fair market value of any such assets as determined by a nationally recognized
valuation consultant selected mutually by the holders of a majority in voting
power of the Series B/KBH Stock then outstanding and the Corporation (or if such
selection cannot be made, by a nationally recognized independent valuation
consultant selected by the American Arbitration Association in accordance with
its rules). In the event of any liquidation, dissolution or winding-up of the
Corporation, after payment shall have been made to the holders of shares of
Series B/KBH Stock of the full amount to which they shall be entitled as
aforesaid, and then after payment of the Series A/KBL Liquidation Amount to the
Series A/KBL Holders under the Series A/KBL Certificate of Designations, the
holders of any Junior Securities and the Series B/KBH Holders shall be entitled
to participate equally, on an as-converted basis in the case of the Series B/KBH
Stock and any Junior Securities convertible into Common Stock, in all remaining
assets of the Corporation available for distribution to its stockholders. The
provisions of this Section 5 shall not be
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applicable to any shares of Series B/KBH Stock that have been redeemed pursuant
to Section 4(a) hereof in connection with such Liquidation Event. The holders of
the Series B/KBH Stock shall have the right to treat any merger, consolidation,
sale of all or substantially all of the assets of the Corporation, or sale of a
majority of the voting capital stock of the Corporation, as a liquidation of the
Corporation and, in connection therewith, to receive payment under this Section
5 upon surrender of their shares to the Corporation; PROVIDED, HOWEVER, that the
holders of the Series B/KBH Stock shall not have the right to treat any merger
or consolidation as a Liquidation Event if the Corporation is the survivor or
continuing corporation of such merger or consolidation and as a result thereof
there is no change in the Common Stock or Preferred Stock or the ownership
thereof.
6. VOTING.
(a) VOTES GENERALLY WITH COMMON STOCK. In addition to the rights
specified in Section 6(b) below and any other rights provided in the
Corporation's By-Laws, the shares of Series B Stock shall entitle each Holder
thereof to such number of votes as shall equal the number of shares of Common
Stock (rounded to the nearest whole number) into which the shares of Series B
Stock held by such Holder are then convertible pursuant to Section 7 and shall
entitle each such Holder to vote on all matters as to which holders of Common
Stock shall be entitled to vote, in the same manner and with the same effect as
such holders of Common Stock, voting together with the holders of Common Stock
as one class.
(b) SEPARATE CLASS VOTE. So long as any shares of Series B Stock are
outstanding, the consent of the holders of a majority of all of the outstanding
shares of Series B Stock and Series A Stock, voting as a single and separate
class in person or by proxy, at a special or annual meeting called for the
purpose, or by written consent in lieu of a meeting, shall be required before
the Corporation may:
(i) authorize or issue any class or series of capital stock
ranking senior or pari passu to the Series B/KBH Stock or the
Series A/KBL Stock with respect to rights to receive dividends,
redemption payments or distributions upon liquidation or winding
up of the Corporation or with respect to voting, antidilution
provisions or preemptive rights; PROVIDED, HOWEVER, that this
provision shall not apply to the issuance of the Second Round
Series B/KBH Stock (which itself shall be Series B/KBH Stock);
(ii) authorize, declare or distribute any dividend, whether in
cash or in kind, payable to any class or series of the
Corporation's common or preferred stock (except payment of
dividends on the Series B/KBH Stock as contemplated herein or
payment of dividends on the Series A/KBL Stock as contemplated
(and only to the extent permitted) in the Series A/KBL Certificate
of Designations) or to any other equity security of the
Corporation;
(iii) approve any liquidation, dissolution, sale, lease or
license of all or substantially all of the assets or business, or
of the assets or business of any subsidiary, of the Corporation;
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(iv) cancel, repeal or change any of the provisions of this
Certificate of Designations (or of any amendment hereto), any
other certificate of designations of the Corporation (or any
amendment thereto), the Certificate of Incorporation of the
Corporation or the By-laws of the Corporation;
(v) permit to lapse any of the following: its corporate
existence, essential rights, government approvals or franchises or
any licenses or Listed Rights (which the Board deems essential to
the Corporation's business) or other rights to use patents,
processes, licenses, trademarks, trade names or copyrights owned
or possessed by it (which the Board deems essential to the
Corporation's business);
(vi) transfer, assign or license (except end-user licenses
granted in the ordinary course of business) any of the
Corporation's Listed Rights or know-how, technology or trade
secrets now owned or hereafter acquired by the Corporation;
(vii) voluntarily dissolve, liquidate or wind-up or carry out any
partial liquidation or distribution or transaction in the nature
of a partial liquidation or distribution;
(viii) purchase, lease or otherwise acquire capital stock in any
corporation or equity interest in any other entity or lend money
to any person or entity (other than loans to any one person that,
individually or in the aggregate, shall not exceed $100,000 or
loans to any one employee that, individually or in the aggregate,
shall not exceed $200,000) or purchase a substantial part of the
operating assets of any person or entity;
(ix) consolidate with or merge into or with any other person or
entity or permit any other person or entity to consolidate with or
merge into it (except that a 100% subsidiary may consolidate with
or merge into the Corporation or another 100% subsidiary);
(x) permit any subsidiary (except a 100% subsidiary) to make
any (i) direct or indirect redemption, retirement, purchase or
other acquisition of any of the Corporation's capital stock (or
any warrant, option or other right with respect to such stock),
(ii) repayment of the Corporation's debt held by any Related Party
or by any Affiliate or subsidiary debt held by any Related Party
or by any Affiliate, or (iii) sale of any capital stock of the
Corporation to any third party;
(xi) issue (which term shall include without limitation the
issuance of any shares of, or the grant of any warrants, options
or other rights to purchase any shares of, or any commitment to
issue) any shares of its capital stock (which term shall include
without limitation, securities convertible into capital stock, or
rights to acquire capital stock), other than Excluded Stock, at a
price per share less than $5.50;
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(xii) redeem any shares of any capital stock of the Corporation
(except redemptions of Series B/KBH Stock as contemplated herein
or redemptions of Series A/KBL Stock as contemplated (and only to
the extent permitted) in the Series A/KBL Certificate of
Designations); or
(xiii) increase the size of the Board of Directors of the Company
above eight (8) members.
7. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) The holder of any shares of Series B/KBH Stock shall have
the right, at such holder's option, at any time or from time to
time to convert any or all such holder's shares of Series B/KBH
Stock into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of
Series KBH Stock) as equals (I) the product of (x) the Series
B/KBH Original Purchase Price plus, after the third anniversary of
the Series B/KBH Initial Issuance Date at the option of any
Holder, any unpaid Series B/KBH Accrued Dividends with respect to
the shares being converted, multiplied by (y) the number of shares
of Series B/KBH Stock being converted, divided by (II) the Series
B/KBH Conversion Price (as last adjusted and then in effect) for
the shares of the Series B/KBH Stock being converted, by surrender
of the certificates representing the shares of Series B/KBH Stock
so to be converted in the manner provided Section 7(a)(ii) below.
The Series B/KBH Conversion Price shall initially be equal to the
Series B/KBH Original Purchase Price; PROVIDED, HOWEVER, that such
Series B/KBH Conversion Price shall be subject to adjustment as
set forth in Section 7(a)(iv) below.
(ii) The holder of any shares of Series B/KBH Stock may exercise
such holder's conversion right pursuant to this Section by
delivering to the Corporation during regular business hours at the
office of any transfer agent of the Corporation for the Series
B/KBH Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or to the
Corporation (if required by it) accompanied by written notice
stating that such holder elects to convert such shares and stating
the name or names (with address) in which the certificate or
certificates for the shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBH Stock) are to be issued.
Conversion shall be deemed to have been effected with respect to
conversion under (a) Section 7(a)(i) above, on the date when the
aforesaid delivery is made and (b) Section 7(b) on the date of
occurrence of a Series B/KBH Event of Conversion, as the case may
be, and any such date is referred to herein as the "SERIES B/KBH
CONVERSION DATE". As promptly as practicable thereafter the
Corporation shall issue and deliver to or upon the written order
of such holder, to the place designated by such holder, a
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certificate or certificates for the number of full shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBH Stock) to which such holder is entitled and a check or cash in
respect of any fractional interest in a share of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock), as
provided in Section 7(a)(iii) below, payable with respect to the
shares of Series B/KBH Stock so converted up to and including the
Series B/KBH Conversion Date. The person in whose names the
certificate or certificates for Common Stock (or Non-voting Common
Stock, in the case of Series KBH Stock) are to be issued shall be
deemed to have become a holder of Common Stock (or Non-voting
Common Stock, in the case of Series KBH Stock) on the applicable
Series B/KBH Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such holder
shall be deemed to have become a holder of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock) on the
next succeeding date on which the transfer books are open, but the
Series B/KBH Conversion Price shall be that in effect on the
Series B/KBH Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares
of Series B/KBH Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate covering the number of
shares of Series B/KBH Stock representing the unconverted portion
of the certificate so surrendered.
(iii) No fractional shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBH Stock) or scrip shall be issued
upon conversion of shares of Series B/KBH Stock. If more than one
share of Series B/KBH Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBH Stock) issuable upon conversion thereof shall be computed on
the basis of the aggregate number of shares of Series B/KBH Stock
so surrendered. Instead of any fractional shares of Common Stock
(or Non-voting Common Stock, in the case of Series KBH Stock)
which would otherwise be issuable upon conversion of any shares of
Series B/KBH Stock, the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the then
current Fair Market Value of a share of Common Stock multiplied by
such fractional interest.
(iv) The Series B/KBH Conversion Price shall be subject to
adjustment from time to time as follows:
(A) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. Unless the Corporation has requested and
received a waiver from the holders of a majority of the
Series A Stock and the Series B Stock, voting together as a
single class, if the Corporation shall at any time or from
time to time after the Series B/KBH Initial Issuance Date
issue or be deemed (by virtue of any of the provisions of
Section 7(a)(iv)), to have issued any capital stock
(including, without limitation, each class
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<PAGE>
of common stock of the Corporation) or other equity
interests (including, without limitation, warrants, rights,
calls or options exercisable for or convertible into such
capital stock or equity interests) in the Corporation,
other than Excluded Stock (or Second Round Series B/KBH
Stock), without consideration or for a consideration per
share (the "LAST ISSUE PRICE") less than the Series B/KBH
Conversion Price in effect immediately prior to each such
issuance or deemed issuance (a "DILUTING ISSUANCE"), the
Series B/KBH Conversion Price in effect immediately prior
thereto shall forthwith be adjusted, as of the opening of
business on the date of such issuance or deemed issuance,
to such Last Issue Price.
Notwithstanding the immediately preceding paragraph of this
subsection (A), if a Series B/KBH Holder has been given
written notice pursuant to Section 8 hereof and the
opportunity to purchase its Preemptive Share of such
Diluting Issuance and does not purchase its entire
Preemptive Share of such Diluting Issuance, but purchases a
lesser share of such Diluting Issuance or none, the Series
B/KBH Conversion Price for that portion of the shares of
Series B/KBH Stock of said Series B/KBH Holder equal to the
Non-Participating Percentage (as hereinafter defined) (the
"DILUTED STOCK") shall not be reduced for said issuance
pursuant to this subsection but each share of the Diluted
Stock which each such Series B/KBH Holder holds shall be
automatically converted immediately prior to the closing of
the applicable Diluting Issuance into one (1) share of
Series B1 Preferred Stock (or Series KBH1 Preferred Stock,
in the case of Series KBH Stock) which shall be convertible
into Common Stock (or Non-voting Common Stock, in the case
of Series KBH1 Stock) at the same price per share that
applied to the Diluted Stock immediately prior to such
Diluting Issuance, subject, however, to further adjustment
as herein provided. As used herein, the term
"NON-PARTICIPATING PERCENTAGE" means a percentage equal to
one hundred percent (100%) minus the percentage determined
by dividing the number of shares of the Diluting Issuance
which such Holder actually purchased by the maximum number
of shares of the Diluting Issuance which such Holder was
entitled to purchase on the basis of such Holder's
Preemptive Shares and expressing the resulting quotient as
a percentage.
Upon the conversion of Diluted Stock held by a Series B/KBH
Holder as set forth herein, such shares of Diluted Stock
shall no longer be outstanding on the books of the
Corporation and the Series B/KBH Holder shall be treated,
to the extent that said holder held such Diluted Stock, as
the record holder of such shares of Series B1 Preferred
Stock (or Series KBH1 Stock, in the case of Series KBH
Stock) on the date of closing of the applicable Diluting
Issuance.
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<PAGE>
For the purposes of any adjustment of the Series B/KBH
Conversion Price pursuant to this subsection (A), the
following provisions shall be applicable:
(1) In the case of the issuance of stock for
cash, the consideration shall be deemed to be the
amount of cash paid therefor.
(2) In the case of the issuance of stock for a
consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to
be the fair market value thereof as determined in
good faith by the Board, irrespective of any
accounting treatment; PROVIDED, HOWEVER, that the
aggregate fair market value of such non-cash and
cash consideration shall not exceed the current Fair
Market Value of the shares of stock being issued.
(3) In case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (or
Non-voting Common Stock, in the case of Series KBH
Stock); (ii) securities by their terms convertible
into or exchangeable for Common Stock (or Non-voting
Common Stock, in the case of Series KBH Stock); or
(iii) options to purchase or rights to subscribe for
such convertible or exchangeable securities:
(a) the aggregate number of shares of
Common Stock (or Non-voting Common Stock, in
the case of Series KBH Stock) deliverable
upon exercise of such options to purchase or
rights to subscribe for Common Stock (or
Non-voting Common Stock, in the case of
Series KBH Stock) shall be deemed to have
been issued at the time such options or
rights were issued and for a consideration
equal to the consideration (determined in the
manner provided in subdivisions (1) and (2)
above), if any, received by the Corporation
upon the issuance of such options or rights
plus the purchase price provided in such
options or rights for the Common Stock (or
Non-voting Common Stock, in the case of
Series KBH Stock) covered thereby;
(b) the aggregate number of shares of
Common Stock (or Non-voting Common Stock, in
the case of Series KBH Stock) deliverable
upon conversion of or in exchange for any
such convertible or exchangeable securities
or upon the exercise of options to purchase
or rights to subscribe for such convertible
or exchangeable securities and subsequent
conversion or exchange thereof shall be
deemed to have
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<PAGE>
been issued at the time such securities were
issued or such options or rights were issued
and for a consideration equal to the
consideration received by the Corporation for
any such securities and related options or
rights (excluding any cash received on
accounts of accrued interest or accrued
dividends), plus the additional
consideration, if any, to be received by the
Corporation upon the conversion or exchange
of such securities or the exercise of any
related options or rights (the consideration
in each case to be determined in the manner
provided in subdivisions (1) and (2) above,
with the proviso to subdivision (2) being
applied to the number of shares of Common
Stock (or Non-voting Common Stock, in the
case of Series KBH Stock) deliverable upon
such exercise);
(c) on any change in the number of shares
or exercise price of Common Stock (or
Non-voting Common Stock, in the case of
Series KBH Stock) deliverable upon the
exercise of any such options or rights or
conversions of or exchange for such
convertible or exchangeable securities, other
than a change resulting from the antidilution
provisions thereof, the Series B/KBH
Conversion Price, if previously adjusted,
shall forthwith be readjusted to such Series
B/KBH Conversion Price as would have obtained
had the adjustment made upon the issuance of
such options, rights or securities not
converted prior to such change or options or
rights related to such securities not
converted prior to such change having been
made upon the basis of such change; and
(d) on the expiration of any such options
or rights, the termination of any such rights
to convert or exchange or the expiration of
any options or rights related to such
convertible or exchangeable securities, the
Series B/KBH Conversion Price, if previously
adjusted, shall forthwith be readjusted to
such Series B/KBH Conversion Price as would
have obtained had such options, rights,
securities or options or rights related to
such securities not been issued.
(B) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR
SPLIT-UPS. If, at any time after the Series B/KBH Initial
Issuance Date, the number of shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock)
outstanding is increased by a stock dividend payable in
shares of Common
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<PAGE>
Stock (or Non-voting Common Stock, in the case of Series
KBH Stock) or by a subdivision or split-up of shares of
Common Stock (or Non-voting Common Stock, in the case of
Series KBH Stock), then, upon the record date fixed for the
determination of holders of Common Stock (or Non-voting
Common Stock, in the case of Series KBH Stock) entitled to
receive such stock dividend, subdivision or split-up, the
Series B/KBH Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock)
issuable on conversion of each share of Series B/KBH Stock
shall be increased in proportion to such increase in
outstanding shares.
(C) ADJUSTMENTS FOR COMBINATIONS. If, at any time
after the Series B/KBH Initial Issuance Date, the number of
shares of Common Stock (or Non-voting Common Stock, in the
case of Series KBH Stock) outstanding is decreased by a
combination of the outstanding shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock),
then, upon the record date for such combination, the Series
B/KBH Conversion Price shall be appropriately increased so
that the number of shares of Common Stock (or Non-voting
Common Stock, in the case of Series KBH Stock) issuable on
conversion of each share of Series B/KBH Stock shall be
decreased in proportion to such decrease in outstanding
shares.
(D) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS,
CONSOLIDATIONS, ETC. In case, at any time after the Series
B/KBH Initial Issuance Date, of any capital reorganization,
or any reclassification of the stock of the Corporation
(other than a change in par value or from par value to no
par value or from no par value to par value or as a result
of a stock dividend or subdivision, split-up or combination
of shares), or the consolidation or merger of the
Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any
change in the Common Stock or Preferred Stock or the
ownership thereof or of the sale or other disposition of
all or substantially all of the properties and assets of
the Corporation as an entirety to any other person), each
share of Series B/KBH Stock shall, after such
reorganization, reclassification, consolidation, merger,
sale or other disposition, be convertible into the kind and
number of shares of stock or other securities or property
of the Corporation or of the corporation resulting from
such consolidation or surviving such merger or to which
such properties and assets shall have been sold or
otherwise disposed to which the holder of the number of
shares of Common Stock (or Non-voting Common Stock, in the
case of Series KBH Stock) deliverable (immediately prior to
the time of such reorganization, reclassification,
consolidation, merger, sale or other disposition) upon
conversion of such share would have been entitled upon such
reorganization, reclassification, consolidation, merger,
sale or other disposition. The provisions of this
subsection shall similarly apply to
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<PAGE>
successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
(E) All calculations under this subsection (iv) shall be
made to the nearest one cent ($.01) or to the nearest
one-tenth (1/10) of a share, as the case maybe.
(F) In any case in which the provisions of this
subsection (iv) shall require that an adjustment shall
become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of
such event (i) issuing to the holder of any share of Series
B/KBH Stock converted after such record date and before the
occurrence of such event the additional shares of capital
stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares
of capital stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 7(a)(iii) above,
PROVIDED, HOWEVER, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event
requiring such adjustment.
(v) Whenever the Series B/KBH Conversion Price shall be
adjusted as provided in Section 7(a)(iv), the Corporation shall
forthwith file, at the office of the transfer agent for the Series
B/KBH Stock or at such other place as may be designated by the
Corporation, a statement, signed by its independent certified
public accountants, showing in detail the facts requiring such
adjustment and the Series B/KBH Conversion Price that shall be in
effect after such adjustment. The Corporation shall also cause a
copy of such statement to be sent by first class, certified mail,
return receipt requested, postage prepaid, to each Series B/KBH
Holder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under
the provisions of Section 7(a)(vi) below.
(vi) In the event the Corporation shall propose to take any
action of the types described in clauses (A), (B), (C), or (D) of
Section 7(a)(iv) above, the Corporation shall give notice to each
holder of shares of Series B/KBH Stock, in the manner set forth in
Section 7(a)(v) above, which notice shall specify the record date,
if any, with respect to, any such action and the date on which
such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Series B/KBH
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion
of shares of Series B/KBH Stock. In the
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<PAGE>
case of any action which would require the fixing of a record
date, such notice shall be given at least 20 days prior to the
date so fixed, and in case of all other action, notice shall be
given at least 30 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(vii) The Corporation shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery
of shares of capital stock of the Corporation upon conversion of
any shares of Series B/KBH Stock; PROVIDED, HOWEVER, that the
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series B/KBH Stock in respect
of which such shares are being issued.
(viii) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock), solely
for the purpose of effecting the conversion of the shares of
Series B/KBH Stock, sufficient shares to provide for the
conversion of all outstanding shares of Series B/KBH Stock.
(ix) All shares of Common Stock (or Non-voting Common Stock, in
the case of Series KBH Stock) which may be issued in connection
with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and
nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens or charges with
respect thereto.
(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series B/KBH Event
of Conversion, all shares of Series B/KBH Stock then outstanding shall, by
virtue of, and simultaneously with, the occurrence of the Series B/KBH Event of
Conversion and without any action on the part of the holders thereof, be deemed
automatically converted into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of Series KBH
Stock) as equals (1) the product of (x) the Series B/KBH Original Purchase Price
plus, after the third anniversary of the Series B/KBH Initial Issuance Date at
the option of any Holder, any unpaid Series B/KBH Accrued Dividends with respect
to the shares being converted, multiplied by (y) the number of shares of Series
B/KBH Stock being converted divided by (2) the Series B/KBH Conversion Price as
last adjusted pursuant to Section 7(a)(iv) and then in effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the occurrence of
a Series B/KBH Event of Conversion, the Series B/KBH Holders shall be entitled
to subscribe for their respective Preemptive Share of any New Securities which
the Corporation may, from time to time, propose to issue and sell, at any time
while any Series B/KBH Stock is outstanding and subject to the terms, conditions
and procedures set forth below.
(b) The Corporation shall first deliver to each Series B/KBH Holder a
written Notice of Intention to Sell offering to each Series B/KBH Holder the
right to purchase up to the
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<PAGE>
Preemptive Share of such Series B/KBH Holder of such shares of New Securities at
the purchase price and on the terms specified therein. Each Series B/KBH Holder
shall have the right and option, for a period of twenty (20) days after delivery
to said Series B/KBH Holder of such Notice of Intention to Sell, to purchase all
or any part of the Preemptive Share of such Series B/KBH Holder of the shares of
New Securities so offered at the purchase price and on the terms stated therein.
Such acceptance shall be made by delivering a written Notice of Acceptance to
the Corporation within the aforesaid twenty (20) day period.
The closing of any sales of shares of New Securities under the terms of
Section 8 shall be made at the offices of the Corporation on a mutually
satisfactory business day within five (5) business days after the expiration of
the aforesaid period. Delivery of certificates or other instruments evidencing
such shares of New Securities duly endorsed for transfer to the appropriate
Series B/KBH Holder shall be made on such date against payment of the purchase
price therefor.
(c) The Corporation may issue and sell all or any part of the
remaining shares of New Securities so offered for sale but not purchased
pursuant to Section 8 hereof at a price not less than the price offered, and on
terms not more favorable, to the purchaser thereof than the terms stated in the
original Notice of Intention to Sell, at any time within ninety (90) days after
the expiration of the offer required by Section 8. In the event the remaining
shares of New Securities are not sold by the Corporation during such ninety (90)
day period, the right of the Corporation to sell such remaining shares of New
Securities shall expire and the obligations of this Section 8 shall be
reinstated; PROVIDED, HOWEVER, that in the event the Corporation determines, at
any time during such ninety (90) day period, that the sale of all or any part of
the remaining shares of New Securities on the terms set forth in the Notice of
Intention to Sell is impractical, the Corporation can terminate the offer and
reinstate the procedure provided in this Section 8 without waiting for the
expiration of such ninety (90) day period.
9. FURTHER DILUTING ISSUANCES. The Corporation shall not permit or
cause to occur more than one Diluting Issuance unless, so as to facilitate
the adjustments required by Section 7(a)(iv)(A), the Corporation (I) has
taken all necessary action to create a new subseries of the Series B
Preferred Stock, which shall be PARI PASSU with the Series B Preferred Stock
and the Series B1 Preferred Stock for all purposes except conversion price,
(II) has taken all necessary action to create a new subseries of the Series
KBH Preferred Stock, which shall be PARI PASSU with the Series KBH Preferred
Stock and the Series KBH1 Preferred Stock for all purposes except conversion
price, (III) shall have amended this Certificate to provide that the shares
of Series B Stock held by any Holder thereof who fails to purchase its full
Preemptive Share of such additional Diluting Issuance shall be converted
automatically into such new subseries of Series B Stock, and (IV) shall have
amended this Certificate to provide that the shares of Series KBH Stock held
by any Holder thereof who fails to purchase its full Preemptive Share of such
additional Diluting Issuance shall be converted automatically into such new
subseries of Series KBH Stock. The shares of such subseries shall be
convertible into Common Stock (or Non-voting Common Stock, in the case of the
Series KBH Stock) immediately after such Diluting Issuance at the same price
per share that applied to the shares which were so converted immediately
prior to such Diluting Issuance. The consent of the Holders of the Preferred
Stock shall not be required in order to effect such new subseries.
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<PAGE>
GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATES OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES A1 REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES KBL NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES KBL1 NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), DOES HEREBY
CERTIFY:
1. The following resolutions were duly adopted by action of the Board
of Directors of the Corporation at a special meeting duly held on March 6, 2000,
pursuant to authority conferred upon the Board of Directors by the provisions of
Article 4 of the Certificate of Incorporation of the Corporation, as amended,
(referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 25,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value (the "PREFERRED
STOCK").
RESOLVED: That the provisions of the two Certificates of Designations,
Preferences and Other Special Rights and Qualifications, Limitations and
Restrictions of Preferred Stock of the Corporation (the first such
certificate relating to the Series A Redeemable Convertible Preferred
Stock and the Series A1 Redeemable Convertible Preferred Stock of the
Corporation, and the second such certificate relating to the Series KBL
Nonvoting Redeemable Convertible Preferred Stock and the Series KBL1
Nonvoting Redeemable Convertible Preferred Stock of the Corporation ),
both approved by the Board of Directors on August 22, 1998, and amended
by the Board of Directors on February 12, 2000 (the "SERIES A/KBL
CERTIFICATES OF Designations"), shall be further amended by deleting the
definition of "Series B/KBH Certificate of Designations" from Section 1
of EXHIBIT 1 to each of the Series A/KBL Certificates of Designations and
substituting therefor the following text:
"SERIES B/KBH CERTIFICATE OF DESIGNATIONS" shall mean the
Certificate of Designations, Preferences and Other Special Rights
and Qualifications, Limitations and Restrictions of Series B and
Series B1 Convertible Preferred Stock of the Corporation, and
Series KBH and Series KBH1 Non-voting
<PAGE>
Convertible Preferred Stock of the Corporation, dated as of
February 17, 2000, and amended as of March 8, 2000."
; and further
RESOLVED: That the Series A/KBL Certificates of Designations shall be
further amended by deleting the definition of "Series B/KBH Stock
Purchase Agreement" from Section 1 of EXHIBIT 1 to each of such
Certificates of Designations and substituting therefor the following
text:
""SERIES B/KBH STOCK PURCHASE AGREEMENT" shall mean that certain
Stock Purchase Agreement, dated as of February 17, 2000, and
amended as of February 29, 2000 and as of March 3, 2000, by and
among the Corporation and the Purchasers (as defined therein)."
; and further
RESOLVED: That except as amended hereby, each of the Series A/KBL
Certificates of Designations are hereby ratified and confirmed.
2. Such resolutions also were duly approved by the written consent of
the holders of the requisite number of shares of the Series A Redeemable
Convertible Preferred Stock, the Series A1 Redeemable Convertible Preferred
Stock , the Series KBL Nonvoting Redeemable Convertible Preferred Stock and the
Series KBL1 Nonvoting Redeemable Convertible Preferred Stock of the Corporation
and the holders of the requisite number of shares of the Series B Convertible
Preferred Stock, the Series B1 Convertible Preferred Stock, the Series KBH
Nonvoting Convertible Preferred Stock, and the Series KBH1 Nonvoting Convertible
Preferred Stock of the Corporation.
3. This amendment to the Series A/KBL Certificates of Designations
was duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, as of this 8th day of March, 2000.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
------------------------------
Kevin L. Rakin
Secretary
<PAGE>
GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK,
SERIES B1 CONVERTIBLE PREFERRED STOCK,
SERIES KBH NONVOTING CONVERTIBLE PREFERRED STOCK,
SERIES KBH1 NONVOTING CONVERTIBLE PREFERRED STOCK
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), DOES HEREBY
CERTIFY:
1. The following resolutions were duly adopted by action of the Board
of Directors of the Corporation at a special meeting duly held on March 6, 2000,
pursuant to authority conferred upon the Board of Directors by the provisions of
Article 4 of the Certificate of Incorporation of the Corporation, as amended,
(referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 25,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value (the "PREFERRED
STOCK").
RESOLVED: That the provisions of the Certificate of Designations,
Preferences and Other Special Rights and Qualifications, Limitations and
Restrictions of Preferred Stock of the Corporation (such certificate
relating to the Series B Convertible Preferred Stock, Series B1
Convertible Preferred Stock, Series KBH Nonvoting Convertible Preferred
Stock and Series KBH1 Nonvoting Convertible Preferred Stock of the
Corporation), approved by the Board of Directors on February 12, 2000 and
filed with the Delaware Secretary of State on February 17, 2000 (the
"SERIES B/KBH CERTIFICATE OF DESIGNATIONS"), shall be hereby amended to
increase the number of authorized shares of Series B Convertible
Preferred Stock from 8,200,000 to 8,543,524 and the number of authorized
shares of Series B1 Convertible Preferred Stock from 8,200,000 to
8,543,524; and further
RESOLVED: That the Series B/KBH Certificate of Designations shall be
further amended by deleting the definition of "Series A/KBL Certificate
of Designations" from Section 1 of EXHIBIT 1 to such Certificate of
Designations and substituting therefor the following text:
""SERIES A/KBL CERTIFICATE OF DESIGNATIONS" shall mean the
Certificate of Designations, Preferences and Other Special Rights
and Qualifications, Limitations and Restrictions of Series A and
Series A1 Redeemable Convertible Preferred Stock of the
<PAGE>
Corporation, dated as of August 24, 1998, and amended as of
February 17, 2000 and as of March 8, 2000, and the Certificate of
Designations, Preferences and Other Special Rights and
Qualifications, Limitations and Restrictions of Series KBL and the
Series KBL1 Non-voting Redeemable Convertible Preferred Stock of
the Corporation, dated as of August 24, 1998, and amended as of
February 17, 2000 and as of March 8, 2000."
;and further
RESOLVED: That the Series B/KBH Certificate of Designations shall be
further amended by deleting the definition of "Series B/KBH Stock
Purchase Agreement" from Section 1 of EXHIBIT 1 to such Certificate of
Designations and substituting therefor the following text:
""SERIES B/KBH STOCK PURCHASE AGREEMENT" shall mean that certain
Stock Purchase Agreement, dated as of February 17, 2000, and
amended as of February 29, 2000 and as of March 3, 2000, by and
among the Corporation and the Purchasers (as defined therein)."
and further
RESOLVED: That the Series B/KBH Certificate of Designations shall be
further amended by deleting the text of Section 2 of EXHIBIT 1 to such
Certificate of Designations in its entirety and substituting therefor the
following text:
"2. NUMBER OF SHARES. The designation of the four series of
preferred stock provided for herein shall be as follows: Series B
Preferred Stock, of which 8,543,524 shares shall be authorized;
Series B1 Preferred Stock, of which 8,543,524 shares shall be
authorized; Series KBH Preferred Stock, of which 550,000 shares
shall be authorized; and Series KBH1 Preferred Stock, of which
550,000 shares shall be authorized."
; and further
RESOLVED: That the Series B/KBH Certificate of Designations, as amended
hereby, shall apply to 8, 543,524 shares of Series B Convertible
Preferred Stock, 8, 543,524 shares of Series B1 Convertible Preferred
Stock, 550,000 shares of Series KBH Nonvoting Convertible Preferred
Stock, and 550,000 shares of Series KBH1 Nonvoting Convertible Preferred
Stock of the Corporation. Except as amended hereby, the Series B/KBH
Certificate of Designations is hereby ratified and confirmed.
2. Such resolutions also were duly approved by the written consent of
the holders of the requisite number of shares of the Series B Convertible
Preferred Stock, the Series B1
<PAGE>
Convertible Preferred Stock, the Series KBH Nonvoting Convertible Preferred
Stock and the Series KBH1 Nonvoting Convertible Preferred Stock of the
Corporation, and by the holders of the requisite number of shares of the Series
A Redeemable Convertible Preferred Stock, the Series A1 Redeemable Convertible
Preferred Stock, the Series KBL Nonvoting Redeemable Convertible Preferred Stock
and the Series KBL1 Nonvoting Redeemable Convertible Preferred Stock of the
Corporation.
3. This amendment to the Certificates of Designations was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, as of this 8 day of March, 2000.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
------------------------------
Kevin L. Rakin
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
GENAISSANCE PHARMACEUTICALS, INC.
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. This Certificate of Amendment amends the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), by amending Article 4 to effect changes in the capital
structure of the Corporation.
2. The first sentence of Article 4 of the Certificate of
Incorporation, as amended, is amended hereby to read as follows:
"The total authorized capital stock of the corporation consists of
52,000,000 shares, of which 20,000,000 are shares of Common Stock,
$.001 par value (the "Common Stock"), 2,000,000 are shares of
Nonvoting Common Stock, $.001 par value (the "Nonvoting Common
Stock"), and 30,000,000 are shares of Preferred Stock, $.001 par
value ("Preferred Stock")."
3. The foregoing amendment to the Certificate of Incorporation was
duly adopted by written consent of the stockholders in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
4. This Amendment to the Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Gualberto Ruano, its President, and attested to by Kevin L. Rakin, its
Secretary, this 10th day of March, 2000.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
----------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
-------------------------
Kevin L. Rakin, Secretary
<PAGE>
GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATES OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES A1 REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES KBL NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES KBL1 NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
GENAISSANCE PHARMACEUTICALS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), DOES HEREBY
CERTIFY:
1. The following resolution was duly adopted by action of the Board
of Directors of the Corporation at a special meeting duly held on March 10,
2000, pursuant to authority conferred upon the Board of Directors by the
provisions of Article 4 of the Certificate of Incorporation of the Corporation,
as amended, (referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 30,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value (the "PREFERRED
STOCK").
RESOLVED: That the provisions of the two Certificates of Designations,
Preferences and Other Special Rights and Qualifications, Limitations and
Restrictions of Preferred Stock of the Corporation (the first such
certificate relating to the Series A and Series A1 Redeemable Convertible
Preferred Stock, and the second such certificate relating to the Series
KBL and Series KBL1 Nonvoting Redeemable Convertible Preferred Stock)
(the "CERTIFICATES OF DESIGNATIONS"), both dated as of August 24, 1998,
and as amended as of February 17, 2000 and as of March 8, 2000, shall be
further amended by deleting the text of each in its entirety and
substituting therefor the text set forth in EXHIBIT I attached hereto.
Said Certificates of Designations, as amended hereby, shall apply to
2,437,500 shares of Series A Redeemable Convertible Preferred Stock,
2,437,500 shares of Series A1 Redeemable Convertible Preferred Stock,
330,500 shares of Series KBL Nonvoting Redeemable Convertible Preferred
Stock, and 330,500 shares of Series KBL1 Nonvoting Redeemable Convertible
Preferred Stock.
2. Such resolution also was duly approved by the written consent of
the holders of the requisite number of shares of the Series A Redeemable
Convertible Preferred Stock, the Series A1 Redeemable Convertible Preferred
Stock, the Series KBL Nonvoting Redeemable Convertible Preferred Stock, the
Series KBL1 Nonvoting Redeemable Convertible Preferred Stock, the Series B
Convertible Preferred Stock, the Series B1 Convertible Preferred Stock, the
Series KBH
<PAGE>
Convertible Preferred Stock and the Series KBH1 Convertible Preferred Stock
of the Corporation.
3. This amendment to the Certificates of Designations was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, as of this 10th day of March , 2000.
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ GUALBERTO RUANO
------------------------------
Gualberto Ruano
President
Attest:
By: /s/ KEVIN L. RAKIN
---------------------------------
Kevin L. Rakin
Secretary
<PAGE>
EXHIBIT I
There are hereby designated four series of preferred stock of the
Corporation, the first consisting of 2,437,500 shares, as issued in a series
entitled "SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK" (referred to as the
"SERIES A PREFERRED STOCK"); the second consisting of 2,437,500 shares, as
issued in a series entitled "SERIES A1 REDEEMABLE CONVERTIBLE PREFERRED STOCK"
(referred to as the "SERIES A1 PREFERRED STOCK"); the third consisting of
330,500 shares, as issued in a series entitled "SERIES KBL NONVOTING REDEEMABLE
CONVERTIBLE PREFERRED STOCK" (referred to as the "SERIES KBL PREFERRED Stock");
and the fourth consisting of 330,500 shares, as issued in a series entitled
"SERIES KBL1 NONVOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK" (referred to as
the "SERIES KBL1 PREFERRED STOCK"); and that the preferences and privileges,
relative, participating, optional and other special rights, and qualifications,
limitations and restrictions of the shares of each such series, in addition to
those set forth in the Certificate of Incorporation of the Corporation, as
amended, are as set forth below:
1. DEFINITIONS. As used in this Certificate of Designations, the
following terms have the meanings specified below: "AFFILIATE" shall mean a
person (other than a subsidiary):
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Corporation;
(ii) which beneficially owns or holds 10% or more of any class
of the voting stock of the Corporation; or
(iii) 10% or more of the voting stock (or in the case of a person
which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the Corporation or one of
its subsidiaries.
The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Corporation.
"DILUTED STOCK" shall have the meaning ascribed to it in Section
7(a)(iv)(A) hereof.
<PAGE>
"DILUTING ISSUANCE" shall mean an issuance of capital stock described in
Section 7(a)(iv)(A) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other
subdivision or combination of the outstanding shares of Common
Stock;
(ii) up to an aggregate of 1,557,375 shares of Common Stock
issued or issuable to employees pursuant to an employee stock
option plan approved by the Board; or
(iii) upon conversion of any Preferred Stock, warrants or other
convertible securities and set forth on Schedule 3.4 to the Series
B/KBH Stock Purchase Agreement.
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification that
took effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the average of the last reported bid and
asked prices, as reported by the Nasdaq on such day, or if, on any day in
question, the security shall not be quoted on the Nasdaq, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is traded in such
manner that the quotations referred to in this clause are not available for the
period required hereunder, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the voting power of the Series A/KBL Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent banking firm selected by the American
Arbitration Association in accordance with its rules). With respect to the
Series A/KBL Stock, Fair Market Value shall be determined by a nationally
recognized independent investment banking firm selected mutually by the holders
of more than 50% of the voting power of the Series A/KBL Stock then outstanding
and the Corporation (or if such selection cannot be made, by a nationally
recognized independent banking firm selected by the American Arbitration
Association in accordance with its rules).
-2-
<PAGE>
"HOLDER" shall mean a holder of shares of Series A/KBL Stock, as
applicable, as reflected in the stock records of the Corporation; and each
Holder's address shall be as it appears in the stock records of the Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series A/KBL Stock, each other
class or series of capital stock (including, without limitation, each class of
common stock of the Corporation and each other series of preferred stock) or
other equity interests (including, without limitation, warrants, rights, calls
or options exercisable for or convertible into such capital stock or equity
interests) in the Corporation, except Junior Securities shall not include the
Series B/KBH Stock or the Series C Stock.
"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a third
party or parties, whether voluntary or involuntary, or the sale by the
stockholders of the Corporation of a majority of the voting capital stock of the
Corporation; PROVIDED, HOWEVER, that a merger or consolidation shall not be
considered a Liquidation Event if the Corporation is the survivor or continuing
corporation of such merger or consolidation and as a result thereof there is no
change in the Common Stock or Preferred Stock or the ownership thereof.
"LIQUIDATION REDEMPTION PRICE" shall have the meaning ascribed to it in
Section 4(a).
"LISTED RIGHTS" shall mean all patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade names, trade
name rights, service marks and copyrights (whether registered or not) owned or
possessed by the Corporation and any improvements thereon.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional shares
of Preferred Stock, each other series of preferred stock of the Corporation and
any shares of capital stock held by the Corporation in its treasury upon the
disposition thereof) or other equity interests (including, without limitation,
warrants, rights, calls or options exercisable for or convertible into such
capital stock or equity interests) in the Corporation issued after the Series
A/KBL Initial Issue Date; PROVIDED, HOWEVER, that such term shall not include
Excluded Stock and shall not include Series B/KBH Stock or Series C Stock.
"NON-PARTICIPATING PERCENTAGE" shall have the meaning ascribed to it in
Section 7(a)(iv)(A) hereof.
"NON-VOTING COMMON STOCK" shall mean the Non-voting Common Stock, $.001
par value, of the Corporation.
"ORIGINAL CERTIFICATES OF DESIGNATION" shall mean the original
Certificate of Designations, Preferences and Other Special Rights and
Qualifications, Limitations and Restrictions of the Series A and Series A1
Redeemable Convertible Preferred Stock of the Corporation, dated as of August
24, 1998, and the original Certificate of Designations,
-3-
<PAGE>
Preferences and Other Special Rights and Qualifications, Limitations and
Restrictions of the Series KBL and Series KBL1 Non-voting Redeemable Convertible
Preferred Stock of the Corporation, dated as of August 24, 1998.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"PREEMPTIVE SHARE" shall mean, immediately prior to any issue of shares
of New Securities, and as to each Series A/KBL Holder, the percentage which
expresses the ratio between (i) the total number of shares of Common Stock
(and/or Non-voting Common Stock, in the case of the Series KBL Stock) issuable
upon conversion of the Series A/KBL Stock owned by such Series A/KBL Holder,
plus the total number of shares of Common Stock (and Non-voting Common Stock, if
any) then owned by such Series A/KBL Holder that was received upon conversion of
Series A/KBL Stock, and (ii) the total number of shares of Common Stock and
Non-voting Common Stock then outstanding, plus the total number of shares of
Common Stock and Non-voting Common Stock issuable upon conversion of the then
outstanding Preferred Stock.
"PREFERRED STOCK" shall mean all of the outstanding shares of the Series
A Stock, Series KBL Stock, Series B Stock, Series KBH Stock and Series C Stock,
together, at the time in question.
"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in aggregate gross cash proceeds to the Corporation
of not less than forty million dollars ($40,000,000) and pursuant to which the
offering price per share is equal to or greater than $16.50 ($11.00 per share in
the event that the registration statement with respect to such offering shall be
filed with the Commission on or before February 11, 2001), equitably adjusted
for any Recapitalization Event.
"QUALIFIED LIQUIDATION EVENT" shall have the meaning ascribed to it in
Section 3(b).
"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications, and similar events.
"RELATED PARTY" shall mean any officer, director, significant employee or
consultant of the Corporation or any holder (other than any Series A/KBL Holder,
Series B/KBH Holder or Series C Holder) of 10% or more of any class of capital
stock of the Corporation or any member of the immediate family of any such
officer, director, employee, consultant or shareholder or any entity controlled
by any such officer, director, employee, consultant or shareholder or a member
of the immediate family of any such officer, director, employee, consultant or
shareholder.
"SCHEDULED REDEMPTION PRICE" shall have the meaning ascribed to it in
Section 4(b).
-4-
<PAGE>
"SECOND ROUND SERIES B/KBH STOCK" shall mean those shares of Series B/KBH
Stock that may be issued by the Corporation to certain investors (the "SECOND
ROUND INVESTORS") in the Second Closing as such term is defined in the Series
B/KBH Stock Purchase Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Redeemable Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A1 PREFERRED STOCK" shall mean the Series A1 Redeemable
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A STOCK" shall mean all of the outstanding shares of the Series A
Preferred Stock and the Series A1 Preferred Stock, together, at the time in
question, and any new subseries of the Series A Preferred Stock created pursuant
to Section 9 hereof.
"SERIES A/KBL ACCRUED DIVIDENDS" shall mean Series A/KBL Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3, upon the relevant shares of Series A/KBL Stock.
"SERIES A/KBL AMENDMENT DATE" shall mean February 17, 2000.
"SERIES A/KBL CONVERSION DATE" shall have the meaning set forth in
Section 7(a)(ii).
"SERIES A/KBL CONVERSION PRICE" shall initially mean $4.00; PROVIDED,
HOWEVER, that the Series A/KBL Conversion Price shall be subject to adjustment
as set forth in Section 7(a)(iv).
"SERIES A/KBL EVENT OF CONVERSION" shall mean the consummation of a
Qualified IPO.
"SERIES A/KBL FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series A/KBL Stock (whether or not in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally available
for the payment of such dividends), that amount which shall be equal to
dividends at the full rate fixed for the Series A/KBL Stock as provided herein
for the period of time elapsed from the Series A/KBL Initial Issuance Date to
the date as of which Series A/KBL Full Cumulative Dividends are to be computed.
"SERIES A/KBL HOLDER" shall mean a holder of shares of Series A Stock or
Series KBL Stock.
"SERIES A/KBL INITIAL ISSUANCE DATE" shall mean August 24, 1998.
"SERIES A/KBL LIQUIDATION AMOUNT" shall mean an amount in cash or
property (valued at its Fair Market Value), or a combination thereof, equal to
$4.00 per share of Series A/KBL Stock held by a Holder (which per share amount
shall be subject to equitable adjustment whenever there shall occur a stock
split, combination, reclassification or other similar event involving the Series
A/KBL Stock) plus all Series A/KBL Accrued Dividends.
-5-
<PAGE>
"SERIES A/KBL ORIGINAL PURCHASE PRICE" shall mean $4.00 per share of
Series A/KBL Stock.
"SERIES A/KBL REDEMPTION DATE" shall have the meaning set forth in
Section 4 hereof.
"SERIES A/KBL REDEMPTION PRICE" shall have the meaning set forth in
Section 4 hereof.
"SERIES A/KBL STOCK" shall mean all of the outstanding shares of the
Series A Stock and Series KBL Stock, together, at the time in question, which
shares are PARI PASSU for all purposes except voting (the Series KBL Stock being
non-voting) and conversion (the Series KBL Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES B1 PREFERRED STOCK" shall mean the Series B1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES B STOCK" shall mean all of the outstanding shares of the Series B
Preferred Stock and the Series B1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series B Preferred Stock created pursuant to
Section 9 of the Series B/KBH Certificate of Designations.
"SERIES B/KBH CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series B and Series B1 Convertible Preferred
Stock of the Corporation, and Series KBH and Series KBH1 Non-voting Convertible
Preferred Stock of the Corporation, dated as of February 17, 2000, and amended
as of March 8, 2000 and as of March 10, 2000.
"SERIES B/KBH HOLDER" shall mean a holder of shares of Series B Stock or
Series KBH Stock.
"SERIES B/KBH LIQUIDATION AMOUNT" shall mean the amount due to the Series
B/KBH Holders upon a Liquidation of the Company pursuant to the Series B/KBH
Certificate of Designations.
"SERIES B/KBH STOCK" shall mean all of the outstanding shares of the
Series B Stock and Series KBH Stock, together, at the time in question, which
shares shall be PARI PASSU for all purposes except voting (the Series KBH Stock
being non-voting) and conversion (the Series KBH Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B/KBH STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of February 17, 2000, by and among the Corporation
and the Purchasers (as defined therein), as amended as of February 29, 2000 and
March 3, 2000.
-6-
<PAGE>
"SERIES C PREFERRED STOCK" shall mean the Series C Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES C1 PREFERRED STOCK" shall mean the Series C1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES C CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series C Convertible Preferred Stock and Series
C1 Convertible Preferred Stock of the Corporation, dated as of March 10, 2000.
"SERIES C HOLDER" shall mean a holder of shares of Series C Stock.
"SERIES C LIQUIDATION AMOUNT" shall mean the amount due to the Series C
Holders upon a Liquidation of the Company pursuant to the Series C Certificate
of Designations.
"SERIES C STOCK" shall mean all of the outstanding shares of the Series C
Preferred Stock and the Series C1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series C Preferred Stock created pursuant to
Section 9 of the Series C Certificate of Designations.
"SERIES C STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of March 10, 2000, by and among the Corporation and
the Purchasers (as defined therein) of the Series C Stock.
"SERIES KBH PREFERRED STOCK" shall mean the Series KBH Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH1 PREFERRED STOCK" shall mean the Series KBH1 Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH STOCK" shall mean all of the outstanding shares of the Series
KBH Preferred Stock and the Series KBH1 Preferred Stock, together, at the time
in question, and any new subseries of the Series KBH Preferred Stock created
pursuant to Section 9 of the Series B/KBH Certificate of Designations.
"SERIES KBL PREFERRED STOCK" shall mean the Series KBL Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL1 PREFERRED STOCK" shall mean the Series KBL1 Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL STOCK" shall mean all of the outstanding shares of the Series
KBL Preferred Stock and the Series KBL1 Preferred Stock, together, at the time
in question, and any new subseries of the Series KBL Preferred Stock created
pursuant to Section 9 hereof.
"SUBSIDIARY" shall mean an entity a majority of the capital stock or
other ownership interest in which is owned directly or indirectly by the
Corporation, except that 100%
-7-
<PAGE>
"SUBSIDIARY" shall mean a subsidiary that is 100% owned by the Corporation
and/or its 100% subsidiaries.
2. NUMBER OF SHARES. The designation of the four series of preferred
stock provided for herein shall be as follows: Series A Preferred Stock, of
which 2,437,500 shares shall be authorized; Series A1 Preferred Stock, of which
2,437,500 shares shall be authorized; Series KBL Preferred Stock, of which
330,500 shares shall be authorized; Series KBL1 Preferred Stock, of which
330,500 shares shall be authorized.
3. DIVIDENDS.
(a) For the period beginning on the Series A/KBL Initial Issuance Date
and ending on the Series A/KBL Amendment Date, the holders of each share of
Series A/KBL Stock shall be entitled to receive dividends as provided under the
Original Certificate of Designations; PROVIDED, HOWEVER, that no such dividends
shall be paid in cash, rather than stock, without the prior approval of a
majority of the holders of the Series B Stock and Series C Stock, voting
together as a single class.
(b) From and after the Series A/KBL Amendment Date, the holder of
each share of Series A/KBL Stock shall be entitled to receive, before any
dividends shall be declared and paid upon or set aside for the Junior
Securities, but after any dividends shall be declared and paid upon or set
aside for the Series B/KBH Stock and Series C Stock, out of funds legally
available for that purpose, dividends in cash at the rate per annum per share
(the "SERIES A DIVIDEND RATE") equal to 8% of the Series A/KBL Original
Purchase Price, adjusted, as applicable, for any Recapitalization Event,
payable, when and as declared by the Board, upon the earliest of (a) a
Liquidation Event in accordance with Section 5 hereof, (b) upon redemption in
accordance with Section 4 hereof or (c) upon the Series A/KBL Event of
Conversion; PROVIDED, HOWEVER, that so long as any shares of Series B/KBH
Stock or Series C Stock shall remain outstanding, no such dividends shall be
paid on the Series A/KBL Stock unless approved by a majority of the holders
of the Series B Stock and Series C Stock, voting together as a separate
class. Until the third anniversary of the Series A/KBL Amendment Date, the
Corporation shall have the option to make any such payment either in cash or
in shares of Common Stock (Non-voting Common Stock in the case of the Series
KBL), provided that dividends declared and paid upon or set aside for all
shares of Series A/KBL Stock, of Series B/KBH Stock and of Series C Stock at
or about the same time are being paid in the same manner unless a different
method of payment is approved by a majority of the holders of the Series B
Stock and Series C Stock, voting together as a separate class. After the
third anniversary of the Series A/KBL Amendment Date, the Holder shall have
the option to receive any such payment either in cash or in shares of Common
Stock (Non-voting Common Stock in the case of the Series KBL). In the event
such dividends are paid in Common Stock (Non-voting Common Stock in the case
of the Series KBL), for purposes of computing the number of shares of Common
Stock (Non-voting Common Stock in the case of the Series KBL) to be issued
and the amount of the dividend paid, the value of the Common Stock
(Non-voting Common Stock in the case of the Series KBL) paid to any holder of
shares of Series A/KBL Stock shall be valued at the then Series A/KBL
Conversion Price. Dividends on shares of Series A/KBL Stock shall be
cumulative from the Series A/KBL
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Amendment Date (whether or not there shall be net profits or net assets of
the Corporation legally available for the payment of such dividends), so
that, if at any time Series A/KBL Full Cumulative Dividends upon the Series
A/KBL Stock shall not have been paid or declared and a sum sufficient for
payment thereof set apart, the amount of the deficiency in such dividends
shall be fully paid or dividends in such amount shall be declared on the
shares of the Series A/KBL Stock and a sum sufficient for the payment thereof
shall be set apart for such payment, before any dividend shall be declared or
paid or any other distribution ordered or made upon any Junior Securities
(but after any dividends shall be declared and paid upon or set aside for the
Series B/KBH Stock and the Series C Stock) or applied to the purchase or
redemption of Junior Securities. With respect to rights to dividends, the
Series A/KBL Stock shall rank prior to the Common Stock and all other Junior
Securities, but shall rank junior to the Series B/KBH Stock and Series C
Stock. All dividends declared upon the Series A/KBL Stock shall be declared
pro rata per share. All payments due under this Section to any holder of
shares of Series A/KBL Stock shall be made to the nearest cent.
Notwithstanding the foregoing, the holders of the Series A/KBL Stock shall
not be entitled to dividends on the Series A/KBL Stock pursuant to this
Section 3(b) in the event that on or before August 11, 2001 (i) there shall
be filed with the Commission a registration statement with respect to a
Qualified IPO (which registration statement shall have become effective
within three months of filing); or (ii) there shall occur a Qualified
Liquidation Event. The term "QUALIFIED LIQUIDATION EVENT" shall mean a
Liquidation Event in which the holders of the Series A/KBL Stock receive (per
share) cash or other property with a fair market value equal to at least 200%
of the Series A/KBL Original Purchase Price (as adjusted for any stock split,
combination, reclassification or other similar event involving the Series
A/KBL Stock) if the Qualified Liquidation Event occurs within one year after
the Series A/KBL Amendment Date, and 300% of the Series A/KBL Original
Purchase Price (as adjusted for any stock split, combination,
reclassification or other similar event involving the Series A/KBL Stock) if
the Qualified Liquidation Event occurs more than one year after the Series
A/KBL Amendment Date (but before August 12, 2001).
(c) From and after the Series A/KBL Amendment Date, in the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock (or Non-voting Common Stock) entitled
to receive a dividend or other distribution (other than a distribution in
liquidation or other distribution otherwise provided for herein) with respect to
the Common Stock (or Non-voting Common Stock) or any other Junior Securities
(based on "as if converted" amounts) payable in (i) securities of the
Corporation other than shares of Common Stock (or Non-voting Common Stock), or
(ii) cash, then, and in each such event, provision shall be made so that the
holders of the Series A/KBL Stock shall receive, subject to the prior payment in
full of any amounts due to the holders of the Series B/KBH Stock and the Series
C Stock in connection with such event, the number of securities or such other
assets of the Corporation which they would have received had their Series A/KBL
Stock been converted into Common Stock (or Non-voting Common Stock in the case
of the Series KBL) on the date of such event.
4. REDEMPTION.
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(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event, the Corporation shall (to the extent
allowed by law) redeem, except as set forth hereafter, all the shares of Series
A/KBL Stock then outstanding, out of funds legally available therefor. The
amount per share payable upon any redemption of shares of Series A/KBL Stock
pursuant to this subsection shall be an amount in cash equal to the Liquidation
Redemption Price, as determined below. The Corporation shall deliver to each
holder of shares of Series A/KBL Stock, not later than 45 days prior to the
consummation of a Liquidation Event, notice of such proposed Liquidation Event,
including the date on which such Liquidation Event is expected to be
consummated. To the extent that one or more redemptions and/or a liquidation are
occurring concurrently, any redemption of the shares of Series A/KBL Stock shall
be deemed to occur and shall be paid after any redemption of shares of the
Series B/KBH Stock and Series C Stock, and prior to any other redemptions and/or
liquidations. Notwithstanding the foregoing, any Series A/KBL Holder may elect
to retain its outstanding shares of Series A/KBL Stock and not to subject such
shares to redemption by delivery of written notice to the Corporation at least
15 days prior to the date of the consummation of the Liquidation Event.
(ii) The amount per share payable upon any redemption of shares
of Series A/KBL pursuant to this subsection shall be an amount
equal to the greater of (a) the Series A/KBL Original Purchase
Price (subject to equitable adjustment for any stock split,
combination, reclassification or other similar event involving the
Series A/KBL Stock) plus all Series A/KBL Accrued Dividends, or
(b) the Fair Market Value of such share (the "LIQUIDATION
REDEMPTION PRICE").
(iii) Any date upon which Series A/KBL Stock is to be redeemed
pursuant to this Section 4 shall be referred to in this context as
a "SERIES A/KBL REDEMPTION DATE".
(b) SERIES A/KBL ANNUAL REDEMPTION. Except as set forth hereafter, the
Corporation shall (to the extent allowed by law) redeem the following shares of
Series A Stock and Series KBL Stock on the following dates, out of funds legally
available therefor:
(i) at any time on or after February 11, 2005, one-third of the
shares of each of the Series A Stock and Series KBL Stock then
outstanding;
(ii) at any time on or after February 11, 2006, an additional
number of shares of each of the Series A Stock and Series KBL
Stock equal to one-third of the shares of the Series A Stock and
Series KBL Stock, respectively, outstanding as of February 11,
2005;
(iii) at any time on or after February 11, 2007, all outstanding
shares of Series A Stock and Series KBL Stock;
PROVIDED, HOWEVER, that no such redemption provided for in Sections 4(b)(i),
(ii) or (iii) shall occur in the event that any shares of Series B/KBH Stock or
Series C Stock shall remain outstanding.
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The amount per share payable upon any redemption of shares of Series A
Stock and Series KBL Stock pursuant to this subsection shall be an amount in
cash equal to the greater of (a) the Series A/KBL Original Purchase Price
(subject to equitable adjustment for any stock split, combination,
reclassification or other similar event involving the Series A/KBL Stock) plus
all Series A/KBL Accrued Dividends, or (b) the Fair Market Value of such share
(the "SCHEDULED REDEMPTION PRICE" and collectively with the Liquidation
Redemption Price, the "SERIES A/KBL REDEMPTION PRICE").
To the extent that one or more annual or other redemptions are occurring
concurrently, any redemption of the shares of Series A/KBL Stock shall be deemed
to occur and shall be paid after any redemption of shares of the Series B/KBH
Stock and Series C Stock, but prior to any other redemptions.
Notwithstanding the foregoing, any Series A/KBL Holder may elect to
retain its outstanding shares of Series A/KBL Stock and not to subject such
shares to redemption by delivery of written notice to the Corporation at least
15 days prior to the applicable redemption date set forth above.
(c) PRO RATA. If, on any Series A/KBL Redemption Date, fewer than all
shares of Series A/KBL Stock then outstanding are to be redeemed in accordance
with this Section, the shares to be redeemed shall be allocated pro rata among
the Series A/KBL Holders and the Redemption Notice mailed to each Holder shall
specify the number of shares to be redeemed from such Holder. Notwithstanding
the delivery of a Redemption Notice, Series A/KBL Holders subject to redemption
may convert such shares pursuant to Section 7 on or before the Series A/KBL
Redemption Date by delivering written notice thereof to the Corporation not
later than 10 days prior to the Series A/KBL Redemption Date.
(d) PAYMENT OF SERIES A/KBL REDEMPTION PRICE; TERMINATION OF RIGHTS.
On any Series A/KBL Redemption Date, the applicable Series A/KBL Redemption
Price in respect of the shares represented by the certificate or certificates
surrendered to the Corporation by the Holder thereof pursuant to the Redemption
Notice shall be paid to the order of the person whose name appears on such
certificate or certificates. Each surrendered certificate shall be canceled and
retired and a new certificate, representing the remaining, unredeemed shares of
Series A/KBL Stock, if any, shall be issued to the Holder of such shares. On any
Series A/KBL Redemption Date, the rights of a Holder with respect to shares
redeemed shall cease, other than such Holder's right to payment of the Series
A/KBL Redemption Price as of the Series A/KBL Redemption Date, upon surrender of
the certificate or certificates.
5. LIQUIDATION. In the event of any liquidation, dissolution or
winding-up of the Corporation, the Series A/KBL Holders shall be entitled,
before any assets of the Corporation shall be distributed among or paid over to
the holders of Junior Securities, but after distribution of such assets among,
or payment thereof over to, creditors of the Corporation and the holders of the
Series B/KBH Stock and Series C Stock, to receive from the assets of the
Corporation available for distribution to stockholders in cash, the Series A/KBL
Liquidation Amount. If the assets of the Corporation legally available for
distribution shall be insufficient to permit the
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payment in full of the Series A/KBL Liquidation Amount to the Series A/KBL
Holders, then the assets of the Corporation legally available for distribution
shall be distributed ratably among the Series A/KBL Holders in proportion to the
respective amounts which would have been payable upon such Liquidation Event on
such shares of Series A/KBL Stock if all amounts payable thereon had been paid
in full. In the event that such distribution of assets is other than in cash,
such distribution of cash and other assets (including securities) shall be made
ratably among the holders of the shares of Series A/KBL Stock based upon the
fair market value of any such assets as determined by a nationally recognized
valuation consultant selected mutually by the holders of a majority in voting
power of the Series A/KBL Stock then outstanding and the Corporation (or if such
selection cannot be made, by a nationally recognized independent valuation
consultant selected by the American Arbitration Association in accordance with
its rules). In the event of any liquidation, dissolution or winding-up of the
Corporation, after payment shall have been made to the holders of shares of
Series A/KBL Stock of the full amount to which they shall be entitled as
aforesaid, the holders of any Junior Securities, the Series A/KBL Holders, the
Series B/KBH Holders and the Series C Holders shall be entitled to participate
equally, on an as-converted basis in the case of the Series A/KBL Stock, the
Series B/KBH Stock, the Series C Stock and any Junior Securities convertible
into Common Stock, in all remaining assets of the Corporation available for
distribution to its stockholders. The provisions of this Section 5 shall not be
applicable to any shares of Series A/KBL Stock that have been redeemed pursuant
to Section 4(a) hereof in connection with such Liquidation Event. The holders of
the Series A/KBL Stock shall have the right to treat any merger, consolidation,
sale of all or substantially all of the assets of the Corporation, or sale of a
majority of the voting capital stock of the Corporation, as a liquidation of the
Corporation and, in connection therewith, and subject to the prior payment in
full of any amounts due to the holders of the Series B/KBH Stock and Series C
Stock in connection with such event, to receive payment under this Section 5
upon surrender of their shares to the Corporation; PROVIDED, HOWEVER, that the
holders of the Series A/KBL Stock shall not have the right to treat any merger
or consolidation as a Liquidation Event if the Corporation is the survivor or
continuing corporation of such merger or consolidation and as a result thereof
there is no change in the Common Stock or Preferred Stock or the ownership
thereof.
6. VOTING.
(a) VOTES GENERALLY WITH COMMON STOCK. In addition to the rights
specified in Section 6(b) below and any other rights provided in the
Corporation's By-Laws, the shares of Series A Stock shall entitle each Holder
thereof to such number of votes as shall equal the number of shares of Common
Stock (rounded to the nearest whole number) into which the shares of Series A
Stock held by such Holder are then convertible pursuant to Section 7 and shall
entitle each such Holder to vote on all matters as to which holders of Common
Stock shall be entitled to vote, in the same manner and with the same effect as
such holders of Common Stock, voting together with the holders of Common Stock
as one class.
(b) SEPARATE CLASS VOTE. So long as any shares of Series A Stock are
outstanding, the consent of the holders of a majority of all of the outstanding
shares of Series A Stock, Series B Stock and Series C Stock, voting as a single
and separate class in person or by proxy, at a
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special or annual meeting called for the purpose, or by written consent in lieu
of a meeting, shall be required before the Corporation may:
(i) authorize or issue any class or series of capital stock
ranking senior or pari passu to the Series B/KBH Stock, the Series
C Stock or the Series A/KBL Stock with respect to rights to
receive dividends, redemption payments or distributions upon
liquidation or winding up of the Corporation or with respect to
voting, antidilution provisions or preemptive rights; PROVIDED,
HOWEVER, that this provision shall not apply to the issuance of
the Second Round Series B/KBH Stock (which itself shall be Series
B/KBH Stock);
(ii) authorize, declare or distribute any dividend, whether in
cash or in kind, payable to any class or series of the
Corporation's common or preferred stock (except payment of
dividends on the Series B/KBH Stock as contemplated by the Series
B/KBH Certificate of Designations or payment of dividends on the
Series C Stock as contemplated by the Series C Certificate of
Designations or payment of dividends on the Series A/KBL Stock as
contemplated (and only to the extent permitted) herein or to any
other equity security of the Corporation;
(iii) approve any liquidation, dissolution, sale, lease or
license of all or substantially all of the assets or business, or
of the assets or business of any subsidiary, of the Corporation;
(iv) cancel, repeal or change any of the provisions of this
Certificate of Designations (or of any amendment hereto), any
other certificate of designations of the Corporation (or any
amendment thereto), the Certificate of Incorporation of the
Corporation, or the By-laws of the Corporation;
(v) permit to lapse any of the following: its corporate
existence, essential rights, government approvals or franchises or
any licenses or Listed Rights (which the Board deems essential to
the Corporation's business) or other rights to use patents,
processes, licenses, trademarks, trade names or copyrights owned
or possessed by it (which the Board deems essential to the
Corporation's business);
(vi) transfer, assign or license (except end-user licenses
granted in the ordinary course of business) any of the
Corporation's Listed Rights or know-how, technology or trade
secrets now owned or hereafter acquired by the Corporation;
(vii) voluntarily dissolve, liquidate or wind-up or carry out any
partial liquidation or distribution or transaction in the nature
of a partial liquidation or distribution;
(viii) purchase, lease or otherwise acquire capital stock in any
corporation or equity interest in any other entity or lend money
to any person or entity (other than loans to any one person that,
individually or in the aggregate, shall not
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<PAGE>
exceed $100,000 or loans to any one employee that, individually or
in the aggregate, shall not exceed $200,000) or purchase a
substantial part of the operating assets of any person or entity;
(ix) consolidate with or merge into or with any other person or
entity or permit any other person or entity to consolidate with or
merge into it (except that a 100% subsidiary may consolidate with
or merge into the Corporation or another 100% subsidiary);
(x) permit any subsidiary (except a 100% subsidiary) to make
any (i) direct or indirect redemption, retirement, purchase or
other acquisition of any of the Corporation's capital stock (or
any warrant, option or other right with respect to such stock),
(ii) repayment of the Corporation's debt held by any Related Party
or by any Affiliate or subsidiary debt held by any Related Party
or by any Affiliate, or (iii) sale of any capital stock of the
Corporation to any third party;
(xi) issue (which term shall include without limitation the
issuance of any shares of, or the grant of any warrants, options
or other rights to purchase any shares of, or any commitment to
issue) any shares of its capital stock (which term shall include
without limitation, securities convertible into capital stock, or
rights to acquire capital stock), other than Excluded Stock, at a
price per share less than $8.25;
(xii) redeem any shares of any capital stock of the Corporation
(except redemptions of Series B/KBH Stock as contemplated in the
Series B/KBH Certificate of Designations or redemptions of Series
C Stock as contemplated in the Series C Certificate of
Designations or redemptions of Series A/KBL Stock as contemplated
(and only to the extent permitted) herein; or
(xiii) increase the size of the Board of Directors of the Company
above eight (8) members.
7. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) The holder of any shares of Series A/KBL Stock shall have
the right, at such holder's option, at any time or from time to
time to convert any or all such holder's shares of Series A/KBL
Stock into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of
Series KBL Stock) as equals (I) the product of (x) the Series
A/KBL Original Purchase Price plus, after the third anniversary of
the Series A/KBL Amendment Date at the option of any Holder, any
unpaid Series A/KBL Accrued Dividends with respect to the shares
being converted, multiplied by (y) the number of shares of Series
A/KBL Stock being converted, divided by (II) the
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Series A/KBL Conversion Price (as last adjusted and then in
effect) for the shares of the Series A/KBL Stock being converted,
by surrender of the certificates representing the shares of Series
A/KBL Stock so to be converted in the manner provided Section
7(a)(ii) below. The Series A/KBL Conversion Price shall initially
be equal to the Series A/KBL Original Purchase Price; PROVIDED,
HOWEVER, that such Series A/KBL Conversion Price shall be subject
to adjustment as set forth in Section 7(a)(iv) below.
(ii) The holder of any shares of Series A/KBL Stock may exercise
such holder's conversion right pursuant to this Section by
delivering to the Corporation during regular business hours at the
office of any transfer agent of the Corporation for the Series
A/KBL Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or to the
Corporation (if required by it) accompanied by written notice
stating that such holder elects to convert such shares and stating
the name or names (with address) in which the certificate or
certificates for the shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) are to be issued.
Conversion shall be deemed to have been effected with respect to
conversion under (a) Section 7(a)(i) above, on the date when the
aforesaid delivery is made and (b) Section 7(b) on the date of
occurrence of a Series A/KBL Event of Conversion, as the case may
be, and any such date is referred to herein as the "SERIES A/KBL
CONVERSION DATE". As promptly as practicable thereafter the
Corporation shall issue and deliver to or upon the written order
of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBL Stock) to which such holder is entitled and a check or cash in
respect of any fractional interest in a share of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock), as
provided in Section 7(a)(iii) below, payable with respect to the
shares of Series A/KBL Stock so converted up to and including the
Series A/KBL Conversion Date. The person in whose names the
certificate or certificates for Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) are to be issued shall be
deemed to have become a holder of Common Stock (or Non-voting
Common Stock, in the case of Series KBL Stock) on the applicable
Series A/KBL Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such holder
shall be deemed to have become a holder of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock) on the
next succeeding date on which the transfer books are open, but the
Series A/KBL Conversion Price shall be that in effect on the
Series A/KBL Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares
of Series A/KBL Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate covering the number of
shares of Series A/KBL Stock representing the unconverted portion
of the certificate so surrendered.
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(iii) No fractional shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBL Stock) or scrip shall be issued
upon conversion of shares of Series A/KBL Stock. If more than one
share of Series A/KBL Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBL Stock) issuable upon conversion thereof shall be computed on
the basis of the aggregate number of shares of Series A/KBL Stock
so surrendered. Instead of any fractional shares of Common Stock
(or Non-voting Common Stock, in the case of Series KBL Stock)
which would otherwise be issuable upon conversion of any shares of
Series A/KBL Stock, the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to the then
current Fair Market Value of a share of Common Stock multiplied by
such fractional interest.
(iv) The Series A/KBL Conversion Price shall be subject to
adjustment from time to time as follows:
(A) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. Unless the Corporation has requested and received a
waiver from the holders of a majority of the Series A Stock, the
Series B Stock and the Series C Stock, voting together as a single
class, if the Corporation shall at any time or from time to time
after the Series A/KBL Initial Issuance Date issue or be deemed
(by virtue of any of the provisions of Section 7(a)(iv)), to have
issued any capital stock (including, without limitation, each
class of common stock of the Corporation) or other equity
interests (including, without limitation, warrants, rights, calls
or options exercisable for or convertible into such capital stock
or equity interests) in the Corporation, other than Excluded
Stock, Second Round Series B/KBH Stock or Series C Stock, without
consideration or for a consideration per share (the "LAST ISSUE
PRICE") less than the Series A/KBL Conversion Price in effect
immediately prior to each such issuance or deemed issuance (a
"DILUTING ISSUANCE"), the Series A/KBL Conversion Price in effect
immediately prior thereto shall forthwith be adjusted, as of the
opening of business on the date of such issuance or deemed
issuance, to such Last Issue Price.
Notwithstanding the immediately preceding paragraph of this
subsection (A), if a Series A/KBL Holder has been given written
notice pursuant to Section 8 hereof and the opportunity to
purchase its Preemptive Share of such Diluting Issuance and does
not purchase its entire Preemptive Share of such Diluting
Issuance, but purchases a lesser share of such Diluting Issuance
or none, the Series A/KBL Conversion Price for that portion of the
shares of Series A/KBL Stock of said Series A/KBL Holder equal to
the Non-Participating Percentage (as hereinafter defined) (the
"DILUTED STOCK") shall not be reduced for said issuance pursuant
to this subsection but each share of the Diluted Stock which each
such Series A/KBL Holder holds shall be automatically converted
immediately prior to the closing of the applicable Diluting
Issuance into one (1) share of Series A1 Preferred Stock
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(or Series KBL1 Preferred Stock, in the case of Series KBL Stock)
which shall be convertible into Common Stock (or Non-voting Common
Stock, in the case of Series KBL1 Stock) at the same price per
share that applied to the Diluted Stock immediately prior to such
Diluting Issuance, subject, however, to further adjustment as
herein provided. As used herein, the term "NON-PARTICIPATING
PERCENTAGE" means a percentage equal to one hundred percent (100%)
minus the percentage determined by dividing the number of shares
of the Diluting Issuance which such Holder actually purchased by
the maximum number of shares of the Diluting Issuance which such
Holder was entitled to purchase on the basis of such Holder's
Preemptive Shares and expressing the resulting quotient as a
percentage.
Upon the conversion of Diluted Stock held by a Series A/KBL Holder
as set forth herein, such shares of Diluted Stock shall no longer
be outstanding on the books of the Corporation and the Series
A/KBL Holder shall be treated, to the extent that said holder held
such Diluted Stock, as the record holder of such shares of Series
A1 Preferred Stock (or Series KBL1 Stock, in the case of Series
KBL Stock) on the date of closing of the applicable Diluting
Issuance.
For the purposes of any adjustment of the Series A/KBL Conversion
Price pursuant to this subsection (A), the following provisions
shall be applicable:
(1) In the case of the issuance of stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefor.
(2) In the case of the issuance of stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the
fair market value thereof as determined in good faith by
the Board, irrespective of any accounting treatment;
PROVIDED, HOWEVER, that the aggregate fair market value of
such non-cash and cash consideration shall not exceed the
current Fair Market Value of the shares of stock being
issued.
(3) In case of the issuance of (i) options to purchase
or rights to subscribe for Common Stock or Non-voting
Common Stock; (ii) securities by their terms convertible
into or exchangeable for Common Stock or Non-voting Common
Stock; or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
(a) the aggregate number of shares of Common
Stock or Non-voting Common Stock deliverable upon
exercise of such options to purchase or rights to
subscribe for Common Stock or Non-voting Common
Stock shall be deemed to have been issued at the
time such options or rights were issued and for a
consideration equal to the consideration (determined
in the manner provided in subdivisions (1) and (2)
above), if any, received by the Corporation
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upon the issuance of such options or rights plus the
purchase price provided in such options or rights
for the Common Stock or Non-voting Common Stock
covered thereby;
(b) the aggregate number of shares of Common
Stock or Non-voting Common Stock deliverable upon
conversion of or in exchange for any such
convertible or exchangeable securities or upon the
exercise of options to purchase or rights to
subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the
time such securities were issued or such options or
rights were issued and for a consideration equal to
the consideration received by the Corporation for
any such securities and related options or rights
(excluding any cash received on accounts of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by the
Corporation upon the conversion or exchange of such
securities or the exercise of any related options or
rights (the consideration in each case to be
determined in the manner provided in subdivisions
(1) and (2) above, with the proviso to subdivision
(2) being applied to the number of shares of Common
Stock or Non-voting Common Stock deliverable upon
such exercise);
(c) on any change in the number of shares or
exercise price of Common Stock or Non-voting Common
Stock deliverable upon the exercise of any such
options or rights or conversions of or exchange for
such convertible or exchangeable securities, other
than a change resulting from the antidilution
provisions thereof, the Series A/KBL Conversion
Price, if previously adjusted, shall forthwith be
readjusted to such Series A/KBL Conversion Price as
would have obtained had the adjustment made upon the
issuance of such options, rights or securities not
converted prior to such change or options or rights
related to such securities not converted prior to
such change having been made upon the basis of such
change; and
(d) on the expiration of any such options or
rights, the termination of any such rights to
convert or exchange or the expiration of any options
or rights related to such convertible or
exchangeable securities, the Series A/KBL Conversion
Price, if previously adjusted, shall forthwith be
readjusted to such Series A/KBL Conversion Price as
would have obtained had such options, rights,
securities or options or rights related to such
securities not been issued.
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(B) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR
SPLIT-UPS. If, at any time after the Series A/KBL Initial Issuance
Date, the number of shares of Common Stock or Non-voting Common
Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or Non-voting Common Stock or by a
subdivision or split-up of shares of Common Stock or Non-voting
Common Stock, then, upon the record date fixed for the
determination of holders of Common Stock or Non-voting Common
Stock entitled to receive such stock dividend, subdivision or
split-up, the Series A/KBL Conversion Price shall be appropriately
decreased so that the number of shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock) issuable
on conversion of each share of Series A/KBL Stock shall be
increased in proportion to such increase in outstanding shares.
(C) ADJUSTMENTS FOR COMBINATIONS. If, at any time after the
Series A/KBL Initial Issuance Date, the number of shares of Common
Stock or Non-voting Common Stock outstanding is decreased by a
combination of the outstanding shares of Common Stock or
Non-voting Common Stock then, upon the record date for such
combination, the Series A/KBL Conversion Price shall be
appropriately increased so that the number of shares of Common
Stock (or Non-voting Common Stock, in the case of Series KBL
Stock) issuable on conversion of each share of Series A/KBL Stock
shall be decreased in proportion to such decrease in outstanding
shares.
(D) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS, CONSOLIDATIONS,
ETC. In case, at any time after the Series A/KBL Initial Issuance
Date, of any capital reorganization, or any reclassification of
the stock of the Corporation (other than a change in par value or
from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the
Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any change in the Common
Stock or Preferred Stock or the ownership thereof or of the sale
or other disposition of all or substantially all of the properties
and assets of the Corporation as an entirety to any other person),
each share of Series A/KBL Stock shall, after such reorganization,
reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of
stock or other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been sold
or otherwise disposed to which the holder of the number of shares
of Common Stock (or Non-voting Common Stock, in the case of Series
KBL Stock) deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale or
other disposition) upon conversion of such share would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions
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of this subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales
or other dispositions.
(E) All calculations under this subsection (iv) shall be made
to the nearest one cent ($.01) or to the nearest one-tenth (1/10)
of a share, as the case maybe.
(F) In any case in which the provisions of this subsection (iv)
shall require that an adjustment shall become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of such event (i) issuing to the holder
of any share of Series A/KBL Stock converted after such record
date and before the occurrence of such event the additional shares
of capital stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of
capital stock issuable upon such conversion before giving effect
to such adjustment and (ii) paying to such holder any amount in
cash in lieu of a fractional share of capital stock pursuant to
Section 7(a)(iii) above, PROVIDED, HOWEVER, that the Corporation
shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.
(v) Whenever the Series A/KBL Conversion Price shall be
adjusted as provided in Section 7(a)(iv), the Corporation shall
forthwith file, at the office of the transfer agent for the Series
A/KBL Stock or at such other place as may be designated by the
Corporation, a statement, signed by its independent certified
public accountants, showing in detail the facts requiring such
adjustment and the Series A/KBL Conversion Price that shall be in
effect after such adjustment. The Corporation shall also cause a
copy of such statement to be sent by first class, certified mail,
return receipt requested, postage prepaid, to each Series A/KBL
Holder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under
the provisions of Section 7(a)(vi) below.
(vi) In the event the Corporation shall propose to take any
action of the types described in clauses (A), (B), (C), or (D) of
Section 7(a)(iv) above, the Corporation shall give notice to each
holder of shares of Series A/KBL Stock, in the manner set forth in
Section 7(a)(v) above, which notice shall specify the record date,
if any, with respect to, any such action and the date on which
such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Series A/KBL
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion
of shares of Series A/KBL Stock. In the case of any action which
would require the fixing of a record date, such notice shall be
given at least 20 days prior to the date so fixed, and in case of
all other action, notice shall be given at least 30 days prior to
the taking of such proposed
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action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(vii) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any
shares of Series A/KBL Stock; PROVIDED, HOWEVER, that the
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series A/KBL Stock in respect
of which such shares are being issued.
(viii) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBL Stock), solely
for the purpose of effecting the conversion of the shares of
Series A/KBL Stock, sufficient shares to provide for the
conversion of all outstanding shares of Series A/KBL Stock.
(ix) All shares of Common Stock (or Non-voting Common Stock, in
the case of Series KBL Stock) which may be issued in connection
with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and
nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens or charges with
respect thereto.
(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series A/KBL Event
of Conversion, all shares of Series A/KBL Stock then outstanding shall, by
virtue of, and simultaneously with, the occurrence of the Series A/KBL Event of
Conversion and without any action on the part of the holders thereof, be deemed
automatically converted into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of Series KBL
Stock) as equals (1) the product of (x) the Series A/KBL Original Purchase Price
plus, after the third anniversary of the Series A/KBL Amendment Date at the
option of any Holder, any unpaid Series A/KBL Accrued Dividends with respect to
the shares being converted, multiplied by (y) the number of shares of Series
A/KL Stock being converted divided by (2) the Series A/KBL Conversion Price as
last adjusted pursuant to Section 7(a)(iv) and then in effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the occurrence of
a Series A/KBL Event of Conversion, the Series A/KBL Holders shall be entitled
to subscribe for their respective Preemptive Share of any New Securities which
the Corporation may, from time to time, propose to issue and sell, at any time
while any Series A/KBL Stock is outstanding and subject to the terms, conditions
and procedures set forth below.
(b) The Corporation shall first deliver to each Series A/KBL Holder a
written Notice of Intention to Sell offering to each Series A/KBL Holder the
right to purchase up to the Preemptive Share of such Series A/KBL Holder of such
shares of New Securities at the purchase price and on the terms specified
therein. Each Series A/KBL Holder shall have the right and option, for a period
of twenty (20) days after delivery to said Series A/KBL Holder of such
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Notice of Intention to Sell, to purchase all or any part of the Preemptive Share
of such Series A/KBL Holder of the shares of New Securities so offered at the
purchase price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Corporation within the
aforesaid twenty (20) day period.
The closing of any sales of shares of New Securities under the terms of
Section 8 shall be made at the offices of the Corporation on a mutually
satisfactory business day within five (5) business days after the expiration of
the aforesaid period. Delivery of certificates or other instruments evidencing
such shares of New Securities duly endorsed for transfer to the appropriate
Series A/KBL Holder shall be made on such date against payment of the purchase
price therefor.
(c) The Corporation may issue and sell all or any part of the
remaining shares of New Securities so offered for sale but not purchased
pursuant to Section 8 hereof at a price not less than the price offered, and on
terms not more favorable, to the purchaser thereof than the terms stated in the
original Notice of Intention to Sell, at any time within ninety (90) days after
the expiration of the offer required by Section 8. In the event the remaining
shares of New Securities are not sold by the Corporation during such ninety (90)
day period, the right of the Corporation to sell such remaining shares of New
Securities shall expire and the obligations of this Section 8 shall be
reinstated; PROVIDED, HOWEVER, that in the event the Corporation determines, at
any time during such ninety (90) day period, that the sale of all or any part of
the remaining shares of New Securities on the terms set forth in the Notice of
Intention to Sell is impractical, the Corporation can terminate the offer and
reinstate the procedure provided in this Section 8 without waiting for the
expiration of such ninety (90) day period.
9. FURTHER DILUTING ISSUANCES. The Corporation shall not permit or
cause to occur more than one Diluting Issuance unless the Corporation (I) has
taken all necessary action to create a new subseries of the Series A Preferred
Stock, which shall be PARI PASSU with the Series A Preferred Stock and the
Series A1 Preferred Stock for all purposes except conversion price, (II) has
taken all necessary action to create a new subseries of the Series KBL Preferred
Stock, which shall be PARI PASSU with the Series KBL Preferred Stock and the
Series KBL1 Preferred Stock for all purposes except conversion price, (III)
shall have amended this Certificate to provide that the shares of Series A Stock
held by any Holder thereof who fails to purchase its full Preemptive Share of
such additional Diluting Issuance shall be converted automatically into such new
subseries of Series A Stock, and (IV) shall have amended this Certificate to
provide that the shares of Series KBL Stock held by any Holder thereof who fails
to purchase its full Preemptive Share of such additional Diluting Issuance shall
be converted automatically into such new subseries of Series KBL Stock. The
shares of such subseries shall be convertible into Common Stock (or Non-voting
Common Stock, in the case of the Series KBL Stock) immediately after such
Diluting Issuance at the same price per share that applied to the shares which
were so converted immediately prior to such Diluting Issuance. The consent of
the Holders of the Preferred Stock shall not be required in order to effect such
new subseries.
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GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES B CONVERTIBLE PREFERRED STOCK,
SERIES B1 CONVERTIBLE PREFERRED STOCK,
SERIES KBH CONVERTIBLE PREFERRED STOCK,
SERIES KBH1 CONVERTIBLE PREFERRED STOCK
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
Genaissance Pharmaceuticals, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), hereby certifies
that, pursuant to authority conferred upon the Board of Directors by the
provisions of Article 4 of the Certificate of Incorporation of the Corporation,
as amended, (referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 30,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value, the following
resolution was duly adopted by the Board of Directors of the Corporation at a
special meeting held on March 10, 2000.
RESOLVED: That the provisions of the Certificate of Designations,
Preferences and Other Special Rights and Qualifications, Limitations and
Restrictions of Preferred Stock of the Corporation (relating to the
Series B Convertible Preferred Stock, Series B1 Convertible Preferred
Stock, Series KBH Convertible Preferred Stock and Series KBH1 Convertible
Preferred Stock) (the "CERTIFICATE OF DESIGNATIONS"), dated as of
February 17, 2000, and as amended as of March 8, 2000, shall be further
amended by deleting the text in its entirety and substituting therefor
the text set forth in EXHIBIT I attached hereto. Said Certificate of
Designations, as amended hereby, shall apply to 8,543,524 shares of
Series B Convertible Preferred Stock, 8,543,524 shares of Series B1
Convertible Preferred Stock, 550,000 shares of Series KBH Convertible
Preferred Stock, and 550,000 shares of Series KBH1 Convertible Preferred
Stock.
2. Such resolution also was duly approved by the written consent of
the holders of the requisite number of shares of the Series A Redeemable
Convertible Preferred Stock, the Series A1 Redeemable Convertible Preferred
Stock, the Series KBL Nonvoting Redeemable Convertible Preferred Stock, the
Series KBL1 Nonvoting Redeemable Convertible Preferred Stock, the Series B
Convertible Preferred Stock, the Series B1 Convertible Preferred Stock, the
Series KBH Convertible Preferred Stock and the Series KBH1 Convertible Preferred
Stock.
3. This amendment to the Certificate of Designations was duly adopted
in accordance with the provisions of Section 242 of the General Corporation Law
of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, as of this 10th day of March , 2000.
By: /s/ GUALBERTO RUANO
---------------------------
Gualberto Ruano
President
ATTEST:
/s/ Kevin L. Rakin
- ---------------------------
Kevin L. Rakin
Secretary
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EXHIBIT I
1. DEFINITIONS. As used in this Certificate of Designations, the
following terms have the meanings specified below:
"AFFILIATE" shall mean a person (other than a subsidiary):
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Corporation;
(ii) which beneficially owns or holds 10% or more of any class
of the voting stock of the Corporation; or
(iii) 10% or more of the voting stock (or in the case of a person
which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the Corporation or one of
its subsidiaries.
The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Corporation.
"DILUTED STOCK" shall have the meaning ascribed to it in Section
7(a)(iv)(A) hereof.
"DILUTING ISSUANCE" shall mean an issuance of capital stock described in
Section 7(a)(iv)(A) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other
subdivision or combination of the outstanding shares of Common
Stock;
(ii) up to an aggregate of 1,557,375 shares of Common Stock
issued or issuable to employees pursuant to an employee stock
option plan approved by the Board; or
<PAGE>
(iii) upon conversion of any Preferred Stock, warrants or other
convertible securities outstanding as of the Series B/KBH Initial
Issuance Date and set forth on Schedule 3.4 to the Series B/KBH
Stock Purchase Agreement.
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification that
took effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the average of the last reported bid and
asked prices, as reported by the Nasdaq on such day, or if, on any day in
question, the security shall not be quoted on the Nasdaq, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is traded in such
manner that the quotations referred to in this clause are not available for the
period required hereunder, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the combined voting power of the Series B/KBH
Stock and Series C Stock then outstanding and the Corporation (or if such
selection cannot be made, by a nationally recognized independent banking firm
selected by the American Arbitration Association in accordance with its rules).
With respect to the Series B/KBH Stock, Fair Market Value shall be determined by
a nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the voting power of the Series B/KBH Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent banking firm selected by the American
Arbitration Association in accordance with its rules).
"HOLDER" shall mean a holder of shares of Series B/KBH Stock, as
applicable, as reflected in the stock records of the Corporation; and each
Holder's address shall be as it appears in the stock records of the Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series B/KBH Stock, each other
class or series of capital stock (including, without limitation, each class of
common stock of the Corporation and each other series of preferred stock of the
Corporation including the Series A/KBL Stock) or other equity interests
(including, without limitation, warrants, rights, calls or options exercisable
for or convertible into such capital stock or equity interests) in the
Corporation but shall exclude the Series C Stock.
"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a third
party or parties, whether voluntary or involuntary, or the sale by the
stockholders of the Corporation of a majority of the voting capital stock of the
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Corporation; PROVIDED, HOWEVER, that a merger or consolidation shall not be
considered a Liquidation Event if the Corporation is the survivor or continuing
corporation of such merger or consolidation and as a result thereof there is no
change in the Common Stock or Preferred Stock or the ownership thereof.
"LIQUIDATION REDEMPTION PRICE" shall have the meaning assigned to such
term in Section 4(a).
"LISTED RIGHTS" shall mean all patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade names, trade
name rights, service marks and copyrights (whether registered or not) owned or
possessed by the Corporation and any improvements thereon.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional shares
of Preferred Stock, each other series of preferred stock of the Corporation and
any shares of capital stock held by the Corporation in its treasury upon the
disposition thereof) or other equity interests (including, without limitation,
warrants, rights, calls or options exercisable for or convertible into such
capital stock or equity interests) in the Corporation issued after the Series
B/KBH Initial Issue Date; PROVIDED, HOWEVER, that such term shall not include
(i) Excluded Stock, (ii) Second Round Series B/KBH Stock or (iii) Series C
Stock.
"NON-PARTICIPATING PERCENTAGE" shall have the meaning ascribed to it in
Section 7(a)(iv)(A) hereof.
"NON-VOTING COMMON STOCK" shall mean the Non-voting Common Stock, $.001
par value, of the Corporation.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"PREEMPTIVE SHARE" shall mean, immediately prior to any issue of shares
of New Securities, and as to each Series B/KBH Holder, the percentage which
expresses the ratio between (i) the total number of shares of Common Stock (or
Non-voting Common Stock, in the case of the Series KBH Stock) issuable upon
conversion of the Series B/KBH Stock owned by such Series B/KBH Holder, plus the
total number of shares of Common Stock (and Non-voting Common Stock, if any)
then owned by such Series B/KBH Holder that was received upon conversion of
Series B/KBH Stock, and (ii) the total number of shares of Common Stock and
Non-voting Common Stock then outstanding, plus the total number of shares of
Common Stock and Non-voting Common Stock issuable upon conversion of the then
outstanding Preferred Stock.
"PREFERRED STOCK" shall mean all of the outstanding shares of the Series
A Stock, Series KBL Stock, Series B Stock, Series KBH Stock and Series C Stock,
together, at the time in question.
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"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in aggregate gross cash proceeds to the Corporation
of not less than forty million dollars ($40,000,000) and pursuant to which the
offering price per share is equal to or greater than $16.50 ($11.00 per share in
the event that the registration statement with respect to such offering shall be
filed with the Commission on or before February 11, 2001), equitably adjusted
for any Recapitalization Event.
"QUALIFIED LIQUIDATION EVENT" shall have the meaning assigned to such
term in Section 3(a).
"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications, and similar events.
"RELATED PARTY" shall mean any officer, director, significant employee or
consultant of the Corporation or any holder (other than any Series A/KBL Holder,
Series B/KBH Holder, or Series C Holder) of 10% or more of any class of capital
stock of the Corporation or any member of the immediate family of any such
officer, director, employee, consultant or shareholder or any entity controlled
by any such officer, director, employee, consultant or shareholder or a member
of the immediate family of any such officer, director, employee, consultant or
shareholder.
"SCHEDULED REDEMPTION PRICE" shall have the meaning ascribed to it in
Section 4(b).
"SECOND ROUND SERIES B/KBH ISSUANCE DATE" shall mean the issuance date of
the Second Round Series B/KBH Stock.
"SECOND ROUND SERIES B/KBH STOCK" shall mean those shares of Series B/KBH
Stock that may be issued by the Corporation to certain investors (the "SECOND
ROUND INVESTORS") in the Second Closing as such term is defined in the Series
B/KBH Stock Purchase Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Redeemable Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A1 PREFERRED STOCK" shall mean the Series A1 Redeemable
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A STOCK" shall mean all of the outstanding shares of the Series A
Preferred Stock and the Series A1 Preferred Stock, together, at the time in
question, and any new subseries of the Series A Preferred Stock created pursuant
to Section 9 of the Series A/KBL Certificate of Designations.
"SERIES A/KBL CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series A and Series A1 Redeemable Convertible
Preferred Stock of the Corporation, dated as of August
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24, 1998, and amended as of February 17, 2000 , March 8, 2000 and March 10,
2000, and the Certificate of Designations, Preferences and Other Special Rights
and Qualifications, Limitations and Restrictions of Series KBL and the Series
KBL1 Non-voting Redeemable Convertible Preferred Stock of the Corporation, dated
as of August 24, 1998, and amended as of February 17, 2000, March 8, 2000 and
March 10, 2000.
"SERIES A/KBL HOLDER" shall mean a holder of shares of Series A Stock or
Series KBL Stock.
"SERIES A/KBL LIQUIDATION AMOUNT" shall mean the amount due to the Series
A/KBL Holders upon a Liquidation of the Company pursuant to the Series A/KBL
Certificate of Designations.
"SERIES A/KBL STOCK" shall mean all of the outstanding shares of the
Series A Stock and Series KBL Stock, together, at the time in question, which
shares are PARI PASSU for all purposes except voting (the Series KBL Stock being
non-voting) and conversion (the Series KBL Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES B1 PREFERRED STOCK" shall mean the Series B1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES B STOCK" shall mean all of the outstanding shares of the Series B
Preferred Stock and the Series B1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series B Preferred Stock created pursuant to
Section 9 hereof.
"SERIES B/KBH ACCRUED DIVIDENDS" shall mean Series B/KBH Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3, upon the relevant shares of Series B/KBH Stock.
"SERIES B/KBH CONVERSION DATE" shall have the meaning set forth in
Section 7(a)(ii).
"SERIES B/KBH CONVERSION PRICE" shall initially mean $5.50; PROVIDED,
HOWEVER, that the Series B/KBH Conversion Price shall be subject to adjustment
as set forth in Section 7(a)(iv).
"SERIES B/KBH EVENT OF CONVERSION" shall mean the consummation of a
Qualified IPO.
"SERIES B/KBH FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series B/KBH Stock (whether or not in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally available
for the payment of such dividends), that amount which shall be equal to
dividends at the full rate fixed for the Series B/KBH Stock as provided herein
for the period of time elapsed from the Series B/KBH Initial Issuance Date (the
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Second Round Series B/KBH Issuance Date in the case of the Second Round Series
B/KBH Stock) to the date as of which Series B/KBH Full Cumulative Dividends are
to be computed.
"SERIES B/KBH HOLDER" shall mean a holder of shares of Series B Stock or
Series KBH Stock.
"SERIES B/KBH INITIAL ISSUANCE DATE" shall mean February 17, 2000.
"SERIES B/KBH LIQUIDATION AMOUNT" shall mean an amount in cash or
property (valued at its Fair Market Value), or a combination thereof, equal to
$5.50 per share of Series B/KBH Stock held by a Holder (which per share amount
shall be subject to equitable adjustment whenever there shall occur a stock
split, combination, reclassification or other similar event involving the Series
B/KBH Stock) plus all Series B/KBH Accrued Dividends.
"SERIES B/KBH ORIGINAL PURCHASE PRICE" shall mean $5.50 per share of
Series B/KBH Stock.
"SERIES B/KBH REDEMPTION DATE" shall have the meaning set forth in
Section 4 hereof.
"SERIES B/KBH REDEMPTION PRICE" shall have the meaning set forth in
Section 4 hereof.
"SERIES B/KBH STOCK" shall mean all of the outstanding shares of the
Series B Stock and Series KBH Stock, together, at the time in question, which
shares shall be PARI PASSU for all purposes except voting (the Series KBH Stock
being non-voting) and conversion (the Series KBH Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B/KBH STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of February 17, 2000, by and among the Corporation
and the Purchasers (as defined therein) of the Series B Preferred Stock and
Series KBH Preferred Stock, as amended as of February 29, 2000 and March 3,
2000.
"SERIES C PREFERRED STOCK" shall mean the Series C Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES C1 PREFERRED STOCK" shall mean the Series C1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES C ACCRUED DIVIDENDS" shall mean Series C Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3 of the Series C Certificate of Designation, upon the
relevant shares of Series C Stock.
"SERIES C CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series C Convertible Preferred Stock and Series
C1 Convertible Preferred Stock of the Corporation, dated as of March 10, 2000.
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"SERIES C FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series C Stock (whether or not in respect of which such term is used there shall
have been net profits or net assets of the Corporation legally available for the
payment of such dividends), that amount which shall be equal to dividends at the
full rate fixed for the Series C Stock as provided in the Series C Certificate
of Designations for the period of time elapsed from the Series C Initial
Issuance Date to the date as of which Series C Full Cumulative Dividends are to
be computed.
"SERIES C HOLDER" shall mean a holder of shares of Series C Stock.
"SERIES C INITIAL ISSUANCE DATE" shall mean March 10, 2000.
"SERIES C LIQUIDATION AMOUNT" shall mean an amount in cash or property
(valued at its Fair Market Value), or a combination thereof, equal to $8.25 per
share of Series C Stock held by a Holder (which per share amount shall be
subject to equitable adjustment whenever there shall occur a stock split,
combination, reclassification or other similar event involving the Series C
Stock) plus all Series C Accrued Dividends.
"SERIES C ORIGINAL PURCHASE PRICE" shall mean $8.25 per share of Series C
Stock.
"SERIES C STOCK" shall mean all of the outstanding shares of the Series C
Preferred Stock and the Series C1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series C Preferred Stock created pursuant to
Section 9 of the Series C Certificate of Designations.
"SERIES C STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of March 10, 2000, by and among the Corporation and
the Purchasers (as defined therein) of the Series C Stock.
"SERIES KBH PREFERRED STOCK" shall mean the Series KBH Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH1 PREFERRED STOCK" shall mean the Series KBH1 Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH STOCK" shall mean all of the outstanding shares of the Series
KBH Preferred Stock and the Series KBH1 Preferred Stock, together, at the time
in question, and any new subseries of the Series KBH Preferred Stock created
pursuant to Section 9 hereof.
"SERIES KBL PREFERRED STOCK" shall mean the Series KBL Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL1 PREFERRED STOCK" shall mean the Series KBL1 Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL STOCK" shall mean all of the outstanding shares of the Series
KBL Preferred Stock and the Series KBL1 Preferred Stock, together, at the time
in question, and any new
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subseries of the Series KBL Preferred Stock created pursuant to Section 9 of the
Series A/KBL Certificate of Designations.
"SUBSIDIARY" shall mean an entity a majority of the capital stock or
other ownership interest in which is owned directly or indirectly by the
Corporation, except that 100% "SUBSIDIARY" shall mean a subsidiary that is 100%
owned by the Corporation and/or its 100% subsidiaries.
2. NUMBER OF SHARES. The designation of the four series of preferred
stock provided for herein shall be as follows: Series B Preferred Stock, of
which 8,543,524 shares shall be authorized; Series B1 Preferred Stock, of which
8,543,524 shares shall be authorized; Series KBH Preferred Stock, of which
550,000 shares shall be authorized; and Series KBH1 Preferred Stock, of which
550,000 shares shall be authorized.
3. DIVIDENDS.
(a) The holder of each share of Series B/KBH Stock shall be entitled
to receive, before any dividends shall be declared and paid upon or set aside
for the Junior Securities, out of funds legally available for that purpose,
dividends in cash at the rate per annum per share (the "SERIES B DIVIDEND RATE")
equal to 8% of the Series B/KBH Original Purchase Price, adjusted, as
applicable, for any Recapitalization Event, payable, when and as declared by the
Board and, in any event, upon the earliest of (a) a Liquidation Event in
accordance with Section 5 hereof, (b) upon redemption in accordance with Section
4 hereof or (c) upon the Series B/KBH Event of Conversion. Until the third
anniversary of the Series B/KBH Initial Issuance Date, the Corporation shall
have the option to make any such payment either in cash or in shares of Common
Stock (Non-voting Common Stock in the case of the Series KBH), provided that
dividends declared and paid upon or set aside for all shares of Series B/KBH
Stock, of Series A/KBL Stock and of Series C Stock at or about the same time are
being paid in the same manner unless a different method of payment is approved
by a majority of the holders of the Series B Stock and Series C Stock, voting
together as a separate class. After the third anniversary of the Series B/KBH
Initial Issuance Date, the Holder shall have the option to receive any such
payment either in cash or in shares of Common Stock (Non-voting Common Stock in
the case of the Series KBH). In the event such dividends are paid in Common
Stock (Non-voting Common Stock in the case of the Series KBH), for purposes of
computing the number of shares of Common Stock (Non-voting Common Stock in the
case of the Series KBH) to be issued and the amount of the dividend paid, the
value of the Common Stock (Non-voting Common Stock in the case of the Series
KBH) paid to any holder of shares of Series B/KBH Stock shall be valued at the
then Series B/KBH Conversion Price. Dividends on shares of Series B/KBH Stock
shall be cumulative from the Series B/KBH Initial Issuance Date (Second Round
Series B/KBH Issuance Date in the case of the Second Round Series B/KBH Stock),
whether or not there shall be net profits or net assets of the Corporation
legally available for the payment of such dividends, so that, if at any time
Series B/KBH Full Cumulative Dividends upon the Series B/KBH Stock shall not
have been paid or declared and a sum sufficient for payment thereof set apart,
the amount of the deficiency in such dividends shall be fully paid or dividends
in such amount shall be declared on the shares of the Series B/KBH Stock and a
sum sufficient for the payment thereof shall be set
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apart for such payment, before any dividend shall be declared or paid or any
other distribution ordered or made upon any Junior Securities and before any sum
or sums shall be set aside for or applied to the purchase or redemption of
Junior Securities. With respect to rights to dividends, the Series B/KBH Stock
shall rank pari passu with the Series C Stock but prior to the Common Stock and
all other Junior Securities. All dividends declared upon the Series B/KBH Stock
shall be declared pro rata per share. All payments due under this Section to any
holder of shares of Series B/KBH Stock shall be made to the nearest cent.
Notwithstanding the foregoing, the holders of the Series B/KBH Stock shall not
be entitled to dividends on the Series B/KBH Stock pursuant to this Section 3(a)
in the event that on or before August 11, 2001(i) there shall be filed with the
Commission a registration statement with respect to a Qualified IPO (which
registration statement shall have become effective within three months of
filing); or (ii) there shall occur a Qualified Liquidation Event. The term
"QUALIFIED LIQUIDATION EVENT" shall mean a Liquidation Event in which (i) the
holders of the Series B/KBH Stock receive (per share) cash or other property
with a fair market value equal to at least 200% of the Series B/KBH Original
Purchase Price (as adjusted for any stock split, combination, reclassification
or other similar event involving the Series B/KBH Stock) if the Qualified
Liquidation Event occurs within one year after the Series B/KBH Initial Issuance
Date, and 300% of the Series B/KBH Original Purchase Price (as adjusted for any
stock split, combination, reclassification or other similar event involving the
Series B/KBH Stock) if the Qualified Liquidation Event occurs more than one year
after the Series B/KBH Initial Issuance Date (but before August 12, 2001) and
(ii) the holders of the Series C Stock receive (per share) cash or other
property with a fair market value equal to at least 200% of the Series C
Original Purchase Price (as adjusted for any stock split, combination,
reclassification or other similar event involving the Series C Stock) if the
Qualified Liquidation Event occurs within one year after the Series B/KBH
Initial Issuance Date, and 300% of the Series C Original Purchase Price (as
adjusted for any stock split, combination, reclassification or other similar
event involving the Series C Stock) if the Qualified Liquidation Event occurs
more than one year after the Series B/KBH Initial Issuance Date (but before
August 12, 2001).
(b) In the event the Corporation shall make or issue, or shall fix a
record date for the determination of holders of Common Stock (or Non-voting
Common Stock) entitled to receive a dividend or other distribution (other than a
distribution in liquidation or other distribution otherwise provided for herein)
with respect to the Common Stock (or Non-voting Common Stock) or any other
Junior Securities (based on "as if converted amounts") other than the Series
A/KBL Stock payable in (i) securities of the Corporation other than shares of
Common Stock (or Non-voting Common Stock), or (ii) cash, then, and in each such
event, provision shall be made so that the holders of the Series B/KBH Stock
shall receive the number of securities or such other assets of the Corporation
which they would have received had their Series B/KBH Stock been converted into
Common Stock (or Non-voting Common Stock in the case of the Series KBH) on the
date of such event.
4. REDEMPTION.
(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event, the Corporation shall (to the extent
allowed by law)
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redeem, except as set forth hereafter, all the shares of Series B/KBH Stock then
outstanding, out of funds legally available therefor. The amount per share
payable upon any redemption of shares of Series B/KBH Stock pursuant to this
subsection shall be an amount in cash equal to the Liquidation Redemption Price,
as determined below. The Corporation shall deliver to each holder of shares of
Series B/KBH Stock, not later than 45 days prior to the consummation of a
Liquidation Event, notice of such proposed Liquidation Event, including the date
on which such Liquidation Event is expected to be consummated. To the extent
that one or more redemptions and/or a liquidation are occurring concurrently,
any redemption of the shares of Series B/KBH Stock shall be deemed to occur and
shall be paid pari passu with any redemption of the shares of Series C Stock but
in full prior to any other redemptions and/or liquidations, including any other
redemption of shares of the Series A/KBL Stock. Notwithstanding the foregoing,
any Series B/KBH Holder may elect to retain its outstanding shares of Series
B/KBH Stock and not to subject such shares to redemption by delivery of written
notice to the Corporation at least 15 days prior to the date of the consummation
of the Liquidation Event.
(ii) The amount per share payable upon any redemption of shares
of Series B/KBH pursuant to this subsection shall be an amount
equal to the greater of (a) the Series B/KBH Original Purchase
Price (subject to equitable adjustment for any stock split,
combination, reclassification or other similar event involving the
Series B/KBH Stock) plus all Series B/KBH Accrued Dividends, or
(b) the Fair Market Value of such share (the "LIQUIDATION
REDEMPTION PRICE").
(iii) Any date upon which Series B/KBH Stock is to be redeemed
pursuant to this Section 4 shall be referred to in this context as
a "SERIES B/KBH REDEMPTION DATE".
(b) SERIES B ANNUAL REDEMPTION. Except as set forth hereafter, the
Corporation shall (to the extent allowed by law) redeem the following shares of
Series B Stock and Series KBH Stock on the following dates, out of funds legally
available therefor:
(i) at any time on or after February 11, 2005, one-third of the
shares of each of the Series B Stock and Series KBH Stock then
outstanding.
(ii) at any time on or after February 11, 2006, an additional
number of shares of each of the Series B Stock and Series KBH
Stock equal to one-third of the shares of the Series B Stock and
Series KBH Stock, respectively, outstanding as of February 11,
2005.
(iii) at any time on or after February 11, 2007, all outstanding
shares of Series B Stock and Series KBH Stock.
The amount per share payable upon any redemption of shares of Series B
Stock and Series KBH Stock pursuant to this subsection shall be an amount in
cash equal to the greater of (a) the Series B/KBH Original Purchase Price
(subject to equitable adjustment for any stock split, combination,
reclassification or other similar event involving the Series B/KBH Stock) plus
all Series B/KBH Accrued Dividends, or (b) the Fair Market Value of such share
(the "SCHEDULED REDEMPTION PRICE" and collectively with the Liquidation
Redemption Price, the "SERIES B/KBH REDEMPTION PRICE").
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To the extent that one or more annual or other redemptions are occurring
concurrently, any redemption of the shares of Series B/KBH Stock shall be deemed
to occur and shall be paid pari passu with any redemption of the shares of
Series C Stock but in full prior to any other redemptions, including any other
redemption of shares of the Series A/KBL Stock.
Notwithstanding the foregoing, any Series B/KBH Holder may elect to
retain its outstanding shares of Series B/KBH Stock and not to subject such
shares to redemption by delivery of written notice to the Corporation at least
15 days prior to the applicable redemption date set forth above.
(c) PRO RATA. If, on any Series B/KBH Redemption Date, fewer than all
shares of Series B/KBH Stock then outstanding are to be redeemed in accordance
with this Section, the shares to be redeemed shall be allocated pro rata among
the Series B/KBH Holders and the Redemption Notice mailed to each Holder shall
specify the number of shares to be redeemed from such Holder. Notwithstanding
the delivery of a Redemption Notice, Series B/KBH Holders subject to redemption
may convert such shares pursuant to Section 7 on or before the Series B/KBH
Redemption Date by delivering written notice thereof to the Corporation not
later than 10 days prior to the Series B/KBH Redemption Date.
(d) PAYMENT OF SERIES B/KBH REDEMPTION PRICE; TERMINATION OF RIGHTS.
On any Series B/KBH Redemption Date, the applicable Series B/KBH Redemption
Price in respect of the shares represented by the certificate or certificates
surrendered to the Corporation by the Holder thereof pursuant to the Redemption
Notice shall be paid to the order of the person whose name appears on such
certificate or certificates. Each surrendered certificate shall be canceled and
retired and a new certificate, representing the remaining, unredeemed shares of
Series B/KBH Stock, if any, shall be issued to the Holder of such shares. On any
Series B/KBH Redemption Date, the rights of a Holder with respect to shares
redeemed shall cease, other than such Holder's right to payment of the Series
B/KBH Redemption Price as of the Series B/KBH Redemption Date, upon surrender of
the certificate or certificates.
5. LIQUIDATION. In the event of any liquidation, dissolution or
winding-up of the Corporation, the Series B/KBH Holders shall be entitled,
before any assets of the Corporation shall be distributed among or paid over to
the holders of Junior Securities, but after distribution of such assets among,
or payment thereof over to, creditors of the Corporation, to receive from the
assets of the Corporation available for distribution to stockholders in cash,
the Series B/KBH Liquidation Amount. If the assets of the Corporation legally
available for distribution shall be insufficient to permit the payment in full
of the Series B/KBH Liquidation Amount and the Series C Liquidation Amount to
the Series B/KBH Holders and the Series C Holders, then the entire assets of the
Corporation legally available for distribution shall be distributed ratably
among the Series B/KBH Holders and Series C Holders in proportion to the
respective amounts which would have been payable upon such Liquidation Event on
such shares of Series B/KBH Stock and Series C Stock if all amounts payable
thereon had been paid in full. In the event that such distribution of assets is
other than in cash, such distribution of cash and other assets (including
securities) shall be made ratably among the holders of the shares of Series
B/KBH Stock and Series C Stock based upon the fair market value of any such
assets as determined by a
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nationally recognized valuation consultant selected mutually by the holders of a
majority in voting power of the Series B/KBH Stock and the Series C Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent valuation consultant selected by the American
Arbitration Association in accordance with its rules). In the event of any
liquidation, dissolution or winding-up of the Corporation, after payment shall
have been made to the holders of shares of Series B/KBH Stock and Series C Stock
of the full amount to which they shall be entitled as aforesaid, and then after
payment of the Series A/KBL Liquidation Amount to the Series A/KBL Holders under
the Series A/KBL Certificate of Designations, the holders of any Junior
Securities and the Series B/KBH Holders and Series C Holders shall be entitled
to participate equally, on an as-converted basis in the case of the Series B/KBH
Stock, the Series C Stock and any Junior Securities convertible into Common
Stock, in all remaining assets of the Corporation available for distribution to
its stockholders. The provisions of this Section 5 shall not be applicable to
any shares of Series B/KBH Stock or Series C Stock that have been redeemed
pursuant to Section 4(a) hereof in connection with such Liquidation Event. The
holders of the Series B/KBH Stock shall have the right to treat any merger,
consolidation, sale of all or substantially all of the assets of the
Corporation, or sale of a majority of the voting capital stock of the
Corporation, as a liquidation of the Corporation and, in connection therewith,
to receive payment under this Section 5 upon surrender of their shares to the
Corporation; PROVIDED, HOWEVER, that the holders of the Series B/KBH Stock shall
not have the right to treat any merger or consolidation as a Liquidation Event
if the Corporation is the survivor or continuing corporation of such merger or
consolidation and as a result thereof there is no change in the Common Stock or
Preferred Stock or the ownership thereof.
6. VOTING.
(a) VOTES GENERALLY WITH COMMON STOCK. In addition to the rights
specified in Section 6(b) below and any other rights provided in the
Corporation's By-Laws, the shares of Series B Stock shall entitle each Holder
thereof to such number of votes as shall equal the number of shares of Common
Stock (rounded to the nearest whole number) into which the shares of Series B
Stock held by such Holder are then convertible pursuant to Section 7 and shall
entitle each such Holder to vote on all matters as to which holders of Common
Stock shall be entitled to vote, in the same manner and with the same effect as
such holders of Common Stock, voting together with the holders of Common Stock
as one class.
(b) SEPARATE CLASS VOTE. So long as any shares of Series B Stock are
outstanding, the consent of the holders of a majority of all of the outstanding
shares of Series B Stock, Series C Stock and Series A Stock, voting as a single
and separate class in person or by proxy, at a special or annual meeting called
for the purpose, or by written consent in lieu of a meeting, shall be required
before the Corporation may:
(i) authorize or issue any class or series of capital stock
ranking senior or pari passu to the Series B/KBH Stock, the Series
C Stock or the Series A/KBL Stock with respect to rights to
receive dividends, redemption payments or distributions upon
liquidation or winding up of the Corporation or with respect to
voting,
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antidilution provisions or preemptive rights; PROVIDED, HOWEVER,
that this provision shall not apply to the issuance of the Second
Round Series B/KBH Stock (which itself shall be Series B/KBH
Stock);
(ii) authorize, declare or distribute any dividend, whether in
cash or in kind, payable to any class or series of the
Corporation's common or preferred stock (except payment of
dividends on the Series B/KBH Stock as contemplated herein or
payment of dividends on the Series C Stock as contemplated (and
only to the extent permitted) in the Series C Certificate of
Designations or payment of dividends on the Series A/KBL Stock as
contemplated (and only to the extent permitted) in the Series
A/KBL Certificate of Designations) or to any other equity security
of the Corporation;
(iii) approve any liquidation, dissolution, sale, lease or
license of all or substantially all of the assets or business, or
of the assets or business of any subsidiary, of the Corporation;
(iv) cancel, repeal or change any of the provisions of this
Certificate of Designations (or of any amendment hereto), any
other certificate of designations of the Corporation (or any
amendment thereto), the Certificate of Incorporation of the
Corporation or the By-laws of the Corporation;
(v) permit to lapse any of the following: its corporate
existence, essential rights, government approvals or franchises or
any licenses or Listed Rights (which the Board deems essential to
the Corporation's business) or other rights to use patents,
processes, licenses, trademarks, trade names or copyrights owned
or possessed by it (which the Board deems essential to the
Corporation's business);
(vi) transfer, assign or license (except end-user licenses
granted in the ordinary course of business) any of the
Corporation's Listed Rights or know-how, technology or trade
secrets now owned or hereafter acquired by the Corporation;
(vii) voluntarily dissolve, liquidate or wind-up or carry out any
partial liquidation or distribution or transaction in the nature
of a partial liquidation or distribution;
(viii) purchase, lease or otherwise acquire capital stock in any
corporation or equity interest in any other entity or lend money
to any person or entity (other than loans to any one person that,
individually or in the aggregate, shall not exceed $100,000 or
loans to any one employee that, individually or in the aggregate,
shall not exceed $200,000) or purchase a substantial part of the
operating assets of any person or entity;
(ix) consolidate with or merge into or with any other person or
entity or permit any other person or entity to consolidate with or
merge into it (except that a 100%
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subsidiary may consolidate with or merge into the Corporation or
another 100% subsidiary);
(x) permit any subsidiary (except a 100% subsidiary) to make
any (i) direct or indirect redemption, retirement, purchase or
other acquisition of any of the Corporation's capital stock (or
any warrant, option or other right with respect to such stock),
(ii) repayment of the Corporation's debt held by any Related Party
or by any Affiliate or subsidiary debt held by any Related Party
or by any Affiliate, or (iii) sale of any capital stock of the
Corporation to any third party;
(xi) issue (which term shall include without limitation the
issuance of any shares of, or the grant of any warrants, options
or other rights to purchase any shares of, or any commitment to
issue) any shares of its capital stock (which term shall include
without limitation, securities convertible into capital stock, or
rights to acquire capital stock), other than Excluded Stock, at a
price per share less than $8.25;
(xii) redeem any shares of any capital stock of the Corporation
(except redemptions of Series B/KBH Stock as contemplated herein
or redemptions of Series C Stock as contemplated (and only to the
extent permitted) in the Series C Certificate of Designations or
redemptions of Series A/KBL Stock as contemplated (and only to the
extent permitted) in the Series A/KBL Certificate of
Designations); or
(xiii) increase the size of the Board of Directors of the Company
above eight (8) members.
7. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) The holder of any shares of Series B/KBH Stock shall have
the right, at such holder's option, at any time or from time to
time to convert any or all such holder's shares of Series B/KBH
Stock into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of
Series KBH Stock) as equals (I) the product of (x) the Series
B/KBH Original Purchase Price plus, after the third anniversary of
the Series B/KBH Initial Issuance Date at the option of any
Holder, any unpaid Series B/KBH Accrued Dividends with respect to
the shares being converted, multiplied by (y) the number of shares
of Series B/KBH Stock being converted, divided by (II) the Series
B/KBH Conversion Price (as last adjusted and then in effect) for
the shares of the Series B/KBH Stock being converted, by surrender
of the certificates representing the shares of Series B/KBH Stock
so to be converted in the manner provided Section 7(a)(ii) below.
The Series B/KBH Conversion Price shall initially be equal to the
Series B/KBH Original Purchase Price; PROVIDED,
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HOWEVER, that such Series B/KBH Conversion Price shall be subject
to adjustment as set forth in Section 7(a)(iv) below.
(ii) The holder of any shares of Series B/KBH Stock may exercise
such holder's conversion right pursuant to this Section by
delivering to the Corporation during regular business hours at the
office of any transfer agent of the Corporation for the Series
B/KBH Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or to the
Corporation (if required by it) accompanied by written notice
stating that such holder elects to convert such shares and stating
the name or names (with address) in which the certificate or
certificates for the shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBH Stock) are to be issued.
Conversion shall be deemed to have been effected with respect to
conversion under (a) Section 7(a)(i) above, on the date when the
aforesaid delivery is made and (b) Section 7(b) on the date of
occurrence of a Series B/KBH Event of Conversion, as the case may
be, and any such date is referred to herein as the "SERIES B/KBH
CONVERSION DATE". As promptly as practicable thereafter the
Corporation shall issue and deliver to or upon the written order
of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBH Stock) to which such holder is entitled and a check or cash in
respect of any fractional interest in a share of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock), as
provided in Section 7(a)(iii) below, payable with respect to the
shares of Series B/KBH Stock so converted up to and including the
Series B/KBH Conversion Date. The person in whose names the
certificate or certificates for Common Stock (or Non-voting Common
Stock, in the case of Series KBH Stock) are to be issued shall be
deemed to have become a holder of Common Stock (or Non-voting
Common Stock, in the case of Series KBH Stock) on the applicable
Series B/KBH Conversion Date unless the transfer books of the
Corporation are closed on that date, in which event such holder
shall be deemed to have become a holder of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock) on the
next succeeding date on which the transfer books are open, but the
Series B/KBH Conversion Price shall be that in effect on the
Series B/KBH Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares
of Series B/KBH Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense
of the Corporation, a new certificate covering the number of
shares of Series B/KBH Stock representing the unconverted portion
of the certificate so surrendered.
(iii) No fractional shares of Common Stock (or Non-voting Common
Stock, in the case of Series KBH Stock) or scrip shall be issued
upon conversion of shares of Series B/KBH Stock. If more than one
share of Series B/KBH Stock shall be surrendered for conversion at
any one time by the same holder, the number of full
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shares of Common Stock (or Non-voting Common Stock, in the case of
Series KBH Stock) issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series
B/KBH Stock so surrendered. Instead of any fractional shares of
Common Stock (or Non-voting Common Stock, in the case of Series
KBH Stock) which would otherwise be issuable upon conversion of
any shares of Series B/KBH Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount
equal to the then current Fair Market Value of a share of Common
Stock multiplied by such fractional interest.
(iv) The Series B/KBH Conversion Price shall be subject to
adjustment from time to time as follows:
(A) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. Unless the Corporation has requested and
received a waiver from the holders of a majority of the
Series A Stock, the Series B Stock and the Series C Stock,
voting together as a single class, if the Corporation shall
at any time or from time to time after the Series B/KBH
Initial Issuance Date issue or be deemed (by virtue of any
of the provisions of Section 7(a)(iv)), to have issued any
capital stock (including, without limitation, each class of
common stock of the Corporation) or other equity interests
(including, without limitation, warrants, rights, calls or
options exercisable for or convertible into such capital
stock or equity interests) in the Corporation, other than
Excluded Stock (or Second Round Series B/KBH Stock),
without consideration or for a consideration per share (the
"LAST ISSUE PRICE") less than the Series B/KBH Conversion
Price in effect immediately prior to each such issuance or
deemed issuance (a "DILUTING Issuance"), the Series B/KBH
Conversion Price in effect immediately prior thereto shall
forthwith be adjusted, as of the opening of business on the
date of such issuance or deemed issuance, to such Last
Issue Price.
Notwithstanding the immediately preceding paragraph of this
subsection (A), if a Series B/KBH Holder has been given
written notice pursuant to Section 8 hereof and the
opportunity to purchase its Preemptive Share of such
Diluting Issuance and does not purchase its entire
Preemptive Share of such Diluting Issuance, but purchases a
lesser share of such Diluting Issuance or none, the Series
B/KBH Conversion Price for that portion of the shares of
Series B/KBH Stock of said Series B/KBH Holder equal to the
Non-Participating Percentage (as hereinafter defined) (the
"DILUTED STOCK") shall not be reduced for said issuance
pursuant to this subsection but each share of the Diluted
Stock which each such Series B/KBH Holder holds shall be
automatically converted immediately prior to the closing of
the applicable Diluting Issuance into one (1) share of
Series B1 Preferred Stock (or Series KBH1 Preferred Stock,
in the case of Series KBH Stock) which shall be convertible
into Common Stock (or Non-voting Common Stock, in the case
of Series KBH1 Stock) at the same price per share that
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applied to the Diluted Stock immediately prior to such
Diluting Issuance, subject, however, to further adjustment
as herein provided. As used herein, the term
"NON-PARTICIPATING PERCENTAGE" means a percentage equal to
one hundred percent (100%) minus the percentage determined
by dividing the number of shares of the Diluting Issuance
which such Holder actually purchased by the maximum number
of shares of the Diluting Issuance which such Holder was
entitled to purchase on the basis of such Holder's
Preemptive Shares and expressing the resulting quotient as
a percentage.
Upon the conversion of Diluted Stock held by a Series B/KBH
Holder as set forth herein, such shares of Diluted Stock
shall no longer be outstanding on the books of the
Corporation and the Series B/KBH Holder shall be treated,
to the extent that said holder held such Diluted Stock, as
the record holder of such shares of Series B1 Preferred
Stock (or Series KBH1 Stock, in the case of Series KBH
Stock) on the date of closing of the applicable Diluting
Issuance.
For the purposes of any adjustment of the Series B/KBH
Conversion Price pursuant to this subsection (A), the
following provisions shall be applicable:
(1) In the case of the issuance of stock for
cash, the consideration shall be deemed to be the
amount of cash paid therefor.
(2) In the case of the issuance of stock for a
consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to
be the fair market value thereof as determined in
good faith by the Board, irrespective of any
accounting treatment; PROVIDED, HOWEVER, that the
aggregate fair market value of such non-cash and
cash consideration shall not exceed the current Fair
Market Value of the shares of stock being issued.
(3) In case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock or
Non-voting Common Stock; (ii) securities by their
terms convertible into or exchangeable for Common
Stock or Non-voting Common Stock; or (iii) options
to purchase or rights to subscribe for such
convertible or exchangeable securities:
(a) the aggregate number of shares of
Common Stock or Non-voting Common Stock
deliverable upon exercise of such options to
purchase or rights to subscribe for Common
Stock or Non-voting Common Stock shall be
deemed to have been issued at the time such
options or rights were
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issued and for a consideration equal to the
consideration (determined in the manner
provided in subdivisions (1) and (2) above),
if any, received by the Corporation upon the
issuance of such options or rights plus the
purchase price provided in such options or
rights for the Common Stock or Non-voting
Common Stock covered thereby;
(b) the aggregate number of shares of
Common Stock or Non-voting Common Stock
deliverable upon conversion of or in exchange
for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such
convertible or exchangeable securities and
subsequent conversion or exchange thereof
shall be deemed to have been issued at the
time such securities were issued or such
options or rights were issued and for a
consideration equal to the consideration
received by the Corporation for any such
securities and related options or rights
(excluding any cash received on accounts of
accrued interest or accrued dividends), plus
the additional consideration, if any, to be
received by the Corporation upon the
conversion or exchange of such securities or
the exercise of any related options or rights
(the consideration in each case to be
determined in the manner provided in
subdivisions (1) and (2) above, with the
proviso to subdivision (2) being applied to
the number of shares of Common Stock or
Non-voting Common Stock deliverable upon such
exercise);
(c) on any change in the number of shares
or exercise price of Common Stock or
Non-voting Common Stock deliverable upon the
exercise of any such options or rights or
conversions of or exchange for such
convertible or exchangeable securities, other
than a change resulting from the antidilution
provisions thereof, the Series B/KBH
Conversion Price, if previously adjusted,
shall forthwith be readjusted to such Series
B/KBH Conversion Price as would have obtained
had the adjustment made upon the issuance of
such options, rights or securities not
converted prior to such change or options or
rights related to such securities not
converted prior to such change having been
made upon the basis of such change; and
(d) on the expiration of any such options
or rights, the termination of any such rights
to convert or exchange or the expiration of
any options or rights related to such
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convertible or exchangeable securities, the
Series B/KBH Conversion Price, if previously
adjusted, shall forthwith be readjusted to
such Series B/KBH Conversion Price as would
have obtained had such options, rights,
securities or options or rights related to
such securities not been issued.
(B) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR
SPLIT-UPS. If, at any time after the Series B/KBH Initial
Issuance Date, the number of shares of Common Stock or
Non-voting Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or Non-voting
Common Stock or by a subdivision or split-up of shares of
Common Stock or Non-voting Common Stock, then, upon the
record date fixed for the determination of holders of
Common Stock or Non-voting Common Stock entitled to receive
such stock dividend, subdivision or split-up, the Series
B/KBH Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock (or Non-voting
Common Stock, in the case of Series KBH Stock) issuable on
conversion of each share of Series B/KBH Stock shall be
increased in proportion to such increase in outstanding
shares.
(C) ADJUSTMENTS FOR COMBINATIONS. If, at any time after
the Series B/KBH Initial Issuance Date, the number of
shares of Common Stock or Non-voting Common Stock
outstanding is decreased by a combination of the
outstanding shares of Common Stock or Non-voting Common
Stock, then, upon the record date for such combination, the
Series B/KBH Conversion Price shall be appropriately
increased so that the number of shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock)
issuable on conversion of each share of Series B/KBH Stock
shall be decreased in proportion to such decrease in
outstanding shares.
(D) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS,
CONSOLIDATIONS, ETC. In case, at any time after the Series
B/KBH Initial Issuance Date, of any capital reorganization,
or any reclassification of the stock of the Corporation
(other than a change in par value or from par value to no
par value or from no par value to par value or as a result
of a stock dividend or subdivision, split-up or combination
of shares), or the consolidation or merger of the
Corporation with or into another person (other than a
consolidation or merger in which the Corporation is the
continuing corporation and which does not result in any
change in the Common Stock or Preferred Stock or the
ownership thereof or of the sale or other disposition of
all or substantially all of the properties and assets of
the Corporation as an entirety to any other person), each
share of Series B/KBH Stock shall, after such
reorganization, reclassification, consolidation, merger,
sale or other disposition, be convertible into the
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<PAGE>
kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting
from such consolidation or surviving such merger or to
which such properties and assets shall have been sold or
otherwise disposed to which the holder of the number of
shares of Common Stock (or Non-voting Common Stock, in the
case of Series KBH Stock) deliverable (immediately prior to
the time of such reorganization, reclassification,
consolidation, merger, sale or other disposition) upon
conversion of such share would have been entitled upon such
reorganization, reclassification, consolidation, merger,
sale or other disposition. The provisions of this
subsection shall similarly apply to successive
reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(E) All calculations under this subsection (iv) shall be
made to the nearest one cent ($.01) or to the nearest
one-tenth (1/10) of a share, as the case maybe.
(F) In any case in which the provisions of this
subsection (iv) shall require that an adjustment shall
become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of
such event (i) issuing to the holder of any share of Series
B/KBH Stock converted after such record date and before the
occurrence of such event the additional shares of capital
stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares
of capital stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 7(a)(iii) above,
PROVIDED, HOWEVER, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event
requiring such adjustment.
(v) Whenever the Series B/KBH Conversion Price shall be
adjusted as provided in Section 7(a)(iv), the Corporation shall
forthwith file, at the office of the transfer agent for the Series
B/KBH Stock or at such other place as may be designated by the
Corporation, a statement, signed by its independent certified
public accountants, showing in detail the facts requiring such
adjustment and the Series B/KBH Conversion Price that shall be in
effect after such adjustment. The Corporation shall also cause a
copy of such statement to be sent by first class, certified mail,
return receipt requested, postage prepaid, to each Series B/KBH
Holder at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under
the provisions of Section 7(a)(vi) below.
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<PAGE>
(vi) In the event the Corporation shall propose to take any
action of the types described in clauses (A), (B), (C), or (D) of
Section 7(a)(iv) above, the Corporation shall give notice to each
holder of shares of Series B/KBH Stock, in the manner set forth in
Section 7(a)(v) above, which notice shall specify the record date,
if any, with respect to, any such action and the date on which
such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Series B/KBH
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion
of shares of Series B/KBH Stock. In the case of any action which
would require the fixing of a record date, such notice shall be
given at least 20 days prior to the date so fixed, and in case of
all other action, notice shall be given at least 30 days prior to
the taking of such proposed action. Failure to give such notice,
or any defect therein, shall not affect the legality or validity
of any such action.
(vii) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any
shares of Series B/KBH Stock; PROVIDED, HOWEVER, that the
Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series B/KBH Stock in respect
of which such shares are being issued.
(viii) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock (or
Non-voting Common Stock, in the case of Series KBH Stock), solely
for the purpose of effecting the conversion of the shares of
Series B/KBH Stock, sufficient shares to provide for the
conversion of all outstanding shares of Series B/KBH Stock.
(ix) All shares of Common Stock (or Non-voting Common Stock, in
the case of Series KBH Stock) which may be issued in connection
with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and
nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens or charges with
respect thereto.
(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series B/KBH Event
of Conversion, all shares of Series B/KBH Stock then outstanding shall, by
virtue of, and simultaneously with, the occurrence of the Series B/KBH Event of
Conversion and without any action on the part of the holders thereof, be deemed
automatically converted into such whole number of fully paid and nonassessable
shares of Common Stock (or Non-voting Common Stock, in the case of Series KBH
Stock) as equals (1) the product of (x) the Series B/KBH Original Purchase Price
plus, after the third anniversary of the Series B/KBH Initial Issuance Date at
the option of any Holder, any unpaid Series B/KBH Accrued Dividends with respect
to
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the shares being converted, multiplied by (y) the number of shares of Series
B/KBH Stock being converted divided by (2) the Series B/KBH Conversion Price as
last adjusted pursuant to Section 7(a)(iv) and then in effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the occurrence of
a Series B/KBH Event of Conversion, the Series B/KBH Holders shall be entitled
to subscribe for their respective Preemptive Share of any New Securities which
the Corporation may, from time to time, propose to issue and sell, at any time
while any Series B/KBH Stock is outstanding and subject to the terms, conditions
and procedures set forth below.
(b) The Corporation shall first deliver to each Series B/KBH Holder a
written Notice of Intention to Sell offering to each Series B/KBH Holder the
right to purchase up to the Preemptive Share of such Series B/KBH Holder of such
shares of New Securities at the purchase price and on the terms specified
therein. Each Series B/KBH Holder shall have the right and option, for a period
of twenty (20) days after delivery to said Series B/KBH Holder of such Notice of
Intention to Sell, to purchase all or any part of the Preemptive Share of such
Series B/KBH Holder of the shares of New Securities so offered at the purchase
price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Corporation within the
aforesaid twenty (20) day period.
The closing of any sales of shares of New Securities under the terms of
Section 8 shall be made at the offices of the Corporation on a mutually
satisfactory business day within five (5) business days after the expiration of
the aforesaid period. Delivery of certificates or other instruments evidencing
such shares of New Securities duly endorsed for transfer to the appropriate
Series B/KBH Holder shall be made on such date against payment of the purchase
price therefor.
(c) The Corporation may issue and sell all or any part of the
remaining shares of New Securities so offered for sale but not purchased
pursuant to Section 8 hereof at a price not less than the price offered, and on
terms not more favorable, to the purchaser thereof than the terms stated in the
original Notice of Intention to Sell, at any time within ninety (90) days after
the expiration of the offer required by Section 8. In the event the remaining
shares of New Securities are not sold by the Corporation during such ninety (90)
day period, the right of the Corporation to sell such remaining shares of New
Securities shall expire and the obligations of this Section 8 shall be
reinstated; PROVIDED, HOWEVER, that in the event the Corporation determines, at
any time during such ninety (90) day period, that the sale of all or any part of
the remaining shares of New Securities on the terms set forth in the Notice of
Intention to Sell is impractical, the Corporation can terminate the offer and
reinstate the procedure provided in this Section 8 without waiting for the
expiration of such ninety (90) day period.
9. FURTHER DILUTING ISSUANCES. The Corporation shall not permit or
cause to occur more than one Diluting Issuance unless, so as to facilitate the
adjustments required by Section 7(a)(iv)(A), the Corporation (I) has taken all
necessary
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action to create a new subseries of the Series B Preferred Stock, which shall be
PARI PASSU with the Series B Preferred Stock and the Series B1 Preferred Stock
for all purposes except conversion price, (II) has taken all necessary action to
create a new subseries of the Series KBH Preferred Stock, which shall be PARI
PASSU with the Series KBH Preferred Stock and the Series KBH1 Preferred Stock
for all purposes except conversion price, (III) shall have amended this
Certificate to provide that the shares of Series B Stock held by any Holder
thereof who fails to purchase its full Preemptive Share of such additional
Diluting Issuance shall be converted automatically into such new subseries of
Series B Stock, and (IV) shall have amended this Certificate to provide that the
shares of Series KBH Stock held by any Holder thereof who fails to purchase its
full Preemptive Share of such additional Diluting Issuance shall be converted
automatically into such new subseries of Series KBH Stock. The shares of such
subseries shall be convertible into Common Stock (or Non-voting Common Stock, in
the case of the Series KBH Stock) immediately after such Diluting Issuance at
the same price per share that applied to the shares which were so converted
immediately prior to such Diluting Issuance. The consent of the Holders of the
Preferred Stock shall not be required in order to effect such new subseries.
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GENAISSANCE PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF
SERIES C CONVERTIBLE PREFERRED STOCK,
SERIES C1 CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Genaissance Pharmaceuticals, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), hereby certifies
that, pursuant to authority conferred upon the Board of Directors by the
provisions of Article 4 of the Certificate of Incorporation of the Corporation,
as amended, (referred to in the following designations as the "CERTIFICATE OF
INCORPORATION"), which authorize the issuance of 30,000,000 shares of a class of
capital stock designated as preferred stock, $.001 par value, the following
resolution was duly adopted by the Board of Directors of the Corporation at a
special meeting duly held on March 10, 2000.
RESOLVED: That there is hereby designated a series of the Preferred Stock
(as that term is defined in Article 4 of the Certificate of Incorporation of the
Corporation, as amended), consisting of 2,242,245 shares, which will be issued
in a series entitled "SERIES C CONVERTIBLE PREFERRED STOCK" (referred to as the
"SERIES C PREFERRED STOCK"), and 2,242,245 shares, which will be issued in a
series entitled "SERIES C1 CONVERTIBLE PREFERRED STOCK" (referred to as the
"SERIES C1 PREFERRED STOCK"), and that the preferences and privileges, relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions of all shares of each such series, in addition to
those set forth in the Certificate of Incorporation of the Corporation, as
amended, are as set forth in the attached EXHIBIT I.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by Gualberto Ruano, its President, and attested to by
Kevin L. Rakin, its Secretary, as of this 10th day of March, 2000.
By: /s/ GUALBERTO RUANO
-------------------------
Gualberto Ruano
President
ATTEST:
/s/ KEVIN L. RAKIN
-------------------------
Kevin L. Rakin
Secretary
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<PAGE>
EXHIBIT I
1. DEFINITIONS. As used in this Certificate of Designations, the
following terms have the meanings specified below:
"AFFILIATE" shall mean a person (other than a subsidiary):
(i) which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Corporation;
(ii) which beneficially owns or holds 10% or more of any class
of the voting stock of the Corporation; or
(iii) 10% or more of the voting stock (or in the case of a person
which is not a corporation, 10% or more of the equity interest) of
which is beneficially owned or held by the Corporation or one of
its subsidiaries.
The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
"BOARD" shall mean the Corporation's Board of Directors.
"BUSINESS DAY" shall mean any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of Connecticut) on which banks are
authorized to be open for business in Hartford, Connecticut.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"COMMON STOCK" shall mean the Common Stock, $.001 par value, of the
Corporation.
"DILUTED STOCK" shall have the meaning ascribed to it in Section
7(a)(iv)(A) hereof.
"DILUTING ISSUANCE" shall mean an issuance of capital stock described in
Section 7(a)(iv)(A) hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXCLUDED STOCK" shall mean shares of Common Stock issued by the
Corporation:
(i) as a stock dividend or upon any stock split or other
subdivision or combination of the outstanding shares of Common
Stock;
(ii) up to an aggregate of 1,557,375 shares of Common Stock
issued or issuable to employees pursuant to an employee stock
option plan approved by the Board; or
(iii) upon conversion of any Preferred Stock, warrants or other
convertible securities outstanding as of the Series C Initial
Issuance Date and set forth on Schedule 3.4 to the Series C Stock
Purchase Agreement.
<PAGE>
"FAIR MARKET VALUE" at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 30 consecutive
business days ending no more than five days before the day in question (as
adjusted for any stock dividend, split-up, combination or reclassification that
took effect during such 30 business day period). The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sales took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is listed or admitted to trading (or if the Common
Stock is not at the time listed or admitted for trading on any such exchange,
then such price as shall be equal to the average of the last reported bid and
asked prices, as reported by the Nasdaq on such day, or if, on any day in
question, the security shall not be quoted on the Nasdaq, then such price shall
be equal to the last reported bid and asked prices on such day as reported by
the National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National Quotation
Bureau, Inc.); PROVIDED, HOWEVER, that if the Common Stock is traded in such
manner that the quotations referred to in this clause are not available for the
period required hereunder, the Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the combined voting power of the Series B/KBH
Stock and Series C Stock then outstanding and the Corporation (or if such
selection cannot be made, by a nationally recognized independent banking firm
selected by the American Arbitration Association in accordance with its rules).
With respect to the Series C Stock, Fair Market Value shall be determined by a
nationally recognized independent investment banking firm selected mutually by
the holders of more than 50% of the voting power of the Series C Stock then
outstanding and the Corporation (or if such selection cannot be made, by a
nationally recognized independent banking firm selected by the American
Arbitration Association in accordance with its rules).
"HOLDER" shall mean a holder of shares of Series C Stock, as applicable,
as reflected in the stock records of the Corporation; and each Holder's address
shall be as it appears in the stock records of the Corporation.
"JUNIOR SECURITIES" shall mean, as to the Series C Stock, each other
class or series of capital stock (including, without limitation, each class of
common stock of the Corporation and each other series of preferred stock of the
Corporation including the Series A/KBL Stock) or other equity interests
(including, without limitation, warrants, rights, calls or options exercisable
for or convertible into such capital stock or equity interests) in the
Corporation but shall exclude the Series B/KBH Stock.
"LIQUIDATION EVENT" shall mean, a merger, consolidation, liquidation,
dissolution, winding up of the affairs of the Corporation or sale of all or
substantially all of the assets of the Corporation as an entirety to a third
party or parties, whether voluntary or involuntary, or the sale by the
stockholders of the Corporation of a majority of the voting capital stock of the
Corporation; PROVIDED, HOWEVER, that a merger or consolidation shall not be
considered a Liquidation Event if the Corporation is the survivor or continuing
corporation of such merger or consolidation and as a result thereof there is no
change in the Common Stock or Preferred Stock or the ownership thereof.
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<PAGE>
"LIQUIDATION REDEMPTION PRICE" shall have the meaning assigned to such
term in Section 4(a).
"LISTED RIGHTS" shall mean all patents, patent applications, patent
rights, trademarks, trademark applications, trademark rights, trade names, trade
name rights, service marks and copyrights (whether registered or not) owned or
possessed by the Corporation and any improvements thereon.
"NEW SECURITIES" shall mean any capital stock (including, without
limitation, each class of common stock of the Corporation, any additional shares
of Preferred Stock, each other series of preferred stock of the Corporation and
any shares of capital stock held by the Corporation in its treasury upon the
disposition thereof) or other equity interests (including, without limitation,
warrants, rights, calls or options exercisable for or convertible into such
capital stock or equity interests) in the Corporation issued after the Series C
Initial Issue Date; PROVIDED, HOWEVER, that such term shall not include Excluded
Stock.
"NON-PARTICIPATING PERCENTAGE" shall have the meaning ascribed to it in
Section 7(a)(iv)(A) hereof.
"NON-VOTING COMMON STOCK" shall mean the Non-voting Common Stock, $.001
par value, of the Corporation.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"PREEMPTIVE SHARE" shall mean, immediately prior to any issue of shares
of New Securities, and as to each Series C Holder, the percentage which
expresses the ratio between (i) the total number of shares of Common Stock
issuable upon conversion of the Series C Stock owned by such Series C Holder,
plus the total number of shares of Common Stock then owned by such Series C
Holder that was received upon conversion of Series C Stock, and (ii) the total
number of shares of Common Stock and Non-voting Common Stock then outstanding,
plus the total number of shares of Common Stock and Non-voting Common Stock
issuable upon conversion of the then outstanding Preferred Stock.
"PREFERRED STOCK" shall mean all of the outstanding shares of the Series
A Stock, Series KBL Stock, Series B Stock, Series KBH Stock and Series C Stock,
together, at the time in question.
"QUALIFIED IPO" shall mean the consummation of a firm commitment
underwritten public offering of shares of Common Stock registered under the
Securities Act which results in aggregate gross cash proceeds to the Corporation
of not less than forty million dollars ($40,000,000) and pursuant to which the
offering price per share is equal to or greater than $16.50 ($11.00 per share in
the event that the registration statement with respect to such offering shall be
filed with the Commission on or before February 11, 2001), equitably adjusted
for any Recapitalization Event.
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"QUALIFIED LIQUIDATION EVENT" shall have the meaning assigned to such
term in Section 3(a).
"RECAPITALIZATION EVENT" shall mean any stock splits, stock dividends,
recapitalizations, reclassifications, and similar events.
"RELATED PARTY" shall mean any officer, director, significant employee or
consultant of the Corporation or any holder (other than any Series A/KBL Holder,
Series B/KBH Holder or Series C Holder) of 10% or more of any class of capital
stock of the Corporation or any member of the immediate family of any such
officer, director, employee, consultant or shareholder or any entity controlled
by any such officer, director, employee, consultant or shareholder or a member
of the immediate family of any such officer, director, employee, consultant or
shareholder.
"SCHEDULED REDEMPTION PRICE" shall have the meaning ascribed to it in
Section 4(b).
"SECOND ROUND SERIES B/KBH ISSUANCE DATE" shall mean the issuance date of
the Second Round Series B/KBH Stock.
"SECOND ROUND SERIES B/KBH STOCK" shall mean those shares of Series B/KBH
Stock that was issued by the Corporation to certain investors (the "Second Round
Investors") in the Second Closing as such term is defined in the Series B/KBH
Stock Purchase Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERIES A PREFERRED STOCK" shall mean the Series A Redeemable Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A1 PREFERRED STOCK" shall mean the Series A1 Redeemable
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES A STOCK" shall mean all of the outstanding shares of the Series A
Preferred Stock and the Series A1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series A Preferred Stock created pursuant to
Section 9 of the Series A/KBL Certificate of Designations.
"SERIES A/KBL CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series A and Series A1 Redeemable Convertible
Preferred Stock of the Corporation, dated as of August 24, 1998, and amended as
of February 17, 2000, March 8, 2000 and March 10, 2000, and the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series KBL and the Series KBL1 Non-voting
Redeemable Convertible Preferred Stock of the Corporation, dated as of August
24, 1998, and amended as of February 17, 2000, March 8, 2000 and March 10, 2000.
"SERIES A/KBL HOLDER" shall mean a holder of shares of Series A Stock or
Series KBL Stock.
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"SERIES A/KBL LIQUIDATION AMOUNT" shall mean the amount due to the Series
A/KBL Holders upon a Liquidation of the Company pursuant to the Series A/KBL
Certificate of Designations.
"SERIES A/KBL STOCK" shall mean all of the outstanding shares of the
Series A Stock and Series KBL Stock, together, at the time in question, which
shares are PARI PASSU for all purposes except voting (the Series KBL Stock being
non-voting) and conversion (the Series KBL Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B PREFERRED STOCK" shall mean the Series B Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES B1 PREFERRED STOCK" shall mean the Series B1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES B STOCK" shall mean all of the outstanding shares of the Series B
Preferred Stock and the Series B1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series B Preferred Stock created pursuant to
Section 9 of the Series B/KBH Certificate of Designations.
"SERIES B/KBH ACCRUED DIVIDENDS" shall mean Series B/KBH Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3 of the Series B/KBH Certificate of Designations, upon the
relevant shares of Series B/KBH Stock.
"SERIES B/KBH CERTIFICATE OF DESIGNATIONS" shall mean the Certificate of
Designations, Preferences and Other Special Rights and Qualifications,
Limitations and Restrictions of Series B Convertible Preferred Stock, Series B1
Convertible Preferred Stock, Series KBH Convertible Preferred Stock, and Series
KBH1 Convertible Preferred Stock of the Corporation, dated as of February 17,
2000, and amended as of March 8, 2000 and March 10, 2000.
"SERIES B/KBH FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series B/KBH Stock (whether or not in respect of which such term is used there
shall have been net profits or net assets of the Corporation legally available
for the payment of such dividends), that amount which shall be equal to
dividends at the full rate fixed for the Series B/KBH Stock as provided in the
Series B/KBL Certificate of Designations for the period of time elapsed from the
Series B/KBH Initial Issuance Date (the Second Round Series B/KBH Issuance Date
in the case of the Second Round Series B/KBH Stock) to the date as of which
Series B/KBH Full Cumulative Dividends are to be computed.
"SERIES B/KBH HOLDER" shall mean a holder of shares of Series B Stock or
Series KBH Stock.
"SERIES B/KBH INITIAL ISSUANCE DATE" shall mean February 17, 2000.
"SERIES B/KBH LIQUIDATION AMOUNT" shall mean an amount in cash or
property (valued at its Fair Market Value), or a combination thereof, equal to
$5.50 per share of Series B/KBH Stock held by a Series B/KBH Holder (which per
share amount shall be subject to equitable
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adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series B/KBH Stock) plus
all Series B/KBH Accrued Dividends.
"SERIES B/KBH ORIGINAL PURCHASE PRICE" shall mean $5.50 per share of
Series B/KBH Stock.
"SERIES B/KBH STOCK" shall mean all of the outstanding shares of the
Series B Stock and Series KBH Stock, together, at the time in question, which
shares shall be PARI PASSU for all purposes except voting (the Series KBH Stock
being non-voting) and conversion (the Series KBH Stock being convertible into
Non-voting Common Stock rather than voting Common Stock).
"SERIES B/KBH STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of February 17, 2000, and amended as of February
29, 2000 and as of March 3, 2000, by and among the Corporation and the
Purchasers (as defined therein) of the Series B/KBH Stock.
"SERIES C PREFERRED STOCK" shall mean the Series C Convertible Preferred
Stock of the Corporation, par value $.001 per share.
"SERIES C1 PREFERRED STOCK" shall mean the Series C1 Convertible
Preferred Stock of the Corporation, par value $.001 per share.
"SERIES C ACCRUED DIVIDENDS" shall mean Series C Full Cumulative
Dividends to the date of determination, less the amount of all dividends paid
pursuant to Section 3, upon the relevant shares of Series C Stock.
"SERIES C CONVERSION DATE" shall have the meaning set forth in Section
7(a)(ii).
"SERIES C CONVERSION PRICE" shall initially mean $8.25; PROVIDED,
HOWEVER, that the Series C Conversion Price shall be subject to adjustment as
set forth in Section 7(a)(iv).
"SERIES C EVENT OF CONVERSION" shall mean the consummation of a Qualified
IPO.
"SERIES C FULL CUMULATIVE DIVIDENDS" shall mean, as to any share of
Series C Stock (whether or not in respect of which such term is used there shall
have been net profits or net assets of the Corporation legally available for the
payment of such dividends), that amount which shall be equal to dividends at the
full rate fixed for the Series C Stock as provided herein for the period of time
elapsed from the Series C Initial Issuance Date to the date as of which Series C
Full Cumulative Dividends are to be computed.
"SERIES C HOLDER" shall mean a holder of shares of Series C Stock.
"SERIES C INITIAL ISSUANCE DATE" shall mean March 10, 2000.
"SERIES C LIQUIDATION AMOUNT" shall mean an amount in cash or property
(valued at its Fair Market Value), or a combination thereof, equal to $8.25 per
share of Series C Stock held by a Holder (which per share amount shall be
subject to equitable adjustment whenever there shall
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occur a stock split, combination, reclassification or other similar event
involving the Series C Stock) plus all Series C Accrued Dividends.
"SERIES C ORIGINAL PURCHASE PRICE" shall mean $8.25 per share of Series C
Stock.
"SERIES C REDEMPTION DATE" shall have the meaning set forth in Section 4
hereof.
"SERIES C REDEMPTION PRICE" shall have the meaning set forth in Section 4
hereof.
"SERIES C STOCK" shall mean all of the outstanding shares of the Series C
Preferred Stock and the Series C1 Preferred Stock, together, at the time in
question, which shares shall be PARI PASSU for all purposes except conversion
price, and any new subseries of the Series C Preferred Stock created pursuant to
Section 9 hereof.
"SERIES C STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement, dated as of March 10, 2000, by and among the Corporation and
the Purchasers (as defined therein).
"SERIES KBH PREFERRED STOCK" shall mean the Series KBH Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH1 PREFERRED STOCK" shall mean the Series KBH1 Nonvoting
Convertible Preferred Stock of the Corporation, par value $.001 per share.
"SERIES KBH STOCK" shall mean all of the outstanding shares of the Series
KBH Preferred Stock and the Series KBH1 Preferred Stock, together, at the time
in question, and any new subseries of the Series KBH Preferred Stock created
pursuant to Section 9 of the Series B/KBH Certificate of Designations.
"SERIES KBL PREFERRED STOCK" shall mean the Series KBL Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL1 PREFERRED STOCK" shall mean the Series KBL1 Nonvoting
Redeemable Convertible Preferred Stock of the Corporation, par value $.001 per
share.
"SERIES KBL STOCK" shall mean all of the outstanding shares of the Series
KBL Preferred Stock and the Series KBL1 Preferred Stock, together, at the time
in question, and any new subseries of the Series KBL Preferred Stock created
pursuant to Section 9 of the Series A/KBL Certificate of Designations.
"SUBSIDIARY" shall mean an entity a majority of the capital stock or
other ownership interest in which is owned directly or indirectly by the
Corporation, except that 100% "SUBSIDIARY" shall mean a subsidiary that is 100%
owned by the Corporation and/or its 100% subsidiaries.
2. NUMBER OF SHARES. The designation of the two series of preferred
stock provided for herein shall be as follows: Series C Preferred Stock, of
which 2,424,242 shares shall be authorized; and Series C1 Preferred Stock, of
which 2,424,242 shares shall be authorized.
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3. DIVIDENDS.
(a) The holder of each share of Series C Stock shall be entitled to
receive, before any dividends shall be declared and paid upon or set aside for
the Junior Securities, out of funds legally available for that purpose,
dividends in cash at the rate per annum per share (the "SERIES C DIVIDEND RATE")
equal to 8% of the Series C Original Purchase Price, adjusted, as applicable,
for any Recapitalization Event, payable, when and as declared by the Board and,
in any event, upon the earliest of (a) a Liquidation Event in accordance with
Section 5 hereof, (b) upon redemption in accordance with Section 4 hereof or (c)
upon the Series C Event of Conversion. Until the third anniversary of the Series
B/KBH Initial Issuance Date, the Corporation shall have the option to make any
such payment either in cash or in shares of Common Stock, provided that
dividends declared and paid upon or set aside for all shares of Series C Stock,
of Series B/KBH Stock and of Series A/KBL Stock at or about the same time are
being paid in the same manner unless a different method of payment is approved
by a majority of the holders of the Series B Stock and Series C Stock, voting
together as a separate class. After the third anniversary of the Series B/KBH
Initial Issuance Date, the Holder shall have the option to receive any such
payment either in cash or in shares of Common Stock. In the event such dividends
are paid in Common Stock, for purposes of computing the number of shares of
Common Stock to be issued and the amount of the dividend paid, the value of the
Common Stock paid to any holder of shares of Series C Stock shall be valued at
the then Series C Conversion Price. Dividends on shares of Series C Stock shall
be cumulative from the Series C Initial Issuance Date, whether or not there
shall be net profits or net assets of the Corporation legally available for the
payment of such dividends, so that, if at any time Series C Full Cumulative
Dividends upon the Series C Stock shall not have been paid or declared and a sum
sufficient for payment thereof set apart, the amount of the deficiency in such
dividends shall be fully paid or dividends in such amount shall be declared on
the shares of the Series C Stock and a sum sufficient for the payment thereof
shall be set apart for such payment, before any dividend shall be declared or
paid or any other distribution ordered or made upon any Junior Securities and
before any sum or sums shall be set aside for or applied to the purchase or
redemption of Junior Securities. With respect to rights to dividends, the Series
C Stock shall rank pari passu with the Series B/KBH Stock but prior to the
Common Stock and all other Junior Securities. All dividends declared upon the
Series C Stock shall be declared pro rata per share. All payments due under this
Section to any holder of shares of Series C Stock shall be made to the nearest
cent. Notwithstanding the foregoing, the holders of the Series C Stock shall not
be entitled to dividends on the Series C Stock pursuant to this Section 3(a) in
the event that on or before August 11, 2001(i) there shall be filed with the
Commission a registration statement with respect to a Qualified IPO (which
registration statement shall have become effective within three months of
filing); or (ii) there shall occur a Qualified Liquidation Event. The term
"QUALIFIED LIQUIDATION EVENT" shall mean a Liquidation Event in which (i) the
holders of the Series B/KBH Stock receive (per share) cash or other property
with a fair market value equal to at least 200% of the Series B/KBH Original
Purchase Price (as adjusted for any stock split, combination, reclassification
or other similar event involving the Series B/KBH Stock) if the Qualified
Liquidation Event occurs within one year after the Series B/KBH Initial Issuance
Date, and 300% of the Series B/KBH Original Purchase Price (as adjusted for any
stock split, combination, reclassification or other similar event involving the
Series B/KBH Stock) if the Qualified Liquidation Event occurs more than one year
after the Series B/KBH Initial Issuance Date (but before August 12, 2001), and
(ii) the holders of the Series C Stock receive (per share) cash or other
property with a fair market value
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equal to at least 200% of the Series C Original Purchase Price (as adjusted for
any stock split, combination, reclassification or other similar event involving
the Series C Stock) if the Qualified Liquidation Event occurs within one year
after the Series B/KBH Initial Issuance Date, and 300% of the Series C Original
Purchase Price (as adjusted for any stock split, combination, reclassification
or other similar event involving the Series C Stock) if the Qualified
Liquidation Event occurs more than one year after the Series B/KBH Initial
Issuance Date (but before August 12, 2001).
(b) In the event the Corporation shall make or issue, or shall fix a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution (other than a distribution in liquidation or
other distribution otherwise provided for herein) with respect to the Common
Stock or any other Junior Securities (based on "as if converted amounts") other
than the Series A/KBL Stock payable in (i) securities of the Corporation other
than shares of Common Stock, or (ii) cash, then, and in each such event,
provision shall be made so that the holders of the Series C Stock shall receive
the number of securities or such other assets of the Corporation which they
would have received had their Series C Stock been converted into Common Stock on
the date of such event.
4. REDEMPTION.
(a) REDEMPTION UPON A LIQUIDATION EVENT. (i) In connection and
concurrently with a Liquidation Event, the Corporation shall (to the extent
allowed by law) redeem, except as set forth hereafter, all the shares of Series
C Stock then outstanding, out of funds legally available therefor. The amount
per share payable upon any redemption of shares of Series C Stock pursuant to
this subsection shall be an amount in cash equal to the Liquidation Redemption
Price, as determined below. The Corporation shall deliver to each holder of
shares of Series C Stock, not later than 45 days prior to the consummation of a
Liquidation Event, notice of such proposed Liquidation Event, including the date
on which such Liquidation Event is expected to be consummated. To the extent
that one or more redemptions and/or a liquidation are occurring concurrently,
any redemption of the shares of Series C Stock shall be deemed to occur and
shall be paid pari passu with any redemption of the shares of Series B/KBH Stock
but in full prior to any other redemptions and/or liquidations, including any
other redemption of shares of the Series A/KBL Stock. Notwithstanding the
foregoing, any Series C Holder may elect to retain its outstanding shares of
Series C Stock and not to subject such shares to redemption by delivery of
written notice to the Corporation at least 15 days prior to the date of the
consummation of the Liquidation Event.
(ii) The amount per share payable upon any redemption of shares
of Series C pursuant to this subsection shall be an amount equal
to the greater of (a) the Series C Original Purchase Price
(subject to equitable adjustment for any stock split, combination,
reclassification or other similar event involving the Series C
Stock) plus all Series C Accrued Dividends, or (b) the Fair Market
Value of such share (the "LIQUIDATION REDEMPTION PRICE").
(iii) Any date upon which Series C Stock is to be redeemed
pursuant to this Section 4 shall be referred to in this context as
a "SERIES C REDEMPTION DATE".
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(b) SERIES C ANNUAL REDEMPTION. Except as set forth hereafter, the
Corporation shall (to the extent allowed by law) redeem the following shares of
Series C Stock on the following dates, out of funds legally available therefor:
(i) at any time on or after February 11, 2005, except, in the
case of any intended recipient which is subject to an applicable
governmental regulation prohibiting such redemption, not earlier
than permitted by such regulation, one-third of the shares of each
of the Series C Stock then outstanding.
(ii) at any time on or after February 11, 2006, an additional
number of shares of each of the Series C Stock equal to one-third
of the shares of the Series C Stock, respectively, outstanding as
of February 11, 2005.
(iii) at any time on or after February 11, 2007, all outstanding
shares of Series C Stock.
The amount per share payable upon any redemption of shares of Series C
Stock pursuant to this subsection shall be an amount in cash equal to the
greater of (a) the Series C Original Purchase Price (subject to equitable
adjustment for any stock split, combination, reclassification or other similar
event involving the Series C Stock) plus all Series C Accrued Dividends, or (b)
the Fair Market Value of such share (the "SCHEDULED REDEMPTION PRICE" and
collectively with the Liquidation Redemption Price, the "SERIES C REDEMPTION
PRICE").
To the extent that one or more annual or other redemptions are occurring
concurrently, any redemption of the shares of Series C Stock shall be deemed to
occur and shall be paid pari passu with any redemption of the shares of Series
B/KBH Stock but in full prior to any other redemptions, including any other
redemption of shares of the Series A/KBL Stock.
Notwithstanding the foregoing, any Series C Holder may elect to retain
its outstanding shares of Series C Stock and not to subject such shares to
redemption by delivery of written notice to the Corporation at least 15 days
prior to the applicable redemption date set forth above.
(c) PRO RATA. If, on any Series C Redemption Date, fewer than all
shares of Series C Stock then outstanding are to be redeemed in accordance with
this Section, the shares to be redeemed shall be allocated pro rata among the
Series C Holders and the Redemption Notice mailed to each Holder shall specify
the number of shares to be redeemed from such Holder. Notwithstanding the
delivery of a Redemption Notice, Series C Holders subject to redemption may
convert such shares pursuant to Section 7 on or before the Series C Redemption
Date by delivering written notice thereof to the Corporation not later than 10
days prior to the Series C Redemption Date.
(d) PAYMENT OF SERIES C REDEMPTION PRICE; TERMINATION OF RIGHTS. On
any Series C Redemption Date, the applicable Series C Redemption Price in
respect of the shares represented by the certificate or certificates surrendered
to the Corporation by the Holder thereof pursuant to the Redemption Notice shall
be paid to the order of the person whose name appears on such certificate or
certificates. Each surrendered certificate shall be canceled and retired and a
new certificate, representing the remaining, unredeemed shares of Series C
Stock, if any, shall be issued to the Holder of such shares. On any Series C
Redemption Date, the rights of a Holder
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with respect to shares redeemed shall cease, other than such Holder's right to
payment of the Series C Redemption Price as of the Series C Redemption Date,
upon surrender of the certificate or certificates.
5. LIQUIDATION. In the event of any liquidation, dissolution or
winding-up of the Corporation, the Series C Holders shall be entitled, before
any assets of the Corporation shall be distributed among or paid over to the
holders of Junior Securities, but after distribution of such assets among, or
payment thereof over to, creditors of the Corporation, to receive from the
assets of the Corporation available for distribution to stockholders in cash,
the Series C Liquidation Amount. If the assets of the Corporation legally
available for distribution shall be insufficient to permit the payment in full
of the Series B/KBH Liquidation Amount and the Series C Liquidation Amount to
the Series B/KBH Holders and the Series C Holders, then the entire assets of the
Corporation legally available for distribution shall be distributed ratably
among the Series B/KBH Holders and Series C Holders in proportion to the
respective amounts which would have been payable upon such Liquidation Event on
such shares of Series B/KBH Stock and Series C Stock if all amounts payable
thereon had been paid in full. In the event that such distribution of assets is
other than in cash, such distribution of cash and other assets (including
securities) shall be made ratably among the holders of the shares of Series
B/KBH Stock and Series C Stock based upon the fair market value of any such
assets as determined by a nationally recognized valuation consultant selected
mutually by the holders of a majority in voting power of the Series B/KBH Stock
and the Series C Stock then outstanding and the Corporation (or if such
selection cannot be made, by a nationally recognized independent valuation
consultant selected by the American Arbitration Association in accordance with
its rules). In the event of any liquidation, dissolution or winding-up of the
Corporation, after payment shall have been made to the holders of shares of
Series B/KBH Stock and Series C Stock of the full amount to which they shall be
entitled as aforesaid, and then after payment of the Series A/KBL Liquidation
Amount to the Series A/KBL Holders under the Series A/KBL Certificate of
Designations, the holders of any Junior Securities and the Series B/KBH Holders
and Series C Holders shall be entitled to participate equally, on an
as-converted basis in the case of the Series B/KBH Stock, the Series C Stock and
any Junior Securities convertible into Common Stock, in all remaining assets of
the Corporation available for distribution to its stockholders. The provisions
of this Section 5 shall not be applicable to any shares of Series B/KBH Stock or
Series C Stock that have been redeemed pursuant to Section 4(a) hereof in
connection with such Liquidation Event. The holders of the Series C Stock shall
have the right to treat any merger, consolidation, sale of all or substantially
all of the assets of the Corporation, or sale of a majority of the voting
capital stock of the Corporation, as a liquidation of the Corporation and, in
connection therewith, to receive payment under this Section 5 upon surrender of
their shares to the Corporation; PROVIDED, HOWEVER, that the holders of the
Series C Stock shall not have the right to treat any merger or consolidation as
a Liquidation Event if the Corporation is the survivor or continuing corporation
of such merger or consolidation and as a result thereof there is no change in
the Common Stock or Preferred Stock or the ownership thereof.
6. VOTING.
(a) VOTES GENERALLY WITH COMMON STOCK. In addition to the rights
specified in Section 6(b) below and any other rights provided in the
Corporation's By-Laws, the shares of Series C Stock shall entitle each Holder
thereof to such number of votes as shall equal the
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number of shares of Common Stock (rounded to the nearest whole number) into
which the shares of Series C Stock held by such Holder are then convertible
pursuant to Section 7 and shall entitle each such Holder to vote on all matters
as to which holders of Common Stock shall be entitled to vote, in the same
manner and with the same effect as such holders of Common Stock, voting together
with the holders of Common Stock as one class.
(b) SEPARATE CLASS VOTE. So long as any shares of Series C Stock are
outstanding, the consent of the holders of a majority of all of the outstanding
shares of Series B Stock, Series C Stock and Series A Stock, voting as a single
and separate class in person or by proxy, at a special or annual meeting called
for the purpose, or by written consent in lieu of a meeting, shall be required
before the Corporation may:
(i) authorize or issue any class or series of capital stock
ranking senior or pari passu to the Series B/KBH Stock, the Series
C Stock or the Series A/KBL Stock with respect to rights to
receive dividends, redemption payments or distributions upon
liquidation or winding up of the Corporation or with respect to
voting, antidilution provisions or preemptive rights;
(ii) authorize, declare or distribute any dividend, whether in
cash or in kind, payable to any class or series of the
Corporation's common or preferred stock (except payment of
dividends on the Series C Stock as contemplated herein or payment
of dividends on the Series B/KBH Stock as contemplated (and only
to the extent permitted) in the Series B/KBH Certificate of
Designations) or payment of dividends on the Series A/KBL Stock as
contemplated (and only to the extent permitted) in the Series
A/KBL Certificate of Designations) or to any other equity security
of the Corporation;
(iii) approve any liquidation, dissolution, sale, lease or
license of all or substantially all of the assets or business, or
of the assets or business of any subsidiary, of the Corporation;
(iv) cancel, repeal or change any of the provisions of this
Certificate of Designations (or of any amendment hereto), any
other certificate of designations of the Corporation (or any
amendment thereto), the Certificate of Incorporation of the
Corporation or the By-laws of the Corporation;
(v) permit to lapse any of the following: its corporate
existence, essential rights, government approvals or franchises or
any licenses or Listed Rights (which the Board deems essential to
the Corporation's business) or other rights to use patents,
processes, licenses, trademarks, trade names or copyrights owned
or possessed by it (which the Board deems essential to the
Corporation's business);
(vi) transfer, assign or license (except end-user licenses
granted in the ordinary course of business) any of the
Corporation's Listed Rights or know-how, technology or trade
secrets now owned or hereafter acquired by the Corporation;
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(vii) voluntarily dissolve, liquidate or wind-up or carry out any
partial liquidation or distribution or transaction in the nature
of a partial liquidation or distribution;
(viii) purchase, lease or otherwise acquire capital stock in any
corporation or equity interest in any other entity or lend money
to any person or entity (other than loans to any one person that,
individually or in the aggregate, shall not exceed $100,000 or
loans to any one employee that, individually or in the aggregate,
shall not exceed $200,000) or purchase a substantial part of the
operating assets of any person or entity;
(ix) consolidate with or merge into or with any other person or
entity or permit any other person or entity to consolidate with or
merge into it (except that a 100% subsidiary may consolidate with
or merge into the Corporation or another 100% subsidiary);
(x) permit any subsidiary (except a 100% subsidiary) to make
any (i) direct or indirect redemption, retirement, purchase or
other acquisition of any of the Corporation's capital stock (or
any warrant, option or other right with respect to such stock),
(ii) repayment of the Corporation's debt held by any Related Party
or by any Affiliate or subsidiary debt held by any Related Party
or by any Affiliate, or (iii) sale of any capital stock of the
Corporation to any third party;
(xi) issue (which term shall include without limitation the
issuance of any shares of, or the grant of any warrants, options
or other rights to purchase any shares of, or any commitment to
issue) any shares of its capital stock (which term shall include
without limitation, securities convertible into capital stock, or
rights to acquire capital stock), other than Excluded Stock, at a
price per share less than $8.25;
(xii) redeem any shares of any capital stock of the Corporation
(except redemptions of Series C Stock as contemplated herein or
redemptions of Series B/KBH Stock as contemplated (and only to the
extent permitted) in the Series B/KBH Certificate of Designations
or redemptions of Series A/KBL Stock as contemplated (and only to
the extent permitted) in the Series A/KBL Certificate of
Designations); or
(xiii) increase the size of the Board of Directors of the Company
above eight (8) members.
7. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) The holder of any shares of Series C Stock shall have the
right, at such holder's option, at any time or from time to time
to convert any or all such holder's shares of Series C Stock into
such whole number of fully paid and nonassessable shares of Common
Stock as equals (I) the product of (x) the Series C Original
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Purchase Price plus, after the third anniversary of the Series
B/KBH Initial Issuance Date at the option of any Holder, any
unpaid Series C Accrued Dividends with respect to the shares being
converted, multiplied by (y) the number of shares of Series C
Stock being converted, divided by (II) the Series C Conversion
Price (as last adjusted and then in effect) for the shares of the
Series C Stock being converted, by surrender of the certificates
representing the shares of Series C Stock so to be converted in
the manner provided Section 7(a)(ii) below. The Series C
Conversion Price shall initially be equal to the Series C Original
Purchase Price; PROVIDED, HOWEVER, that such Series C Conversion
Price shall be subject to adjustment as set forth in Section
7(a)(iv) below.
(ii) The holder of any shares of Series C Stock may exercise
such holder's conversion right pursuant to this Section by
delivering to the Corporation during regular business hours at the
office of any transfer agent of the Corporation for the Series C
Stock or at such other place as may be designated by the
Corporation, the certificate or certificates for the shares to be
converted, duly endorsed or assigned in blank or to the
Corporation (if required by it) accompanied by written notice
stating that such holder elects to convert such shares and stating
the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected with respect to
conversion under (a) Section 7(a)(i) above, on the date when the
aforesaid delivery is made and (b) Section 7(b) on the date of
occurrence of a Series C Event of Conversion, as the case may be,
and any such date is referred to herein as the "SERIES C
CONVERSION DATE". As promptly as practicable thereafter the
Corporation shall issue and deliver to or upon the written order
of such holder, to the place designated by such holder, a
certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash
in respect of any fractional interest in a share of Common Stock,
as provided in Section 7(a)(iii) below, payable with respect to
the shares of Series C Stock so converted up to and including the
Series C Conversion Date. The person in whose names the
certificate or certificates for Common Stock are to be issued
shall be deemed to have become a holder of Common Stock on the
applicable Series C Conversion Date unless the transfer books of
the Corporation are closed on that date, in which event such
holder shall be deemed to have become a holder of Common Stock on
the next succeeding date on which the transfer books are open, but
the Series C Conversion Price shall be that in effect on the
Series C Conversion Date. Upon conversion of only a portion of the
number of shares covered by a certificate representing shares of
Series C Stock surrendered for conversion, the Corporation shall
issue and deliver to or upon the written order of the holder of
the certificate so surrendered for conversion, at the expense of
the Corporation, a new certificate covering the number of shares
of Series C Stock representing the unconverted portion of the
certificate so surrendered.
(iii) No fractional shares of Common Stock or scrip shall be
issued upon conversion of shares of Series C Stock. If more than
one share of Series C Stock shall be surrendered for conversion at
any one time by the same holder, the
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number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of
shares of Series C Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series C Stock, the Corporation shall
pay a cash adjustment in respect of such fractional interest in an
amount equal to the then current Fair Market Value of a share of
Common Stock multiplied by such fractional interest.
(iv) The Series C Conversion Price shall be subject to
adjustment from time to time as follows:
(A) ADJUSTMENTS FOR DILUTING ISSUANCES UPON CONTINUED
PARTICIPATION. Unless the Corporation has requested and
received a waiver from the holders of a majority of the
Series A Stock, the Series B Stock and the Series C Stock,
voting together as a single class, if the Corporation shall
at any time or from time to time after the Series C Initial
Issuance Date issue or be deemed (by virtue of any of the
provisions of Section 7(a)(iv)), to have issued any capital
stock (including, without limitation, each class of common
stock of the Corporation) or other equity interests
(including, without limitation, warrants, rights, calls or
options exercisable for or convertible into such capital
stock or equity interests) in the Corporation, other than
Excluded Stock (or Second Round Series B/KBH Stock),
without consideration or for a consideration per share (the
"LAST ISSUE PRICE") less than the Series C Conversion Price
in effect immediately prior to each such issuance or deemed
issuance (a "DILUTING ISSUANCE"), the Series C Conversion
Price in effect immediately prior thereto shall forthwith
be adjusted, as of the opening of business on the date of
such issuance or deemed issuance, to such Last Issue Price.
Notwithstanding the immediately preceding paragraph of this
subsection (A), if a Series C Holder has been given written
notice pursuant to Section 8 hereof and the opportunity to
purchase its Preemptive Share of such Diluting Issuance and
does not purchase its entire Preemptive Share of such
Diluting Issuance, but purchases a lesser share of such
Diluting Issuance or none, the Series C Conversion Price
for that portion of the shares of Series C Stock of said
Series C Holder equal to the Non-Participating Percentage
(as hereinafter defined) (the "DILUTED STOCK") shall not be
reduced for said issuance pursuant to this subsection but
each share of the Diluted Stock which each such Series C
Holder holds shall be automatically converted immediately
prior to the closing of the applicable Diluting Issuance
into one (1) share of Series C1 Preferred Stock which shall
be convertible into Common Stock at the same price per
share that applied to the Diluted Stock immediately prior
to such Diluting Issuance, subject, however, to further
adjustment as herein provided. As used herein, the term
"NON-PARTICIPATING PERCENTAGE" means a percentage equal to
one hundred percent (100%) minus the percentage determined
by dividing the number of shares of the Diluting Issuance
which such Holder
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actually purchased by the maximum number of shares of the
Diluting Issuance which such Holder was entitled to
purchase on the basis of such Holder's Preemptive Shares
and expressing the resulting quotient as a percentage.
Upon the conversion of Diluted Stock held by a Series C
Holder as set forth herein, such shares of Diluted Stock
shall no longer be outstanding on the books of the
Corporation and the Series C Holder shall be treated, to
the extent that said holder held such Diluted Stock, as the
record holder of such shares of Series C1 Preferred Stock
on the date of closing of the applicable Diluting Issuance.
For the purposes of any adjustment of the Series C
Conversion Price pursuant to this subsection (A), the
following provisions shall be applicable:
(1) In the case of the issuance of stock for
cash, the consideration shall be deemed to be the
amount of cash paid therefor.
(2) In the case of the issuance of stock for a
consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to
be the fair market value thereof as determined in
good faith by the Board, irrespective of any
accounting treatment; PROVIDED, HOWEVER, that the
aggregate fair market value of such non-cash and
cash consideration shall not exceed the current Fair
Market Value of the shares of stock being issued.
(3) In case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock or
Non-voting Common Stock; (ii) securities by their
terms convertible into or exchangeable for Common
Stock or Non-voting Common Stock; or (iii) options
to purchase or rights to subscribe for such
convertible or exchangeable securities:
(a) the aggregate number of shares of
Common Stock or Non-voting Common Stock
deliverable upon exercise of such options to
purchase or rights to subscribe for Common
Stock or Non-voting Common Stock shall be
deemed to have been issued at the time such
options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in
subdivisions (1) and (2) above), if any,
received by the Corporation upon the issuance
of such options or rights plus the purchase
price provided in such options or rights for
the Common Stock or Non-voting Common Stock
covered thereby;
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(b) the aggregate number of shares of
Common Stock or Non-voting Common Stock
deliverable upon conversion of or in exchange
for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such
convertible or exchangeable securities and
subsequent conversion or exchange thereof
shall be deemed to have been issued at the
time such securities were issued or such
options or rights were issued and for a
consideration equal to the consideration
received by the Corporation for any such
securities and related options or rights
(excluding any cash received on accounts of
accrued interest or accrued dividends), plus
the additional consideration, if any, to be
received by the Corporation upon the
conversion or exchange of such securities or
the exercise of any related options or rights
(the consideration in each case to be
determined in the manner provided in
subdivisions (1) and (2) above, with the
proviso to subdivision (2) being applied to
the number of shares of Common Stock or
Non-voting Common Stock deliverable upon such
exercise);
(c) on any change in the number of shares
or exercise price of Common Stock or
Non-voting Common Stock deliverable upon the
exercise of any such options or rights or
conversions of or exchange for such
convertible or exchangeable securities, other
than a change resulting from the antidilution
provisions thereof, the Series C Conversion
Price, if previously adjusted, shall
forthwith be readjusted to such Series C
Conversion Price as would have obtained had
the adjustment made upon the issuance of such
options, rights or securities not converted
prior to such change or options or rights
related to such securities not converted
prior to such change having been made upon
the basis of such change; and
(d) on the expiration of any such options
or rights, the termination of any such rights
to convert or exchange or the expiration of
any options or rights related to such
convertible or exchangeable securities, the
Series C Conversion Price, if previously
adjusted, shall forthwith be readjusted to
such Series C Conversion Price as would have
obtained had such options, rights, securities
or options or rights related to such
securities not been issued.
(B) ADJUSTMENTS FOR CERTAIN DIVIDENDS, SUBDIVISIONS OR
SPLIT-UPS. If, at any time after the Series C Initial
Issuance Date, the number of shares of Common Stock or
Non-voting Common Stock outstanding is
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increased by a stock dividend payable in shares of Common
Stock or Non-voting Common Stock or by a subdivision or
split-up of shares of Common Stock or Non-voting Common
Stock, then, upon the record date fixed for the
determination of holders of Common Stock or Non-voting
Common Stock entitled to receive such stock dividend,
subdivision or split-up, the Series C Conversion Price
shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share
of Series C Stock shall be increased in proportion to such
increase in outstanding shares.
(C) ADJUSTMENTS FOR COMBINATIONS. If, at any time after
the Series C Initial Issuance Date, the number of shares of
Common Stock or Non-voting Common Stock outstanding is
decreased by a combination of the outstanding shares of
Common Stock or Non-voting Common Stock, then, upon the
record date for such combination, the Series C Conversion
Price shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each
share of Series C Stock shall be decreased in proportion to
such decrease in outstanding shares.
(D) ADJUSTMENTS FOR REORGANIZATIONS, MERGERS,
CONSOLIDATIONS, ETC. In case, at any time after the Series
C Initial Issuance Date, of any capital reorganization, or
any reclassification of the stock of the Corporation (other
than a change in par value or from par value to no par
value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Corporation
with or into another person (other than a consolidation or
merger in which the Corporation is the continuing
corporation and which does not result in any change in the
Common Stock or Preferred Stock or the ownership thereof or
of the sale or other disposition of all or substantially
all of the properties and assets of the Corporation as an
entirety to any other person), each share of Series C Stock
shall, after such reorganization, reclassification,
consolidation, merger, sale or other disposition, be
convertible into the kind and number of shares of stock or
other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving
such merger or to which such properties and assets shall
have been sold or otherwise disposed to which the holder of
the number of shares of Common Stock deliverable
(immediately prior to the time of such reorganization,
reclassification, consolidation, merger, sale or other
disposition) upon conversion of such share would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The
provisions of this subsection shall similarly apply to
successive reorganizations, reclassifications,
consolidations, mergers, sales or other dispositions.
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(E) All calculations under this subsection (iv) shall be
made to the nearest one cent ($.01) or to the nearest
one-tenth (1/10) of a share, as the case maybe.
(F) In any case in which the provisions of this
subsection (iv) shall require that an adjustment shall
become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of
such event (i) issuing to the holder of any share of Series
C Stock converted after such record date and before the
occurrence of such event the additional shares of capital
stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares
of capital stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of a fractional share of
capital stock pursuant to Section 7(a)(iii) above,
PROVIDED, HOWEVER, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event
requiring such adjustment.
(v) Whenever the Series C Conversion Price shall be adjusted as
provided in Section 7(a)(iv), the Corporation shall forthwith
file, at the office of the transfer agent for the Series C Stock
or at such other place as may be designated by the Corporation, a
statement, signed by its independent certified public accountants,
showing in detail the facts requiring such adjustment and the
Series C Conversion Price that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such
statement to be sent by first class, certified mail, return
receipt requested, postage prepaid, to each Series C Holder at
such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the
provisions of Section 7(a)(vi) below.
(vi) In the event the Corporation shall propose to take any
action of the types described in clauses (A), (B), (C), or (D) of
Section 7(a)(iv) above, the Corporation shall give notice to each
holder of shares of Series C Stock, in the manner set forth in
Section 7(a)(v) above, which notice shall specify the record date,
if any, with respect to, any such action and the date on which
such action is to take place. Such notice shall also set forth
such facts with respect thereto as shall be reasonably necessary
to indicate the effect of such action (to the extent such effect
may be known at the date of such notice) on the Series C
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable
upon the occurrence of such action or deliverable upon conversion
of shares of Series C Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at
least 20 days prior to the date so fixed, and in case of all other
action, notice shall be given at least 30 days prior to the taking
of such proposed action. Failure to give such notice, or any
defect therein, shall not affect the legality or validity of any
such action.
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(vii) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of
shares of capital stock of the Corporation upon conversion of any
shares of Series C Stock; PROVIDED, HOWEVER, that the Corporation
shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the
holder of the shares of Series C Stock in respect of which such
shares are being issued.
(viii) The Corporation shall reserve, free from preemptive rights,
out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of
Series C Stock, sufficient shares to provide for the conversion of
all outstanding shares of Series C Stock.
(ix) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will,
upon issuance by the Corporation, be validly issued, fully paid
and nonassessable, with no personal liability attaching to the
ownership thereof, and free from all taxes, liens or charges with
respect thereto.
(b) AUTOMATIC CONVERSION. Upon the occurrence of a Series C Event of
Conversion, all shares of Series C Stock then outstanding shall, by virtue of,
and simultaneously with, the occurrence of the Series C Event of Conversion and
without any action on the part of the holders thereof, be deemed automatically
converted into such whole number of fully paid and nonassessable shares of
Common Stock as equals (1) the product of (x) the Series C Original Purchase
Price plus, after the third anniversary of the Series B/KBH Initial Issuance
Date at the option of any Holder, any unpaid Series C Accrued Dividends with
respect to the shares being converted, multiplied by (y) the number of shares of
Series C Stock being converted divided by (2) the Series C Conversion Price as
last adjusted pursuant to Section 7(a)(iv) and then in effect.
8. PRE-EMPTIVE RIGHTS. (a) RIGHT TO PURCHASE. Until the occurrence of
a Series C Event of Conversion, the Series C Holders shall be entitled to
subscribe for their respective Preemptive Share of any New Securities which the
Corporation may, from time to time, propose to issue and sell, at any time while
any Series C Stock is outstanding and subject to the terms, conditions and
procedures set forth below.
(b) The Corporation shall first deliver to each Series C Holder a
written Notice of Intention to Sell offering to each Series C Holder the right
to purchase up to the Preemptive Share of such Series C Holder of such shares of
New Securities at the purchase price and on the terms specified therein. Each
Series C Holder shall have the right and option, for a period of twenty (20)
days after delivery to said Series C Holder of such Notice of Intention to Sell,
to purchase all or any part of the Preemptive Share of such Series C Holder of
the shares of New Securities so offered at the purchase price and on the terms
stated therein. Such acceptance shall be made by delivering a written Notice of
Acceptance to the Corporation within the aforesaid twenty (20) day period.
The closing of any sales of shares of New Securities under the terms of
Section 8 shall be made at the offices of the Corporation on a mutually
satisfactory business day within five (5)
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business days after the expiration of the aforesaid period. Delivery of
certificates or other instruments evidencing such shares of New Securities duly
endorsed for transfer to the appropriate Series C Holder shall be made on such
date against payment of the purchase price therefor.
(c) The Corporation may issue and sell all or any part of the
remaining shares of New Securities so offered for sale but not purchased
pursuant to Section 8 hereof at a price not less than the price offered, and on
terms not more favorable, to the purchaser thereof than the terms stated in the
original Notice of Intention to Sell, at any time within ninety (90) days after
the expiration of the offer required by Section 8. In the event the remaining
shares of New Securities are not sold by the Corporation during such ninety (90)
day period, the right of the Corporation to sell such remaining shares of New
Securities shall expire and the obligations of this Section 8 shall be
reinstated; PROVIDED, HOWEVER, that in the event the Corporation determines, at
any time during such ninety (90) day period, that the sale of all or any part of
the remaining shares of New Securities on the terms set forth in the Notice of
Intention to Sell is impractical, the Corporation can terminate the offer and
reinstate the procedure provided in this Section 8 without waiting for the
expiration of such ninety (90) day period.
9. FURTHER DILUTING ISSUANCES. The Corporation shall not permit or
cause to occur more than one Diluting Issuance unless, so as to facilitate the
adjustments required by Section 7(a)(iv)(A), the Corporation (I) has taken all
necessary action to create a new subseries of the Series C Preferred Stock,
which shall be PARI PASSU with the Series C Preferred Stock and the Series C1
Preferred Stock for all purposes except conversion price, and (II) shall have
amended this Certificate to provide that the shares of Series C Stock held by
any Holder thereof who fails to purchase its full Preemptive Share of such
additional Diluting Issuance shall be converted automatically into such new
subseries of Series C Stock. The shares of such subseries shall be convertible
into Common Stock immediately after such Diluting Issuance at the same price per
share that applied to the shares which were so converted immediately prior to
such Diluting Issuance. The consent of the Holders of the Preferred Stock shall
not be required in order to effect such new subseries.
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Exhibit 3.3
BY-LAWS
OF
GENAISSANCE PHARMACEUTICALS, INC.
A DELAWARE CORPORATION
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
<PAGE>
Section 2. Annual meetings of the stockholders shall be held at such
date, time and place within or without the State of Delaware as may be
designated from time to time by the board of directors and stated in the notice
of the meeting, at which the stockholders shall elect directors by a plurality
vote and transact such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place
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where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
secretary at the request in writing of a majority of the board of directors.
Such request shall state the purpose or purposes of the proposed meeting. Unless
otherwise prescribed by statute or by the certificate of incorporation,
stockholders of this corporation shall not be entitled to request a special
meeting of stockholders.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person
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or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the issued and outstanding shares entitled to vote
shall decide any question brought before such meeting, unless the question is
one upon which by express provision of the statutes or of the certificate of
incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
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Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
Section 1. The corporation shall have two (2) or more directors. The
number of directorships shall be the number fixed by resolution of the
Shareholders or Directors, or, in the absence thereof, shall be the number of
directors elected at the preceeding annual meeting of shareholders. Each
director shall hold office until the next annual shareholders meeting and until
his successor shall have been elected and qualified, or until his earlier
resignation, or removal from office in accordance with the provisions of the
bylaws, death or incapacity.
Section 2. Any director may be removed from office at any time, with or
without cause, by the holders of a majority of the shares entitled to vote at an
election of directors.
Section 3. Any vacancies in the board of directors, however occurring,
whether by death, resignation, retirement, disqualification, removal from office
in accordance with the
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provisions of the by-laws, or otherwise, may be filled by the directors
remaining in office acting by a majority vote, and any director so chosen shall
hold office until the next annual shareholders meeting and until his successor
shall have been elected and qualified, or until his earlier resignation, removal
from office in accordance with the provisions of the by-laws, death or
incapacity.
Section 4. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things, as are not by statute or
by the certificate of incorporation or by these by-laws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 6. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
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stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the time
and place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 7. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 8. Special meetings of the board may be called by the president
with reasonable notice to each director, either personally or by telegram or
telefax or by mail; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors unless the board consists of only one director, in which case special
meetings shall be called by the president or secretary in like manner, and an
like notice on the written request of the sole director.
Section 9. At all meetings of the board a majority of the total number
of directors shall constitute a quorum for the transaction of business, and the
act of a majority of the total number of directors shall be the act of the board
of directors,
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except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any meeting of
the board of directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes or proceedings of the board or committee.
Section 11. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by personal delivery,
telegram or telefax.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a president, a secretary and a treasurer. The board of
directors may also choose one or more vice-presidents, and one or more assistant
secretaries and
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assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
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THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 7. He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. In the absence of the president or in the event of his
inability or refusal to act, the vice president (or in the event there be more
than one vice president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other
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duties and have such other powers as the board of directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors, and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination,
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then in the order of their election) shall, in the absence of the secretary or
in the event of his inability or refusal to act, perform the duties and exercise
the Powers of the secretary and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful
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performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or certificates. Certificates shall be signed by, or in the name of
the corporation by, the chairman or vice-chairman of the board of directors, or
the president or a vice-president and the treasurer or an assistant treasurer,
or the secretary or an assistant secretary of the corporation.
Section 2. Any of or all the signatures on a certificate
may be facsimile. In case any officer, transfer agent or
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registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
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TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a, record date,
which shall not be more than
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Sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting: provided, however, that the board of directors may
fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of
incorporation, if any, may be declared by the board of directors
at any regular or special meeting, pursuant to law. Dividends
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may be paid in cash, in property, or in shares of the capital stock, subject to
the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting
a full and clear statement of the business and condition of the corporation.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon
the name of the corporation and the words "Corporate Seal,
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Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The Corporation shall, in accordance with and to the full
extent permitted by the laws of the State of Delaware as in effect at the time
of the adoption of this Section or as such laws may be amended from time to
time, indemnify any person (and the heirs and legal representatives of any such
person) made or threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such Person is or was an officer,
director, employee or agent of the Corporation.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such
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special meeting. If the power to adopt, amend or repeal by-laws is conferred
upon the board of directors by the certificate of incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal by-laws.
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GENAISSANCE PHARMACEUTICALS, INC.
EMPLOYEE STOCK PURCHASE PLAN 2000
1. PURPOSE.
This Employee Stock Purchase Plan 2000 (the "Plan") is adopted by
Genaissance Pharmaceuticals, Inc. (the "Company") to provide Eligible Employees
who wish to become shareholders of the Company an opportunity to purchase shares
of Common Stock, par value $0.01 per share, of the Company ("Common Stock"). The
Plan is intended to qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423;
provided that, if and to the extent authorized by the Board, the fact that the
Plan does not comply in all respects with the requirements of Section 423 shall
not affect the operation of the Plan or the rights of Employees hereunder.
2. CERTAIN DEFINITIONS.
As used in this Plan:
(a) "Board" means the Board of Directors of the Company, and
"Committee" means the Compensation Committee of the Board or such other
committee as the Board may appoint from time to time to administer the Plan.
(b) "Coordinator" means the officer of the Company or other person
charged with day-to-day supervision of the Plan as appointed from time to time
by the Board or the Committee.
(c) "Designated Beneficiary" means a person designated by an Employee
in the manner prescribed by the Committee or the Coordinator to receive certain
benefits provided in this Plan in the event of the death of the Employee.
(d) "Eligible Employee" with respect to any Offering hereunder means
any Employee who, as of the Offering Commencement Date for such Offering:
(i) has been a Full-time Employee of the Company or any of its
Subsidiaries for not less than 90 days; and
(ii) would not, immediately after any right to acquire Shares in
such Offering is granted, own stock or rights to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary corporation, determined in
accordance with Section 423.
(e) "Employee" means an employee (as that term is used in Section 423)
of the Company or any of its Subsidiaries.
<PAGE>
(f) "Fair Market Value" of a Share shall mean the fair market value of
a share of Common Stock, as determined by the Committee.
(g) "Full-time Employee" is an Employee whose customary employment is
for more than (i) 20 hours per week and (ii) five months, in the calendar year
during which the respective Offering Commencement Date occurs.
(h) "Offering" is an offering of Shares pursuant to Section 5 of the
Plan.
(i) "Offering Commencement Date" means the date on which an Offering
under the Plan commences, and "Offering Termination Date" means the date on
which an Offering under the Plan terminates.
(j) "Purchase Date" means each date on which the rights granted under
the Plan may be exercised for the purchase of Shares.
(k) "Section 423" and subdivisions thereof refer to Section 423 of the
Code or any successor provision(s).
(l) "Shares" means the shares of Common Stock issuable under the Plan.
(m) "Subsidiary" means a subsidiary corporation, as defined in Section
424 of the Code, of the Company the Employees of which are designated by the
Board of Directors or the Committee as eligible to participate in the Plan.
3. ADMINISTRATION OF THE PLAN.
The Committee shall administer, interpret and apply all provisions of
the Plan as it deems necessary or appropriate, subject, however, at all times to
the final jurisdiction of the Board of Directors. The Board may in any instance
perform any of the functions of the Committee hereunder. The Committee may
delegate administrative responsibilities to the Coordinator, who shall, for
matters involving the Plan, be an ex officio member of the Committee.
Determinations made by the Committee and approved by the Board of Directors with
respect to any provision of the Plan or matter arising in connection therewith
shall be final, conclusive and binding upon the Company and upon all
participants, their heirs or legal representatives.
4. SHARES SUBJECT TO THE PLAN.
The maximum aggregate number of Shares that may be purchased upon
exercise of rights granted under the Plan shall be 250,000. Appropriate
adjustments in such amount, the number of Shares covered by outstanding rights
granted hereunder, the securities that may be purchased hereunder, the Exercise
Price, and the maximum number of Shares or other securities that an employee may
purchase (pursuant to Section 8 below) shall be made to give effect to any
mergers, consolidations, reorganizations, recapitalizations, stock splits, stock
dividends or other relevant changes in the capitalization of the Company
occurring after the effective date of the Plan; provided that any fractional
Share otherwise issuable hereunder as a result of such an adjustment shall be
adjusted downward to the nearest full Share. Any agreement of merger or
consolidation involving the Company will include appropriate provisions for
protection of the
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then existing rights of participating employees under the Plan. Either
authorized and unissued Shares or treasury Shares may be purchased under the
Plan. If for any reason any right under the Plan terminates in whole or in part,
Shares subject to such terminated right may again be subjected to a right under
the Plan.
5. OFFERINGS; PARTICIPATION.
(a) From time to time, the Company, by action of the Committee, will
grant rights to purchase Shares to Eligible Employees pursuant to one or more
Offerings, each having an Offering Commencement Date, an Offering Termination
Date, and one or more Purchase Dates as designated by the Committee. No Offering
may last longer than twenty-seven (27) months or such longer period as may then
be consistent with Section 423. The Committee may limit the number of Shares
issuable in any Offering, either before or during such Offering.
(b) Participation in each Offering shall be limited to Eligible
Employees who elect to participate in such Offering in the manner, and within
the time limitations, established by the Committee. No person otherwise eligible
to participate in any Offering under the Plan shall be entitled to participate
if he or she has elected not to participate. Any such election not to
participate may be revoked only with the consent of the Committee.
(c) An Employee who has elected to participate in an Offering may make
such changes in the level of payroll deductions as the Committee may permit from
time to time, or may withdraw from such Offering, by giving written notice to
the Company before any Purchase Date. No Employee who has withdrawn from
participating in an Offering may resume participation in the same Offering, but
he or she may participate in any subsequent Offering if otherwise eligible.
(d) Upon termination of a participating Employee's employment for any
reason, including retirement but excluding death or disability (as defined in
Section 22(e)(3) of the Code) while in the employ of the Company or a
Subsidiary, such Employee will be deemed to have withdrawn from participation in
all pending Offerings.
(e) Upon termination of a participating Employee's employment because
of disability or death, the Employee or his or her Designated Beneficiary, if
any, as the case may be, shall have the right to elect, with respect to each
Offering in which the Employee was then participating, by written notice given
to the Coordinator within 30 days after the date of termination of employment
(but not later than the next applicable Purchase Date for each Offering), either
(i) to withdraw from such Offering or (ii) to exercise the Employee's right to
purchase Shares on the next Purchase Date of such Offering to the extent of the
accumulated payroll deductions or other contributions in the Employee's account
at the date of termination of employment. If no such election with respect to
any Offering is made within such period, the Employee shall be deemed to have
withdrawn from such Offering on the date of termination of employment. The
foregoing election is not available to any person, such as a legal
representative, as such, other than the Employee or a Designated Beneficiary.
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6. EXERCISE PRICE.
The rights granted under the Plan shall be exercised and Shares shall
be purchased at a price per Share (the "Exercise Price") determined by the
Committee from time to time; provided that the Exercise Price shall not be less
than eighty-five percent (85%) of the Fair Market Value of a Share on (a) the
respective Offering Commencement Date or (b) the respective Purchase Date,
whichever is lower.
7. EXERCISE OF RIGHTS; METHOD OF PAYMENT.
(a) Participating Employees may pay for Shares purchased upon exercise
of rights granted hereunder through regular payroll deductions, by lump sum cash
payment, by delivery of shares of Common Stock valued at Fair Market Value on
the date of delivery, or a combination thereof, as determined by the Committee
from time to time. No interest shall be paid upon payroll deductions or other
amounts held hereunder (whether or not used to purchase Shares) unless
specifically provided for by the Committee. All payroll deductions and other
amounts received or held by the Company under this Plan may be used by the
Company for any corporate purpose, and the Company shall not be obligated to
segregate such amounts.
(b) Subject to any applicable limitation on purchases under the Plan,
and unless the Employee has previously withdrawn from the respective Offering,
rights granted to a participating Employee under the Plan will be exercised
automatically on the Purchase Date of the respective Offering coinciding with
the Offering Termination Date, and the Committee may provide that such rights
may at the election of the Employee be exercised on one or more other Purchase
Dates designated by the Committee within the period of the Offering, for the
purchase of the number of whole Shares that may be purchased at the applicable
Exercise Price with the accumulated payroll deductions or other amounts
contributed by such Employee as of the respective Purchase Date. Fractional
Shares will not be issued under the Plan, and any amount that would otherwise
have been applied to the purchase of a fractional Share shall be retained and
applied to the purchase of Shares in the following Offering unless the
respective Employee elects otherwise. The Company will deliver to each
participating Employee a certificate representing the shares of Common Stock
purchased within a reasonable time after the Purchase Date.
(c) Any amounts contributed by an Employee or withheld from the
Employee's compensation that are not used for the purchase of Shares, whether
because of such Employee's withdrawal from participation in an Offering
(voluntarily, upon termination of employment, or otherwise) or for any other
reason, except as provided in Section 7(b), shall be repaid to the Employee or
his or her Designated Beneficiary or legal representative, as applicable, within
a reasonable time thereafter.
(d) The Company's obligation to offer, sell and deliver Shares under
the Plan at any time is subject to (i) the approval of any governmental
authority required in connection with the authorized issuance or sale of such
Shares, (ii) satisfaction of the listing requirements of any national securities
exchange or securities market on which the Common Stock is then listed, and
(iii) compliance, in the opinion of the Company's counsel, with all applicable
federal and state securities and other laws.
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8. LIMITATIONS ON PURCHASE RIGHTS.
(a) Any provision of the Plan or any other employee stock purchase plan
of the Company or any subsidiary (collectively, "Other Plans") to the contrary
notwithstanding, no Employee shall be granted the right to purchase Common Stock
(or other stock of the Company and any subsidiary) under the Plan and all Other
Plans at a rate that exceeds an aggregate of $25,000 (or such other maximum as
may be prescribed from time to time by Section 423) in Fair Market Value of such
stock (determined at the time the rights are granted) for each calendar year in
which any such right is outstanding.
(b) An Employee's participation in any one or a combination of
Offerings under the Plan shall not exceed such additional limits as the
Committee may from time to time impose.
9. TAX WITHHOLDING.
Each participating Employee shall pay to the Company or the applicable
Subsidiary, or make provision satisfactory to the Committee for payment of, any
taxes required by law to be withheld in respect of the purchase or disposition
of Shares no later than the date of the event creating the tax liability. In the
Committee's discretion and subject to applicable law, such tax obligations may
be paid in whole or in part by delivery of Shares to the Company, including
Shares purchased under the Plan, valued at Fair Market Value on the date of
delivery. The Company or the applicable Subsidiary may, to the extent permitted
by law, deduct any such tax obligations from any payment of any kind otherwise
due to the Employee or withhold Shares purchased hereunder, which shall be
valued at Fair Market Value on the date of withholding.
10. PARTICIPANTS' RIGHTS AS SHAREHOLDERS AND EMPLOYEES.
(a) No participating Employee shall have any rights as a shareholder in
the Shares covered by a right granted hereunder until such right has been
exercised, full payment has been made for such Shares, and the Share certificate
is actually issued.
(b) Each Employee is an employee-at-will (that is to say that either
the Employee or the Company or any Subsidiary may terminate the employment
relationship at any time for any reason or no reason at all) unless and only to
the extent provided in a written employment agreement for a specified term
executed by the chief executive officer of the Company or his duly authorized
designee or the authorized signatory of any Subsidiary. Neither the adoption,
maintenance, nor operation of the Plan nor any grant of rights hereunder shall
confer upon any Employee any right with respect to the continuance of his/her
employment with the Company or any Subsidiary nor shall they interfere with the
rights of the Company or Subsidiary to terminate any Employee at any time or
otherwise change the terms of employment, including, without limitation, the
right to promote, demote or otherwise re-assign any Employee from one position
to another within the Company or any Subsidiary.
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<PAGE>
11. RIGHTS NOT TRANSFERABLE.
Rights under the Plan are not assignable or transferable by a
participating Employee other than by will or the laws of descent and
distribution and, during the Employee's lifetime, are exercisable only by the
Employee. The Company may treat any attempted INTER VIVOS assignment as an
election to withdraw from all pending Offerings.
12. AMENDMENTS TO OR TERMINATION OF THE PLAN.
The Board shall have the right to amend, modify or terminate the Plan
at any time without notice, subject to any stockholder approval that the Board
determines to be necessary or advisable; provided that the rights of Employees
hereunder with respect to any ongoing or completed Offering shall not be
adversely affected.
13. GOVERNING LAW.
Subject to overriding federal law, the Plan shall be governed by and
interpreted consistently with the laws of the State of Delaware.
14. EFFECTIVE DATE AND TERM.
This Plan will become effective on April 18, 2000, and no rights
shall be granted hereunder after April 18, 2010.
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<PAGE>
GENAISSANCE PHARMACEUTICALS, INC.
INDEMNIFICATION AGREEMENT
This Agreement dated ______________________ is between Genaissance
Pharmaceuticals, Inc. (the "Company"), a Delaware corporation, and
______________________ (the "Indemnitee"), who is [a director][an officer and
director] of the Company. Its purpose is to provide the maximum protection for
the Indemnitee against personal liability arising out of his or her service to
the Company so as to encourage the continuation of such service and the
effective exercise of his or her business judgment in connection therewith.
The rights provided under this agreement are in addition to, and shall apply
notwithstanding any contrary provision contained in, the By-laws of the
Company.
The parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings hereafter assigned to them:
(a) CHANGE IN CONTROL: a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is in fact
required to comply therewith; provided, that, without limitation, such a change
in control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then outstanding
securities; or
(ii) during any period of twenty-four (24)
consecutive months (not including any period prior to the date of this
Agreement), individuals who at the beginning of such period constitute
the Company's Board of Directors (the "Board") and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
paragraphs (i), (ii) or (iii) of this Section 1(a)) whose election by
the Board or nomination for election by the stockholders of the Company
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding
<PAGE>
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires 30% or more of the
combined voting power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
(b) CLAIM: any threatened, pending or completed action, suit
or proceeding, or any inquiry or investigation, whether instituted by the
Company or any other party that the Indemnitee in good faith believes might lead
to the institution of any such action, suit or proceeding, whether civil,
criminal, administrative, investigative or other.
(c) EXPENSES: include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any Claim relating to
any Indemnifiable Event.
(d) INDEMNIFIABLE EVENT: any event or occurrence related to
the fact that the Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of anything done or not done by the Indemnitee in any
such capacity.
(e) POTENTIAL CHANGE IN CONTROL: shall be deemed to have
occurred if:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(ii) any person (as hereinabove defined), including
the Company, publicly announces an intention to take or consider taking
actions which if consummated would constitute a Change in Control;
(iii) any person (as hereinabove defined), other than
the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company (A) is or
becomes the beneficial owner, (B) discloses directly or indirectly to
the Company or publicly a plan or intention to become the beneficial
owner, or (C) makes a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to securities to
become the beneficial owner, directly or indirectly, of securities
representing 9.9% or more of the combined voting power of the
outstanding voting securities of the Company; or
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<PAGE>
(iv) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a potential change in control of
the Company has occurred.
(f) REVIEWING PARTY: The person or body appointed by the Board
pursuant to Section 2(b), which shall not be or include a person who is a party
to the particular Claim for which the Indemnitee is seeking indemnification.
2. BASIC INDEMNIFICATION ARRANGEMENT. (a) In the event that the
Indemnitee was, is or becomes a party to or witness or other participant in, or
is threatened to be made a party to or witness or other participant in, a Claim
by reason of (or arising in part out of) an Indemnifiable Event, the Company
shall indemnify the Indemnitee to the fullest extent permitted by law as soon as
practicable, but in any event no later than thirty days after written demand is
presented to the Company, against all Expenses, judgments, fines, penalties and
amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses,
judgments, fines, penalties or amounts paid in settlement) of such Claim. If so
requested by the Indemnitee, the Company shall advance (within ten business days
of such request) all Expenses to the Indemnitee (an "Expense Advance").
Notwithstanding anything in this Agreement to the contrary, prior to a Change in
Control, the Indemnitee shall not be entitled to indemnification pursuant to
this Agreement in connection with any Claim initiated by the Indemnitee against
the Company or any director or officer of the Company (otherwise than to enforce
his or her rights under this Agreement) unless the Company has consented in
writing to the initiation of such Claim.
(b) In the event of any demand by the Indemnitee for
indemnification hereunder or under the Company's Certificate of Incorporation or
By-laws, the Board shall designate a Reviewing Party, who shall, if there has
been a Change of Control of the Company, be the special independent counsel
referred to in Section 3 hereof. The obligations of the Company under Section
2(a) shall be subject to the condition that the Reviewing Party shall not have
determined (in a written opinion, in any case in which the special independent
counsel referred to in Section 3 hereof is involved) that the Indemnitee is not
permitted to be indemnified under applicable law, and the obligation of the
Company to make an Expense Advance pursuant to Section 2(a) shall be subject to
the condition that, if, when and to the extent that the Reviewing Party
determines that the Indemnitee is not permitted to be so indemnified under
applicable law, the Company shall be entitled to be reimbursed by the Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid. If the Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that the Indemnitee may be indemnified
under applicable law, any determination made by the Reviewing Party that the
Indemnitee is not permitted to be indemnified under applicable law shall not be
binding, and the Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that the Indemnitee is not permitted to be
indemnified in whole or in part under applicable law, the Indemnitee shall have
the right to commence litigation in any court in the state of Delaware having
subject matter jurisdiction thereof and in which venue is proper seeking an
initial determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, and the Company hereby
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<PAGE>
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and the Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or By-laws now or hereafter in effect relating to
Claims for Indemnifiable Events, the Company shall seek legal advice only from
special independent counsel selected by the Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld) who has not
otherwise performed services for the Company within the last ten years (other
than in connection with such matters) or for the Indemnitee. Such counsel, among
other things, shall render its written opinion to the Company and the Indemnitee
as to whether and to what extent the Indemnitee is permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
special independent counsel and to indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages relating
to this Agreement or its engagement pursuant hereto.
4. ESTABLISHMENT OF TRUST. In the event of a Potential Change in
Control, the Company may create a trust for the benefit of the Indemnitee
(either alone or together with one or more other indemnitees) and from time to
time fund such trust in such amounts as the Board may determine to satisfy
Expenses reasonably anticipated to be incurred in connection with investigating,
preparing for and defending any Claim relating to an Indemnifiable Event, and
all judgments, fines, penalties and settlement amounts of all Claims relating to
an Indemnifiable Event from time to time paid or claimed, reasonably anticipated
or proposed to be paid. The terms of any trust established pursuant hereto shall
provide that upon a Change in Control (i) the trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee, (ii)
the trustee shall advance, within ten business days of a request by the
Indemnitee, all Expenses to the Indemnitee (and the Indemnitee hereby agrees to
reimburse the trust under the circumstances under which the Indemnitee would be
required to reimburse the Company under Section 2(b) of this Agreement), (iii)
the trustee shall promptly pay to the Indemnitee all amounts for which the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise, and (iv) all unexpended funds in such trust shall revert to the
Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be a person or
entity satisfactory to the Indemnitee. Nothing in this Section 4 shall relieve
the Company of any of its obligations under this Agreement.
5. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify
the Indemnitee against all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within ten business days of such request)
advance such expenses to the Indemnitee, which are incurred by the Indemnitee in
connection with any claim asserted against or action brought by the Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or provision of the Company's
Certificate of Incorporation now or hereafter in effect relating to Claims for
Indemnifiable Events or (ii) recovery under any directors' and officers'
liability insurance
4
<PAGE>
policies maintained by the Company, regardless of whether the Indemnitee
ultimately is determined to be entitled to such indemnification, advance expense
payment or insurance recovery, as the case may be.
6. PARTIAL INDEMNITY, ETC. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith.
7. BURDEN OF PROOF. In connection with any determination by the
Reviewing Party or otherwise as to whether the Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that the Indemnitee is not so entitled.
8. NO PRESUMPTION. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that the
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law. In addition, neither the failure of the Reviewing
Party to have made a determination as to whether the Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by the Reviewing Party that the Indemnitee has not met such
standard of conduct or did not have such belief, prior to the commencement of
legal proceedings by the Indemnitee to secure a judicial determination that the
Indemnitee should be indemnified under applicable law shall be a defense to the
Indemnitee's claim or create a presumption that the Indemnitee has not met any
particular standard of conduct or did not have any particular belief.
9. NON-EXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall
be in addition to any other rights the Indemnitee may have under the Company's
Certificate of Incorporation and By-laws or the Delaware General Corporation Law
or otherwise. To the extent that a change in the Delaware General Corporation
Law (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's Certificate of
Incorporation and By-laws and this Agreement, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
10. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, the Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
11. AMENDMENTS, ETC. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the
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<PAGE>
provisions of this Agreement shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
12. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all such papers and do all such
things as may be necessary or desirable to secure such rights.
13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, provision of the Company's Certificate of Incorporation,
Company By-law or otherwise) of the amounts otherwise indemnifiable hereunder.
14. BINDING EFFECT, ETC. This Agreement shall be binding and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, liquidation or otherwise) to all
or substantially all of the business or assets of the Company by written
agreement expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
or assets aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise. This Agreement shall continue in effect
regardless of whether the Indemnitee continues to serve as an officer or
director of the Company or of any other enterprise at the Company's request.
15. SEVERABILITY. The provisions of this Agreement shall be severable
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
16. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
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<PAGE>
GENAISSANCE PHARAMCEUTICALS, INC.
By: _____________________________________
Title: __________________________________
_________________________________________
(Indemnitee)
<PAGE>
EXHIBIT 10.5
FIRST AMENDMENT TO LEASE BETWEEN
SCIENCE PARK DEVELOPMENT CORPORATION
and
GENAISSANCE PHARMACEUTICALS, INC.
Date: December 1, 1999
<PAGE>
This First Amendment to Lease (this "FIRST AMENDMENT") is made and
entered into as of the 1st day of December, 1999 by and between SCIENCE PARK
DEVELOPMENT CORPORATION, a Connecticut corporation having a principal place of
business at 25 Science Park, New Haven, Connecticut 06511 (herein referred to as
"LANDLORD") and GENAISSANCE PHARMACEUTICALS, INC., a Delaware corporation having
a principal place of business at Five Science Park, New Haven, Connecticut 06511
(herein referred to as "TENANT").
WHEREAS, Landlord and Tenant are parties to a certain Lease dated as of
September 15, 1998 (the "LEASE"), pursuant to which Tenant leases from Landlord
certain space in the building known as Building 5 North in Science Park, New
Haven, Connecticut;
WHEREAS, Landlord desires to lease to Tenant and Tenant desires to
lease from Landlord certain space on the first floor of Building 5 North, which
space consists of approximately 7,953 rentable square feet as shown on the floor
plan attached hereto as EXHIBIT A-1 and certain mechanical space on the third
floor of Building 5 North, which space consists of approximately 156 rentable
square feet as shown on the floor plan attached hereto as EXHIBIT A-2 (herein
collectively referred to as the "FIRST AMENDMENT SPACE"), upon and subject to
the terms, covenants and conditions contained in the Lease as modified by this
First Amendment; and
WHEREAS, Landlord and Tenant desire to amend the Lease in certain
respects;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by each of the parties, Landlord and Tenant
hereby agree as follows (capitalized terms used herein which are not otherwise
defined herein shall have the meaning given to such terms in the Lease):
1. PREPARATION OF FIRST AMENDMENT SPACE. Landlord, at its expense, shall
(i) obtain required demolition permits and selectively demolish and
remove tenant improvements from the First Amendment Space, (ii) cause
to be removed from the First Amendment Space all asbestos, which
removal shall be performed in compliance with all applicable
Environmental Laws and Title 19a ("Public Health and Well-Being") of
the Connecticut General Statutes, including but not limited to Sections
19c-332 through 332e, concerning asbestos, and any regulations
promulgated thereunder, (iii) cause to be removed from the First
Amendment Space all lead-based paint, which removal shall be performed
in compliance with applicable laws, such that as a result of the
removal no occupants of Building Five North shall be exposed to
airborne lead at levels over the action level, as defined in 29 CFR
Section 1910.1025, and (iv) otherwise prepare the First Amendment Space
for delivery of same to Tenant in a vacant, broom clean condition, free
of all furnishings, equipment, litter and debris. Landlord agrees to
use its best efforts to deliver exclusive possession of the First
Amendment Space to Tenant in the condition specified in the immediately
preceding sentence by December 15, 1999.
<PAGE>
2. LANDLORD'S NOTICE. Promptly after the conditions of Subsections 1(i)
-(iv) have been satisfied, Landlord will deliver written notice thereof
to Tenant ("LANDLORD'S NOTICE") .
3. FIRST AMENDMENT SPACE LEASE COMMENCEMENT DATE. Landlord hereby agrees
to lease to Tenant and Tenant hereby agrees to lease from Landlord the
First Amendment Space, upon and subject to the terms of the Lease, as
modified by this First Amendment. Landlord shall deliver, and Tenant
shall accept, exclusive possession of the First Amendment Space on the
date Tenant receives Landlord's Notice, which date shall be deemed to
be the Lease Commencement Date with respect to the First Amendment
Space (the "FIRST AMENDMENT SPACE LEASE COMMENCEMENT DATE").
4. FIRST AMENDMENT SPACE. Commencing on the First Amendment Space Lease
Commencement Date, the Leased Premises shall be deemed to include the
First Amendment Space for all purposes under the Lease, and the terms,
covenants and conditions of the Lease, as modified by this First
Amendment, shall govern the rights, obligations and liabilities of
Landlord and Tenant with respect to the First Amendment Space. The
Leased Premises, as described in Section 1.1(a) of the Lease and as
shown on Exhibits A-1 and A-2 of the Lease, are sometimes referred to
in this First Amendment as the "ORIGINAL LEASED PREMISES".
5. CONFIRMATION OF TERM & EXTENSIONS. Landlord and Tenant hereby agree
that the Rent Commencement Date with respect to the Original Leased
Premises was March 1, 1999 and the Expiration Date of the initial
5-year Term of the Lease with respect to the entire Leased Premises,
including the Original Leased Premises and the First Amendment Space,
is February 28, 2004. The two 5-year Extension Options granted in
Section 2.2 of the Lease shall apply to the entire Leased Premises,
including the Original Leased Premises and the First Amendment Space.
Tenant may not exercise an Extension Option with respect to less than
the entire Leased Premises.
6. FIRST AMENDMENT SPACE RENT COMMENCEMENT DATE. Subject to extensions
pursuant to Sections 2.3B. and 2.3C. of the Lease, the Rent
Commencement Date with respect to the First Amendment Space (the "FIRST
AMENDMENT SPACE RENT COMMENCEMENT DATE") shall mean the earlier of: (i)
the date of the issuance of a temporary or permanent certificate of
occupancy for the First Amendment Space, or (ii) five (5) months after
the date of Tenant's receipt of Landlord's Notice. In interpreting the
provisions of Sections 2.3B and 2.3C of the Lease to this Amendment,
the term, "Interior Work" as used therein shall mean, "Interior Work"
as defined herein, and the term, "Rent Commencement Date" as used
therein shall mean, "First Amendment Space Rent Commencement Date" as
defined herein. At the request of either Landlord or Tenant, Landlord
and Tenant shall execute and deliver to each other a writing confirming
the First Amendment Space Lease Commencement Date and the First
Amendment Space Rent Commencement Date.
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<PAGE>
7. RENT.
(a) In accordance with the provisions of this First Amendment,
Tenant shall pay to Landlord base rent for the First Amendment Space
commencing on the First Amendment Space Rent Commencement Date and
thereafter as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LEASE YEAR BASE RENT/RSF MONTHLY RENT ANNUAL RENT
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 3/1/99 - 2/28/00 $11.40 $ 7,704 $ 92,443
- --------------------------------------------------------------------------------
2 3/1/00 - 2/28/01 $12.20 $ 8,244 $ 98,930
- --------------------------------------------------------------------------------
3 3/1/01 - 2/28/02 $13.05 $ 8,819 $105,822
- --------------------------------------------------------------------------------
4-5 3/1/02 - 2/28/04 $16.05 $10,846 $130,149
- --------------------------------------------------------------------------------
</TABLE>
(b) Commencing on the First Amendment Space Rent Commencement
Date and continuing thereafter until the Expiration Date of the Lease,
Tenant shall: (i) pay to Landlord Base Rent for the First Amendment
Space at the same rate per rentable square foot as Tenant is required
to pay from time to time with respect to the Original Leased Premises,
as more particularly set forth in Section 7(a) hereof; (ii) pay for
electricity and gas consumed within the First Amendment Space in
accordance with Section 3.4 of the Lease, (iii) pay Additional Rent
with respect to the First Amendment Space in accordance with Section
3.5 of the Lease, and (iv) a portion of the Taxes in accordance with
Article 4 of the Lease, as hereby amended.
(c) In addition, commencing in the sixth Lease Year, with
respect to First Amendment Space only, Tenant shall pay Tenant's OE
Share (as hereinafter defined) of increases in Operating Expenses over
the Base Expense Year in accordance with the terms of Article 37 of the
Lease, as amended by this First Amendment.
8. DEFINITIONS.
(a) The second sentence of Section 4.1(a) of the Lease is
hereby deleted and substituted therefor is, "The Building shall mean
Building 5 North and Building 5 South."
(b) The first sentence of Section 4.1(d) of the Lease is
hereby deleted and substituted therefor is the following:
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<PAGE>
"TENANT'S PRO-RATA SHARE" shall mean a fraction, the
numerator of which shall be the total number of
rentable square feet in the Leased Premises, as same
may increase or decrease from time to time, and the
denominator of which shall be the total number of
rentable square feet in Building 5 North and Building
5 South combined, as same may increase or decrease
from time to time; Landlord represents that as of the
date hereof the combined area of Building 5 North and
Building 5 South measured in rentable square feet is
102,938 rentable square feet.
(c) The Term " Property defined in Section 1.1(a) of the Lease
is also known as Map 256, Block 0393 and Lot 00100 in the New Haven Tax
Assessor's office.
9. TAX PAYMENT; ENTERPRISE ZONE The text of Section 4.2 of the Lease is
hereby deleted and substituted therefor is the following:
(a) TAX PAYMENT.
(i) Commencing on the Rent Commencement Date up to
the day immediately preceding the First Amendment Space Rent
Commencement Date, with respect to the Original Leased
Premises, Tenant shall pay to Landlord as Additional Rent due
hereunder, for any Tax Year, any part of which shall occur
during the Term or any Extension Term, an amount (the "TAX
PAYMENT") equal to: (i) Tenant's Pro-Rata Share (as defined in
the Lease without reference to the First Amendment) of the
Taxes attributable to the land underlying the Building that
constitutes part of the Property and those portions of the
Building that do not constitute improvements made by, or on
behalf of Tenant or other tenants (collectively, the "BASE
BUILDING"), plus 100% of the Taxes attributable to the
Tenant's Work (as defined under the Lease without reference to
the First Amendment).
(ii) Commencing on the First Amendment Space Rent
Commencement Date with respect to the entire Leased Premises
including the Original Leased Premises and the First Amendment
Space, Tenant shall pay to Landlord as Additional Rent due
hereunder, for any Tax Year, any part of which occurs after
the First Amendment Space Rent Commencement Date and during
the Term or any Extension Term, an amount (also the "TAX
PAYMENT") equal to: (i) Tenant's Pro-Rata Share (as defined in
this Lease as amended by the First Amendment) of the Taxes
attributable to the Base Building; plus (ii) 100% of the Taxes
attributable to all of the Tenant's Work (which for purposes
of the balance of this
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<PAGE>
Article 4, unless specified to the contrary, shall mean
Tenant's Work both as defined under this Lease and under the
First Amendment).
(iii) Landlord shall request the New Haven Tax
Assessor's informal opinion regarding apportionment of the
Taxes among the Base Building and the Tenant's Work in order
to calculate the Tax Payment due under subsections 4.2(a)(i)
and 4.2(a)(ii) above. Absent manifest error, the New Haven Tax
Assessor's opinion shall be binding on the parties. If the New
Haven Tax Assessor refuses to participate in such
apportionment, the Landlord shall make the initial
determination, and if Tenant disagrees therewith, Tenant shall
pay its portion of the Taxes in accordance with Landlord's
determination without prejudice, and shall otherwise have the
same right to audit and challenge Landlord's determination as
Tenant has with respect to Landlord's determination of the
Enterprise Zone benefit pursuant to Section 4(d) below.
(b) ENTERPRISE ZONE BENEFITS. Notwithstanding anything to the
contrary contained herein, Tenant shall be entitled to apply
for Enterprise Zone tax treatment with respect to the Tenant's
Work and the Building 5 Improvements, and Landlord shall
cooperate with Tenant in connection with any such application.
Tenant shall be entitled to 100% of the benefits available
from the Enterprise Zone program with respect to the Tenant's
Work and Tenant's Pro-Rata Share of the benefits available
from the Enterprise Zone program with respect to the Building
5 Improvements. All Enterprise Zone benefits to which Tenant
is entitled hereunder shall reduce the Tax Payments due from
Tenant hereunder. Landlord shall request the New Haven Tax
Assessor's opinion, formal or informal, regarding
apportionment of the Enterprise Zone tax benefits among the
Tenant's Work (with reference to the cost of the Tenant's
Work) and the Building 5 Improvements (with reference to the
cost of the Building 5 Improvements). Absent manifest error,
the New Haven Tax Assessor's opinion shall be binding on the
parties.
(c) APPORTIONMENT OF BENEFITS.If the New Haven Tax Assessor is
unable or unwilling to apportion the benefits of the
Enterprise Zone program to Tenant's Work separate and apart
from the Building 5 Improvements, Landlord, again with
reference to the cost of the Tenant's Work and the Building 5
Improvements, shall apportion the Enterprise Zone benefits
among the Tenant's Work and the Building 5 Improvements and
Tenant shall share in such benefits in accordance with the
provisions of subsection (b) above.
(d) AUDIT RIGHT. If Tenant disagrees with Landlord's
determination of the Enterprise Zone benefits attributable to
the Building 5
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<PAGE>
Improvements and/or to the Tenant's Work (in the absence
of a determination by the New Haven Tax Assessor), Tenant
shall pay its Taxes without prejudice, and may give
Landlord notice that it disputes Landlord's determination.
Within forty-five days following Landlord's receipt of such
notice, Tenant shall have the right to audit Landlord's
calculations. If the parties fail to agree on the correct
measure of Enterprise Zone benefit due Tenant, either party
may submit the dispute to binding arbitration under the
commercial leasing rules of the American Arbitration
Association with three (3) arbitrators, each having at least
ten (10) years of commercial real estate leasing experience in
New Haven County. If the arbitrators award Tenant Enterprise
Zone benefits that are three (3%) percent or greater than the
amount Tenant would have received under Landlord's original
determination, Landlord shall pay all costs of the
arbitration, including Tenant's reasonable attorneys fees,
otherwise, Tenant shall pay all costs of the arbitration
including Landlord's reasonable attorneys fees.
10. TAX RELIEF. Section 4.4 of the Original Lease is hereby deleted and
substituted therefor is the following: "Tenant shall be entitled to
Tenant's Pro-Rata Share of any real estate tax relief or other forms of
assistance or relief that may be negotiated by Landlord with the City
of New Haven in connection with the refurbishment of Building 5 North
and Building 5 South and the underlying land that is part of the tax
parcel containing Building 5 North and Building 5 South."
11. THE BUILDING. The phrase "Building 5 North" in Section 11.4 of the
Original Lease is replaced by the phrase "Building 5 North and Building
5 South".
12. PARKING. The rental of the First Amendment Space will include the use
of twenty-five (25) parking spaces in addition to the eighty (80)
parking spaces provided for under the Lease, for a total of one hundred
five (105) parking spaces, all of which parking spaces shall be made
available to Tenant as of the date Tenant takes occupancy of the First
Amendment Space for the purpose of conducting its business therein. The
term "TENANT'S PARKING SPACES" as used in the Lease shall mean said 105
parking spaces, of which four (4) spaces shall be designated with
signage as being reserved for Tenant's visitors. The four (4) spaces
designated as Tenant's visitor parking shall be in addition to the
fifteen (15) spaces reserved for Tenant's exclusive use pursuant to
Section 1.2 of the Original Lease. Tenant's Parking Spaces shall be
located in the areas shown on EXHIBIT A-4 attached hereto and made a
part hereof. Tenant shall use Tenant's Parking Spaces in common with
the other tenants of Science Park (except for its 15 reserved spaces
and its visitor parking spaces which are for Tenant's exclusive use),
but shall have the right to use all of Tenant's Parking Spaces within
the areas shown on EXHIBIT A-4 at all times during the Term, and any
Extension Term.
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<PAGE>
13. AS-IS CONDITION. Subject to completion of the Landlord's obligations
set forth in this First Amendment, including without limitation,
completion of the Interior Work, as set forth in this First Amendment,
Landlord shall tender Tenant possession of the First Amendment Space in
its then "as is" condition and Tenant agrees to accept possession of
the First Amendment Space in its then "as is" condition, broom clean.
14. LANDLORD'S WORK AND INTERIOR WORK.
(a) Pursuant to the provisions of Sections 2.4B, 2.4E - H and
2.6 of the Lease, Landlord, at its expense, shall undertake the work
described on EXHIBIT B-1 [CONTINUED] and EXHIBIT B-3 attached hereto
and made a part hereof (collectively, the "LANDLORD'S WORK").
(b) As part of the Landlord's Work that Landlord is obligated
to perform hereunder, Landlord hereby agrees to complete all of the
work described on EXHIBIT B-3 attached hereto and made a part hereof
(the "INTERIOR WORK"). Landlord hereby agrees to complete the
Landlord's Work in a good and workmanlike fashion. Except as otherwise
provided herein to the contrary, Tenant relies on no warranties or
representations, express or implied, of Landlord or any agent or other
party associated with Landlord as to its condition or repair, or as to
taxes or any other matter relating to the First Amendment Space, except
as otherwise expressly provided in the Lease, as modified by this First
Amendment. Substantial completion of the Landlord's Work shall be
evidenced by issuance of a certificate of occupancy. Landlord and
Tenant shall each use their best efforts to collectively cause Fusco
Corporation and Svigals Associates to coordinate the Interior Work with
the Tenant's Work (as defined in Article 12 of this First Amendment)
with respect to the First Amendment Space in order not to delay
completion of the Tenant's Work with respect to the First Amendment
Space. That portion of the Landlord's Work, not including the Interior
Work, shall be finished pursuant to the existing time requirements for
completion of the Landlord's Work under the Original Lease.
(c) It shall be Landlord's obligation to perform the Interior
Work at Landlord's expense. Landlord shall use its best efforts to
substantially complete all of the Interior Work by the First Amendment
Space Rent Commencement Date. In addition, Landlord represents that all
electrical, mechanical, plumbing and other building systems serving the
First Amendment Space will be in working order on the First Amendment
Space Rent Commencement Date. In addition, Landlord's representation
regarding compliance with laws set forth in the second sentence of
Section 8.1 of the Original Lease is hereby deemed repeated with regard
to the Landlord's Work, as is the limitation on Tenant's remedy set
forth in the balance of said Section 8.1.
15. TENANT'S WORK. Tenant, at Tenant's expense, agrees to make improvements
to the First Amendment Space pursuant to plans and specifications
approved by Landlord. Such improvements shall be deemed "TENANT'S WORK"
and such plans and specifications shall be deemed "TENANT'S PLANS", and
the terms of Section 2.7(a) of the Lease shall govern
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the approval of same. Tenant shall proceed with reasonable due
diligence to perform Tenant's Work following funding of Tenant's new
loan from Connecticut Innovations, Inc. (the "NEW CII LOAN") and the
issuance of a building permit therefor.
16. LIMITATION ON LANDLORD'S LIABILITY. Notwithstanding anything to the
contrary contained in the Lease or this First Amendment, if the Science
Park Development Corporation transfers fee simple title to the
Property, voluntarily or involuntarily, or if the Landlord converts
from a non-profit to a profit organization, the Lease shall be amended
by deleting Sections 11.3A and 11.3B in their entirety and substituting
therefor the following:
A. Landlord shall not be liable to Tenant, and to the
fullest extent allowed by law, Tenant, for itself and its
employees, contractors, subcontractors, agents, licensees and
invitees hereby waives any and all claims, actions and causes
of action which they or any of them may have now or in the
future arising from Landlord's negligence including, without
limitation, claims for damages resulting from loss of life,
bodily injury or damage to any property on or about the
Property or the approaches, entrances, streets, sidewalks or
corridors thereto, except as herein otherwise provided and
except that the foregoing shall not apply in the event of
breach of this Lease by, or gross negligence of, and/or
willful misconduct of Landlord, its employees or agents.
Tenant shall promptly notify Landlord of any defective
condition in the Building of which it becomes aware.
B. [INTENTIONALLY OMITTED]
17. SUBORDINATION AND NON-DISTURBANCE. As used herein, the term "LANDLORD'S
LENDERS" shall mean and refer to the Connecticut Housing Finance
Authority ("CHFA"), the Connecticut Development Authority ("CDA") and
each future lender who may from time to time extend credit to Landlord
which extensions of credit may be secured in whole or in part by a
mortgage, deed of trust, ground lease or other security interest
affecting the real property of which the First Amendment Space is a
part. Tenant's obligations under this First Amendment are subject to
receipt of non-disturbance agreements: (A) from CDA, simultaneously
with the execution and delivery of this First Amendment, and (B) from
CHFA, both of which shall be substantially similar in form and content
to the form of Non-Disturbance, Subordination and Attornment Agreement
attached as EXHIBIT H and made a part of the Lease. Provided CHFA and
CDA execute and deliver said non-disturbance agreements, the Lease, as
modified by this First Amendment, shall be subject and subordinated to:
(a) all security interests in favor of CHFA and CDA affecting the
Leased Premises, including without limitation the First Amendment
Space, or the property of which the Leased Premises are a part, and (b)
all present and future mortgages, deeds of trust and other security
interests, including leasehold mortgages, granted by Landlord in favor
of CHFA and CDA and affecting the Leased Premises, including without
limitation the First Amendment Space, or the property of which the
Leased Premises are a part. Tenant agrees to execute, at no expense to
Landlord, any
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instrument which may reasonably be deemed necessary or desirable by
Landlord, CHFA or CDA or to further effect the subordination of the
Lease, as modified by this First Amendment, to any such security
interest, provided however, Tenant's non-disturbance rights are not
affected. The Tenant's failure to strictly comply with this section
will constitute an Event of Default under this Lease.
18. NEW CII LOAN A.Tenant has a commitment from CII for a new loan in the
amount of $2,720,000 to finance construction of the Tenant's Work in
both the First Amendment Space and other space in Building 5 South.
Section 15.1B of the Lease is hereby modified to permit Tenant to
assign its right, title and interest in and to the First Amendment
without Landlord's consent to CII as collateral security for the New
CII Loan, or to any Tenant's Lender as collateral security for a
similar loan to Tenant. Tenant's Lender, including, without limitation,
CII shall be entitled to assign its rights under the First Amendment or
to sublet the First Amendment Space to any entity, subject to the
provisions set forth in subsections 15.1B(a)-(d) of the Original Lease.
B. Upon at least five (5) business days notice, Landlord, at its
expense, hereby agrees to enter into a new Consent and Intercreditor
Agreement substantially similar in form and substance to the
Intercreditor Agreement (as defined in Section 15.5(d) of the Original
Lease) but relating to the New CII Loan and the First Amendment.
C. Upon the closing of the New CII Loan, Landlord agrees to execute and
deliver an affidavit (a) verifying the nonexistence of any tenants'
rights in the First Amendment Space, (b) verifying the nonexistence of
any security interests in personal property and fixtures that form a
part of the First Amendment Space, other than the rights therein, if
any, of CDA and CHFA as the current Landlord's Lenders, and United
States Department of Commerce, Economic Development Administration and
(c) that Landlord has no notice of any facts or circumstances not of
record which could give rise to the claim of any third party to rights
of adverse possession or use over the First Amendment Space or any part
thereof in derogation of Landlord's title. Upon the execution of this
First Amendment, Landlord further agrees to obtain and deliver a
subordination of mechanic's liens, subordinated as to the lien in favor
of CII, executed by any contractor(s) who have furnished any labor,
services or materials in connection with construction or repair work to
the Building on behalf of Landlord and would have a right to file a
mechanic's lien that would have priority over the mortgage filed in
connection with the New CII Loan.
19. SIGNS. Article 28 of the Original Lease is hereby amended by
designating same as subsection "A" and adding the following as a new
second paragraph:
B. Notwithstanding anything to the contrary contained herein,
Tenant shall have the exclusive right to install a sign with
its name and logo on the outside of the Building that is
clearly visible from the streets bounding the Building.
Landlord shall have the right to approve such sign, and such
approval shall not be unreasonably
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withheld. Tenant, at its sole cost and expense, shall be
responsible for obtaining any approvals required by applicable
law in connection with having any such sign, and shall remove
such signage at the expiration of the Term, as same may be
extended. Tenant, at its expense, shall use reasonable
diligence to restore the facade of the Building to the
condition it was in at the time Tenant installed the sign,
reasonable wear and tear and loss by fire or other casualty
excepted.
20. AMENDED NOTICE OF LEASE. Article 30 of the Lease is hereby amended to
provide that at the request of either party, the notice of lease
relating to the Lease shall be amended to reflect the addition of the
First Amendment Space.
21. HVAC SERVICE. The text of Article 36 of the Lease is hereby deleted and
substituted therefor is the following:
"A. Landlord, at its sole cost, shall operate the Building's boilers
and chillers to supply hot and chilled water sufficient to operate
Tenant's air-conditioning, heating and ventilating systems ("TENANT'S
HVAC SYSTEM") and Landlord's heating, ventilating and cooling systems
serving the common areas of the Building Monday through Friday from
8:00 a.m. to 6:00 p.m. ("BUSINESS HOURS"). Landlord, at its expense,
may install submeters or energy measuring devices (on the two chillers,
the boilers, and on the hot and chilled water supply lines that serve
Tenant's HVAC System) to measure the energy supplied to the Tenant's
HVAC System. Landlord, at its expense, shall also operate the boilers
and chillers to supply hot and chilled water to Tenant's HVAC System
and other systems serving the said common areas outside Business Hours.
Landlord's responsibility as to costs of operating the boilers and
chillers outside of Business Hours shall be without regard to the
requirement to supply Tenant's after-hours HVAC requirements and only
to the extent required to maintain temperatures within the Building at
off-hours setback points normal for an office building.
B. If required for Tenant's laboratory requirements, Landlord shall
operate the boilers and chillers 24 hours a day, 365 days a year to
provide heated and chilled water to Tenant's HVAC System. Tenant shall
reimburse Landlord as Additional Rent due hereunder for its share of
the costs of energy to supply chilled or hot water outside of Business
Hours over and above the costs for which Landlord is responsible absent
a laboratory requirement pursuant to the last sentence of Section 36A
hereof. Tenant's share of the costs of such after-Business Hours
operation of the boilers and chillers shall be apportioned daily among
those tenants using such services for HVAC outside of Business Hours on
the basis of the floor areas of such tenants, after accounting for the
basic off-hours needs of the Building to be attributed to the Landlord
as set forth in the last sentence of Section 36A hereof. Alternatively,
if Landlord installs an energy measuring system to track directly the
energy supplied by the chillers and boilers to each of the tenants in
the Building requiring hot and cold water outside of Business Hours,
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over and above the after-hours costs for which Landlord is responsible
pursuant to Section 36A hereof, the cost of the energy used shall be
computed and billed as Additional Rent based on actual utilization.
C. Landlord's share of the cost of operation of the boilers and
chillers outside of Business Hours shall be determined as promptly as
possible after the date hereof by an impartial professional engineer
selected by mutual agreement of Landlord and Tenant. Said engineer, at
Landlord's expense, shall compute the share of energy costs for the
Landlord to maintain the Building outside of Business Hours at normal
office building temperatures absent laboratory use and under various
weather and temperature conditions over a one-year period. The balance
of the costs of such operation outside of Business Hours shall be
apportioned proportionately among the Tenants requiring such services
on the basis of the tenant's rentable square footage. If a direct
energy measurement system is installed to track the after-Business
Hours energy requirements of tenants in the Building, the engineer
shall establish proper procedures for the utilization of said system so
that Landlord and all tenants pay for their proper share of after-hours
energy utilization. Landlord shall provide Tenant with a copy of the
engineer's report as well as an opportunity to discuss details of the
analysis and of the energy management system.
D. Landlord shall bill Tenant monthly for its share of after-Business
Hours operation of the boilers and chillers, commencing on the Rent
Commencement Date with respect to the Original Leased Premises, and on
the First Amendment Space Rent Commencement Date with respect to the
First Amendment Space, throughout the Term as long as Tenant maintains
a requirement for hot and chilled water outside of Business Hours. All
such billings shall be accompanied by Landlord's calculation of
Tenant's share of such cost for each month as well as the appropriate
reports from metering and reporting devices.
22. OPERATING EXPENSES. The Lease is hereby amended by adding a new Article
37 as follows:
ARTICLE 37. OPERATING EXPENSES
37.1 DEFINITIONS. As used in this Article, the following terms
shall have the following meanings:
(a) "First Amendment Space" shall have the same meaning as set
forth in the First Amendment to Lease.
(b) With respect to the First Amendment Space, "Base Expense
Year" shall mean the twelve month period commencing on the
date Tenant first occupies the First Amendment Space for
purposes of conducting its business therein.
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(c) "Building" shall mean the entirety of Building 5 North and
Building 5 South of Science Park, including any below grade
portions thereof.
(d) "Operating Expense Year" shall mean each calendar year
following the Base Expense Year, all or any portion of which
falls within the Term of this Lease, as extended from time to
time. Notwithstanding the foregoing, the first Operating
Expense Year shall commence on the first day following the
expiration of the Base Expense Year and shall end on the
following December 31, and the last Operating Expense Year
shall end on the last day of the Term. Tenant's obligation
under this Article to pay estimated and actual amounts towards
Operating Expenses for the first and last Operating Expense
Year shall be prorated by multiplying the total estimated or
actual (as the case may be) Operating Expenses paid or
incurred during the first or last (as the case may be)
Operating Expense Year, as well as the total Operating
Expenses paid or incurred during the Base Expense Year, by a
fraction, the numerator of which shall be the number of days
in the first or last (as the case may be) Operating Expense
Year, and the denominator of which shall be 365.
(e) "Operating Expenses" shall mean all reasonable and
customary operating expenses (other than Taxes and Building 5
Improvements) incurred or borne by Landlord in connection with
the operation, maintenance and repair of Building 5 North and
Building 5 South and the Park Expenses (as hereinafter
defined) including:
1. Reasonable wages and salaries of all employees below the
level of manager engaged in the physical operation and/or
maintenance of the Building, including Landlord's portion of
social security taxes and any other taxes which may be levied
against Landlord on such wages and salaries.
2. Property management fees paid or incurred with respect to
the Building.
3. Costs incurred in connection with supply of electricity to
the common areas of the Building
4. Costs incurred in connection with the normal and customary
use by all tenants of the Building of all energy sources,
including gas, water and sewer and hot water charges (but not
including those amounts paid directly by Tenant pursuant to
this lease or by the tenants of the Building pursuant to their
leases).
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5. The cost of janitorial and office supplies and similar
materials used in the operation and/or maintenance of the
Building.
6. The cost of all maintenance and services incurred in the
operation of the Building and all service agreements pursuant
thereto, including, but not limited to, protection and
security service, window cleaning, tenant area and common area
cleaning and janitorial service, plant and landscaping service
(to the extent not included in the Park Expenses) including
maintenance of the grounds, plantings and replantings (after
completion of the Building 5 Work), trash removal and
recycling pick-up.
7. Insurance premiums for liability, fire and loss of rents
insurance for the Building, and insurance premiums for both
Workers Compensation Insurance and Unemployment Compensation
Insurance covering employees below the level of manager to the
extent that their employment related activities are
attributable to operation of the Building.
8. The cost of all required non-structural repairs,
replacements and maintenance in the Building (in each case, to
the extent not covered by insurance, manufacturer's or
installer's warranties or condemnation proceeds), including
but not limited to, window glass, heating and cooling units
and systems, bathroom fixtures and all plumbing facilities,
all common area interior walls, floors and covering, utility
conduits and force mains, signs, elevators, sidewalks and
steps, all building service equipment, lighting units and
fixtures including bulb and tubes, all other building fixtures
and equipment, except to the extent any of the foregoing
repairs, replacements or maintenance is necessitated by the
acts or omissions of one tenant and except to the extent
excluded pursuant to Section 37.1(f) below.
9. Any costs incurred by Landlord for any capital
improvements, repairs or replacements, other modifications or
structural repairs to the Building (not attributable to latent
defects or the Building 5 Improvements), which are required by
a change in the law or a new law applicable to the Property
passed after the First Amendment Space Commencement Date with
respect to the First Amendment Space; the costs for any item
in this clause, (or series of related items, undertaken within
a reasonably short period of time, which, if taken together,
would reasonably constitute a single item) shall be amortized
over the maximum useful life of such item(s), in accordance
with the U.S. Internal Revenue Code and Regulations in effect
from time to time.
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10. Any costs incurred by Landlord in making structural
repairs, capital improvements or other modifications to the
Building (which are not attributable to latent defects or the
Building 5 Improvements), which will reduce Operating
Expenses; the costs for any such item (or series of related
items, undertaken within a reasonably short period of time,
which, if taken together, would reasonably constitute a single
item) shall be amortized, over the maximum useful life of such
item(s), in accordance with the U.S. Internal Revenue Code and
Regulations in effect from time to time; provided however, any
required annual amortization amount will not exceed the
reduction in Operating Expenses realized by Tenant for the
relevant Operating Expense Year and the amortization schedule
will be extended beyond the maximum useful life, if necessary,
to fully amortize same.
(f) Notwithstanding anything to the contrary contained in the
Lease as amended, "Operating Expenses" and "Park Expenses" (as
hereinafter defined) shall not include:
1. Items which are the direct responsibility of any tenant or
are caused by the intentional or negligent act of any tenant,
its agents, licensees or business invitees;
2. Expenses of alterations to any portion of the Building for
the accommodation of a specific tenant or tenants;
3. All third party costs and expenses of leasing space in the
Building, including, without limitation, legal fees and
broker's commissions and advertising, and the salary of any
employee of Landlord dedicated exclusively to leasing space in
Science Park;
4. Costs actually covered by Landlord's insurance or other
manner of reimbursement and for which payment is received by
Landlord;
5. The cost of any capital improvement, repair or replacement
except as specifically provided in Sections 37.1(e) 9 and 10
above;
6. Cost attributable to the Building 5 Improvements;
7. Costs incurred due to Landlord violations of any of the
terms and conditions of any leases in the Building and/or
costs attributable to enforcing leases against tenants in the
Building, such as attorney's fees, court costs, adverse
judgments and similar expenses;
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8. Overhead and profit paid to subsidiaries or affiliates of
the Landlord for management services or materials to the
extent that the costs of those items would not have been paid
had the services and materials been provided by unaffiliated
parties on a competitive basis;
9. Debt service on any mortgages of the Landlord and rental
under any ground or underlying lease and charges and fees
incurred by Landlord in connection with the procurement and
recording of any such mortgage or ground or underlying lease,
and amortization of debt;
10. Repairs and other work occasioned by fire, or other
casualty or condemnation, whether or not the Landlord is
reimbursed by insurance proceeds or condemnation award;
11. Any costs, fines or penalties incurred due to violations
by Landlord of any governmental rule or authority and the
defense of same;
12. All items and services for which Landlord is reimbursed
under other leases for space in the Building, or under other
provisions of this Lease; and/or
13. Notwithstanding anything to the contrary herein set forth,
the cost of any environmental remediation, monitoring,
cleanup, testing, reporting, investigation or study, or any
damages payable by Landlord.
(g) "Controllable Operating Expenses" shall mean all Park
Expenses and all Operating Expenses, except for the cost of
utility charges (electricity, gas, water and sewer) and
insurance included in the definition of Operating Expenses.
(h) "Operating Expense Cap" shall mean that Tenant shall not
be charged for any increase in Controllable Operating Expenses
in excess of five (5%) percent over the Controllable Operating
Expenses for the Base Expense Year, with respect to the first
Operating Expense Year, or in excess of five (5%) percent over
the Controllable Operating Expenses for the immediately
preceding Operating Expense Year, with respect to each
succeeding Operating Expense Year.
(i) "Tenant's OE Share" with respect to the First Amendment
Space shall mean a fraction, the numerator of which shall be
the total number of rentable square feet in the First
Amendment Space and the
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denominator of which shall be the total number of rentable
square feet in the Building, which Landlord represents is
currently 102,938 rentable square feet.
(j) "Park Expenses" shall mean a fraction (equal to the
rentable area of the Building divided by the rentable area of
all buildings then owned by Landlord in Science Park including
Buildings 4, 5 and 25) of the reasonable and customary
overhead, administrative and operating expenses (other than
Operating Expenses that are not Park Expenses, Taxes and
Building 5 Improvements) incurred or borne by Landlord in
connection with the operation and maintenance of the Property
(as defined in Section 1.1 of the Original Lease) and
including, without limitation, employee salaries up to and
including the level of building manager, together with the
reasonable salary of the executive director of the Landlord
(subject to the provisions of Section 37.2 hereof), security
guard services, snow plowing of the driveways and parking
areas and landscaping maintenance. Landlord hereby represents
that currently the said fraction described above is equal to
approximately 30.00%.
37.2 GROSS-UP PROVISION. If the Building is not fully occupied
during all or a portion of the Base Expense Year, Landlord
shall, in accordance with sound accounting and management
practices, determine the amount of Operating Expenses that
would have been included in the Base Expense Year if the
Building had been fully occupied, and the amount so determined
shall be deemed to be the Operating Expenses incurred in the
Base Expense Year. In addition, if the Building is not fully
occupied during all or a portion of any Operating Expense
Year, Landlord may, in accordance with sound accounting and
management practices, determine the amount of Operating
Expenses that would have been paid or incurred had the
Building been fully occupied, and the amount so determined
shall be deemed to have been the amount of Operating Expenses
for such year. Notwithstanding anything to the contrary
contained herein, once the Landlord hires an Executive
Director, the reasonable salary of the Executive Director
shall be added to the Park Expenses included in each Base
Expense Year.
37.3 OPERATING EXPENSE PAYMENTS. In addition to Base Rent and other
Additional Rent due and payable by Tenant pursuant to the
other provisions of this Lease, Tenant shall pay to Landlord ,
as Additional Rent, commencing in the fifth (5th) Operating
Expense Year, an amount equal to Tenant's OE Share of the
amount of Operating Expenses paid or incurred by Landlord
during each Operating Expense Year in excess of the amount of
Operating Expenses paid or
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incurred by Landlord during the Base Expense Year; provided,
however, that for purposes of the calculations made under this
Article: (i) in no event shall Tenant be charged for Operating
Expenses in excess of the Operating Expense Cap; and (ii) in
no event shall Landlord charge Tenant more than Tenant's OE
Share of 100% of the actual cost of Operating Expenses
incurred by Landlord. Operating Expenses for partial Operating
Expense Years shall be divided by the number of months in such
partial year and multiplied by twelve (12) for purposes of
determining whether the Operating Expense Cap has been
exceeded.
37.4 ESTIMATED OE PAYMENTS. Additional Rent due and payable by
Tenant to Landlord pursuant to this Article shall be paid in
the following manner:
(a) Landlord shall reasonably estimate in advance the amounts
Tenant shall owe under this Article for any full or partial
Operating Expense Year. Beginning in the fifth Operating
Expense Year, Tenant shall pay such estimated amounts, on a
monthly basis, on or before the first day of each calendar
month during the fifth and each following Operating Expense
Year. Such estimate may be reasonably adjusted from time to
time by Landlord.
(b) Within 120 days after the end of each Operating Expense
Year, or as soon thereafter as practicable, Landlord shall
provide a statement (the "STATEMENT") to Tenant showing: (i)
the amount of actual Operating Expenses for such Operating
Expense Year, with a listing of amounts for major categories
of Operating Expenses, and such amounts for the Base Expense
Year, (ii) any amount paid by Tenant towards Additional Rent
payable under this Article during such Operating Expense Year
on an estimated basis, (iii) any revised estimate of Tenant's
obligations for Operating Expenses for the current Operating
Expense Year, and (iv) a calculation of whether the Operating
Expense Cap has been exceeded.
(c) If the Statement shows that the estimated payments made by
Tenant during the Operating Expense Year were less than
Tenant's actual obligations for the payment of Additional Rent
under this Article for such Year, Tenant shall pay the
difference. If the Statement shows an increase in Tenant's
estimated payments for the current Operating Expense Year,
Tenant shall pay the difference between the new and former
estimates, for the period from the first day of the
then-current Operating Expense Year through the month in which
the Statement is sent, subject to the Operating Expense Cap.
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Tenant shall make such payments within thirty (30) days after
the Statement is deemed to have been given under the terms of
this Lease.
(d) If the Statement shows that Tenant's estimated payments
exceeded Tenant's actual obligations for the payment of
Operating Expenses under this Article, or if for some reason
Tenant's estimated payments exceeded the Operating Expense
Cap, then Tenant shall receive a credit for the difference
against payments of rent next due. If the Term shall have
expired and no further rent shall be due, Tenant shall receive
a refund of such difference, within sixty (60) days after
Landlord sends the Statement. Notwithstanding anything to the
contrary contained herein, if Tenant's estimated payments
would cause the Operating Expense Cap to be exceeded, Tenant
shall only be obligated to make estimated payments up to the
Operating Expense Cap with respect to each Operating Expense
Year.
(e) No delay by Landlord of nine (9) months or less in
providing the Statement (or separate statements) shall be
deemed a default by Landlord or a waiver of Landlord's right
to require payment of Tenant's obligations under this Article.
After such nine (9) month period, Landlord shall be estopped
from billing for past Operating Expenses. In no event shall a
decrease in Operating Expenses below the Base Expense Year
amount ever decrease the monthly Base Rent, or give rise to a
credit in favor of Tenant.
37.5 BOOKKEEPING AND AUDITING. Landlord shall maintain records
respecting Operating Expenses and determine the same in
accordance with sound accounting and management practices,
consistently applied. Tenant or its representative shall have
the right to examine those books and records of Landlord and
any managing agent reasonably necessary for purposes of
auditing the Statement in question, provided Tenant gives
Landlord reasonable prior notice specifying the particular
respects in which the Statement is claimed to be incorrect.
Such examination shall take place during normal business hours
at the place or places where such records are normally kept
with forty-five (45) days following such notice from Tenant.
Each Statement shall be considered final, except as to matters
to which exception is taken after examination of Landlord's
records in the foregoing manner and within the foregoing
times. If Tenant takes exception to any matter contained in
the Statement as provided herein, Landlord shall refer the
matter to an independent certified public accounting firm
having a national practice, whose certification as to the
proper amount shall be final and conclusive as between
Landlord and Tenant. Tenant shall promptly pay the cost of
such
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certification unless such certification determines that Tenant
was overbilled by more than two (2%) percent. Pending
resolution of any such exceptions in the foregoing manner,
Tenant shall continue paying, without prejudice to Tenant's
position, Tenant's OE Share of the excess of Operating
Expenses paid or incurred during the applicable Operating
Expense Year over the applicable Base Expense Year in the
amounts determined by Landlord, subject to adjustment after
any such exceptions are so resolved, and subject to the
Operating Expense Cap.
37.6 SURVIVAL. The parties obligations set forth in this Article 37
shall survive the expiration or earlier termination of this
Lease for a period of one year, but such survival shall not be
deemed to effect the waiver set forth in Section 37.4(e)
hereof.
23. EFFECT. The Lease, as modified by this First Amendment, remains in full
force and effect.
24. MERGER. All understandings, letters of intent or agreements between
Tenant and Landlord, which predate this First Amendment are merged
herein. No oral statements or representations or prior written
communications by or between the parties dealing with the subject
matter of this First Amendment shall be binding or effective. This
First Amendment and the Lease are the sole and complete expression of
the agreement between Landlord and Tenant as to the subject matter
thereof.
25. SEVERABILITY. If any of the provisions of this First Amendment, or its
application, is held by any court or in arbitration to be invalid or
inapplicable, such decision shall not affect any other term, provision,
covenant or condition of this First Amendment. Notwithstanding the
foregoing, if the invalid provision has the effect of reducing the rent
to be paid by Tenant, Landlord may cancel the Lease.
26. GOVERNING LAW. The laws of the State of Connecticut will govern the
interpretation of this First Amendment.
27. BINDING NATURE. This First Amendment shall be binding upon the parties
hereto and upon their heirs, administrators, executors, successors and
assigns, and shall not be construed against the party that drafted it.
The paragraph headings are for the parties' convenience and shall not
be deemed to effect the meaning of this First Amendment or otherwise.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
SCIENCE PARK DEVELOPMENT CORPORATION
By: /s/ Dennis C. Lyndon
------------------------
Dennis C. Lyndon
Director of Development
Duly Authorized
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ Kevin Rakin
-----------------------
Kevin Rakin
Executive Vice President
Duly Authorized
20
<PAGE>
Pursuant to Section 34.2 of the Lease dated September 15, 1998 by and between
Science Park Development Corporation and Genaissance Pharmaceuticals, Inc., the
undersigned hereby consent to the foregoing First Amendment to Lease.
CONNECTICUT DEVELOPMENT AUTHORITY
By: /s/ Richard R. Barredo Date: 12/14/99
----------------------
Print Name: Richard R. Barredo
Print Title: Senior Vice President
THE CONNECTICUT HOUSING FINANCE AUTHORITY
By: /s/ Gary E. King Date: 12/16/99
----------------------
Print Name: Gary E. King
Print Title: President and
Executive Director
CONNECTICUT INNOVATIONS, INC.
By: /s/ Victor Budnick Date: 12/14/99
-----------------------
Print Name: Victor Budnick
Print Title: President and
Executive Director
21
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EXHIBIT A-1
FLOOR PLAN OF FIRST AMENDMENT SPACE
FIRST FLOOR BUILDING 5 NORTH
22
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EXHIBIT A-2 [CONTINUED]
FLOOR PLAN OF FIRST AMENDMENT SPACE
THIRD FLOOR BUILDING FIVE NORTH
23
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EXHIBIT A-4
LOCATION OF PARKING SPACES
24
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EXHIBIT B-1 [CONTINUED]
LANDLORD'S WORK - BUILDING 5 NORTH
1. Building 5 North's entryway, including its exterior door, will be
renovated to include painting, new carpeting, acoustical ceilings.
2. All non-double pane windows will be replaced to match the new windows
at Building 5 North.
3. The fire alarm system will be updated as required by code
4. The roof will be repaired or replaced as required
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EXHIBIT B-3
INTERIOR WORK - FIRST AMENDMENT SPACE
1. Piping and supply of chilled and hot water sufficient to operate
Tenant's HVAC system will be installed up to the First Amendment Space.
2. Modifications and/or upgrades to fire alarm system and sprinkler system
if required by fire marshal.
3. Installation of hot water supply and return.
4. Installation of baseboard heating system.
5. Window replacement work.
<PAGE>
Exhibit 10.6
SECOND AMENDMENT TO LEASE BETWEEN
SCIENCE PARK DEVELOPMENT CORPORATION
and
GENAISSANCE PHARMACEUTICALS, INC.
Date: December __, 1999
<PAGE>
This Second Amendment to Lease (this "SECOND AMENDMENT") is made and
entered into as of the ____ day of December, 1999 by and between SCIENCE PARK
DEVELOPMENT CORPORATION, a Connecticut corporation having a principal place of
business at 25 Science Park, New Haven, Connecticut 06511 (herein referred to as
"LANDLORD") and GENAISSANCE PHARMACEUTICALS, INC., a Delaware corporation having
a principal place of business at Five Science Park, New Haven, Connecticut 06511
(herein referred to as "TENANT").
WHEREAS, Landlord and Tenant are parties to a certain Lease dated as of
September 15, 1998 (the "ORIGINAL LEASE") as amended by First Amendment to Lease
of even date herewith (the "FIRST AMENDMENT"); collectively the Original Lease
and the First Amendment shall hereinafter be referred to as (the "LEASE");
WHEREAS, pursuant to the Lease, Tenant leases from Landlord certain
space in the building known as Building 5 North in Science Park, New Haven,
Connecticut;
WHEREAS, at the time the Original Lease was executed, it was Landlord's
intention to demolish the building known as Building 5 South, Science Park;
WHEREAS, it is now Landlord's intention to renovate Building 5 South;
WHEREAS, subject only to either party's right to terminate this Second
Amendment for lack of Landlord funding, if certain conditions are satisfied,
which conditions are set forth below, Tenant shall lease from Landlord: (i) the
entire second floor of Building 5 South in Science Park, which floor consists of
approximately 18,859 rentable square feet as shown on the floor plan attached
hereto as EXHIBIT A-1 (herein referred to as the "SECOND FLOOR SPACE"); (ii) the
bridge, if it is built by Tenant, as shown on the floor plan attached hereto as
EXHIBIT A-1 (herein referred to as the "BRIDGE"); and (iii) a certain amount of
space on the third floor of Building 5 South to be determined as specified in
Section 2 hereof (the "THIRD FLOOR SPACE"; collectively, the Second Floor Space,
the Bridge and the Third Floor Space shall herein be referred to as the
"ADDITIONAL SPACE"), upon and subject to the terms, covenants and conditions
contained in the Lease as modified by this Second Amendment; and
WHEREAS, Landlord and Tenant desire to amend the Lease in certain
respects;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged by each of the parties, Landlord and Tenant
hereby agree as follows (capitalized terms used herein which are not otherwise
defined herein shall have the meaning given to such terms in the Lease):
1. RENOVATION OF BUILDING 5 SOUTH. All references in the Lease to the
"demolition of Building 5 South" are hereby deleted and replaced with the phrase
"renovation of Building 5 South", and all references in the Lease to "demolish
Building 5 South" are hereby deleted and replaced with the phrase "renovate
Building 5 South".
<PAGE>
2. THIRD FLOOR SPACE. Prior to the Additional Space Lease Commencement Date (as
defined below), Landlord, at its expense, shall cause Svigals Associates to
establish the rentable area and location of the Third Floor Space on the third
floor of Building 5 South. Landlord and Tenant agree that the Third Floor Space
will include only the space required for Tenant's mechanical equipment and the
rentable area shall be determined by Svigals Associates. Notwithstanding the
foregoing, if the building design requires the Third Floor Space to be shared by
Tenant and any other tenants of Building 5 South, the area of the Third Floor
Space may be increased, but, for purposes of calculating Tenant's rental
obligations with respect thereto, shall be apportioned among the tenants
actually using the space and be deemed to include only the rentable area
required by Tenant for its mechanical equipment, as determined by Svigals
Associates.
3. PREPARATION OF ADDITIONAL SPACE. As soon as Landlord receives funding
sufficient to pay for the work described in this Section (the "PREP WORK"),
Landlord, at its expense, shall (i) obtain required demolition permits and
selectively demolish and remove tenant improvements from the Additional Space,
(ii) cause to be removed from the Additional Space all asbestos, which removal
shall be performed in compliance with all applicable Environmental Laws and
Title 19a ("Public Health and Well-Being") of the Connecticut General Statutes,
including but not limited to Sections 19c-332 through 332e, concerning asbestos,
and any regulations promulgated thereunder, (iii) cause to be removed from the
Additional Space all lead-based paint, which removal shall be performed in
compliance with applicable laws, such that as a result of the removal no
occupants of Building Five South shall be exposed to airborne lead at levels
over the action level, as defined in 29 CFR Section 1910.1025, and (iv)
otherwise prepare the Additional Space for delivery of same to Tenant in a
vacant, broom clean condition, free of all furnishings, equipment, litter and
debris. Landlord agrees to use its best efforts to deliver possession of the
Additional Space to Tenant in the condition specified in the immediately
preceding sentence no later than six (6) weeks following Landlord's receipt of
funding as aforesaid.
4. DEFINITION OF LANDLORD'S WORK. Subject to Landlord's receipt of the funding
for the Prep Work and the Interior Work (as hereinafter defined), and pursuant
to the provisions of Sections 2.4B, 2.4E - H and 2.6 of the Original Lease,
Landlord at its expense shall undertake all of the Work described on EXHIBIT B-1
and EXHIBIT B-2 hereof (collectively, the "LANDLORD'S WORK"). Landlord hereby
agrees to complete the Landlord's Work in a good and workmanlike fashion,
otherwise Tenant relies on no warranties or representations, express or implied,
of Landlord or any agent or other party associated with Landlord as to its
condition or repair, or as to taxes or any other matter relating to the
Additional Space, except as otherwise expressly provided in the Lease, as
modified by this Second Amendment. In addition Landlord's representation
regarding compliance with laws set forth in the second sentence of Section 8.1
of the Original Lease is hereby deemed repeated with regard to the Landlord's
Work, as is the limitation on Tenant's remedy set forth in the balance of said
Section 8.1.
5. INTERIOR WORK AND CONTINGENCY.
A. Subject to the provisions of Section 5E below, Landlord, at
its expense, shall use its best efforts to substantially
complete that portion of the Landlord's Work described on
EXHIBIT B-2 attached hereto (the "INTERIOR WORK") so it does
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<PAGE>
not delay Tenant's completion of the Tenant's Work (as
hereinafter defined), but in any event, no later than five (5)
months following the Additional Space Lease Commencement Date.
In addition, Landlord represents that all electrical,
mechanical, plumbing and other building systems serving the
Additional Space will be in working order on the Additional
Space Rent Commencement Date (as hereinafter defined).
B. Landlord and Tenant shall each use its best efforts to
collectively cause Fusco Corporation and Svigals Associates to
coordinate the Interior Work with the Tenant's Work (as
defined in Article 21 of this Second Amendment) with respect
to the Additional Space in order not to delay completion of
the Tenant's Work with respect to the Additional Space.
C. Landlord shall give Tenant prompt written notice following
Landlord's receipt of funding from CHFA for the Prep Work and
the Interior Work. If at any time after December 31, 1999,
Landlord has not received funding from CHFA for performance of
the Prep Work or the Interior Work, Tenant may elect to
initially fund the cost of the Prep Work and/or the Interior
Work with reimbursement from Landlord as hereinafter provided.
(i) At any time after December 31, 1999 and
prior to Landlord's receipt of funding from
CHFA, Tenant may elect to fund the Prep Work
and Interior Work by giving Landlord written
notice. Within ten (10) business days
following Landlord's receipt of such notice,
Landlord shall release its contractor to
proceed with the Prep Work and Interior
Work, including, without limitation,
obtaining all necessary building permits for
both the Prep Work and the Interior Work.
Landlord shall remain responsible for
completion of the Prep Work and the Interior
Work and shall reimburse Tenant for interest
on all sums advanced by Tenant at seven and
one-half percent (7 1/2%) per annum from the
date of advance until the date of
reimbursement.
(ii) Landlord shall cause Landlord's construction
manager to price the Prep Work and the
Interior Work separately from each other and
from the balance of the Landlord Work, and
to deliver a schedule to Landlord and Tenant
for completion of the Prep Work and the
Interior Work. Landlord shall cause the
parties' architect (Svigals Associates) to
clearly delineate Prep Work, to the extent
required, and all of the Interior Work on
all plans and drawings.
(iii) If Tenant elects to fund the Prep Work and
the Interior Work in accordance with the
provisions of Section 5C(i) above, and if
Landlord receives CHFA funding prior to
Tenant's funding of the Prep Work and the
Interior Work, then Landlord shall use CHFA
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<PAGE>
funds to fund the cost of the Prep Work and
the Interior Work. If CHFA funds the Prep
Work and the Interior Work subsequent to
Tenant's funding same, but before the
Additional Space Rent Commencement Date,
Tenant shall be reimbursed from the first
disbursement of proceeds from CHFA at the
time of such disbursement for the monies
plus interest as aforesaid provided by
Tenant to fund the Prep Work and the
Interior Work. If Landlord receives funding
from CHFA for the Prep Work and/or the
Interior Work after the Rent Commencement
Date, Tenant shall receive a credit against
the Base Rent due hereunder and under the
Lease equal to the funds advanced by Tenant
for completing the Prep Work and the
Interior Work, plus interest as aforesaid
until Landlord receives the CHFA funding and
repays Tenant.
D. Subject to the provisions of subsection 5E below, if
Landlord has not received funding for the Prep Work and the
Interior Work on or before March 31, 2000 (TIME IS OF THE
ESSENCE with respect to said date), either party hereto may
terminate this Second Amendment by giving written notice to
the other no later than 11:59 p.m. on April 15, 2000 (TIME IS
OF THE ESSENCE with respect to such date). Upon delivery of
such notice, in accordance with the provisions of Article 22
of the Lease, this Second Amendment shall be deemed null and
void and of no further force or effect.
E. If Landlord delivers the Landlord's Notice (as hereinafter
defined) to Tenant, the contingency set forth in subsection 5D
above shall be deemed null and void and Landlord shall be
deemed to have received monies sufficient to fund the entire
cost of the Prep Work and the Interior Work.
6. LANDLORD'S NOTICE. Promptly after the conditions of Subsections 3(i) -(iv)
have been satisfied, Landlord will deliver written notice thereof to Tenant
("LANDLORD'S NOTICE").
7. ADDITIONAL SPACE LEASE COMMENCEMENT DATE. Landlord hereby agrees to lease to
Tenant and Tenant hereby agrees to lease from Landlord the Additional Space,
upon and subject to the terms of the Lease, as modified by this Second
Amendment. Landlord shall deliver, and Tenant shall accept, exclusive possession
of the Additional Space on the date Tenant receives Landlord's Notice, which
date shall be deemed to be the Lease Commencement Date with respect to the
Additional Space (the "ADDITIONAL SPACE LEASE COMMENCEMENT DATE"). Landlord's
delivery of exclusive possession shall be subject to entries by the Landlord and
its contractors only as necessary to complete the Landlord's Work prior to the
date Tenant first occupies the Additional Space for its business purposes (the
"OCCUPANCY DATE"). Notwithstanding the foregoing, in accordance with the
provisions of Section 2 hereof, Tenant's use of the Third Floor Space may be in
common with Landlord and other tenants of Building 5 South. Landlord will only
permit the Third Floor Space to be used for mechanical space and not for office
space. Because Tenant will not have exclusive possession of the Additional Space
until the Occupancy Date, the parties
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<PAGE>
hereby agree that the provisions of Sections 5.1, 7.2, 7.4, 7.5, 12.1E and 23.1
of the Original Lease shall not apply to Tenant with regard to the Additional
Space until the Occupancy Date.
8. ADDITIONAL SPACE. Commencing on the Additional Space Lease Commencement Date,
the Leased Premises shall be deemed to include the Additional Space for all
purposes under the Lease, and the terms, covenants and conditions of the Lease,
as modified by this Second Amendment, shall govern the rights, obligations and
liabilities of Landlord and Tenant with respect to the Additional Space. The
Leased Premises, as described in Section 1.1(a) of the Original Lease and as
shown on Exhibits A-1 and A-2 of the Original Lease, are sometimes referred to
in this Second Amendment as the "ORIGINAL LEASED PREMISES".
9. CONFIRMATION OF TERMS. The Expiration Date of the initial 5-year Term of the
Lease, as hereby amended, with respect to the entire Leased Premises, including
without limitation, the Additional Space, is February 28, 2004. The two 5-year
Extension Options granted in Section 2.2 of the Original Lease shall apply to
the entire Leased Premises, including without limitation, the Additional Space.
Tenant may not exercise an Extension Option with respect to less than the entire
Leased Premises.
10. ADDITIONAL SPACE RENT COMMENCEMENT DATE. Subject to extensions pursuant to
Sections 2.3B. and 2.3C. of the Original Lease, the Rent Commencement Date with
respect to the Additional Space (the "ADDITIONAL SPACE RENT COMMENCEMENT DATE")
shall mean the earlier of: (i) the date of the issuance of a temporary or
permanent certificate of occupancy for the entire Additional Space, or (ii) five
(5) months after the date of Tenant's receipt of Landlord's Notice. In
interpreting the provisions of Sections 2.3B and 2.3C of the Lease to this
Second Amendment, the term, "Interior Work" as used therein shall mean,
"Interior Work" as defined herein, and the term, "Rent Commencement Date" as
used therein shall mean, "Additional Space Rent Commencement Date" as defined
herein. At the request of either Landlord or Tenant, Landlord and Tenant shall
execute and deliver to each other a writing confirming the Additional Space
Lease Commencement Date and the Additional Space Rent Commencement Date.
11. RENT.
(a) Because Tenant will bear the cost of building the Bridge
if it is built, Tenant shall pay Additional Rent, but shall
have no obligation to pay Base Rent for the Bridge during the
Term or any Extension Term. In accordance with the provisions
of this Second Amendment, commencing on the Additional Space
Rent Commencement Date and continuing thereafter until the
Expiration Date of the Lease, Tenant shall pay to Landlord
Base Rent for the Additional Space (excluding the rentable
area of the Bridge and including only the rentable area of the
Second Floor Space (18,859 rentable square feet) and the
rentable area of the Third Floor Space (determined in
accordance with the provisions of Section 2 hereof)) at the
same rate per rentable square foot as Tenant is required to
pay from time to time with respect to the Original Leased
Premises, under Section 3.1 of the Original Lease. The parties
hereto hereby stipulate to the aforementioned rentable area of
the Second Floor Space.
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<PAGE>
(b) Notwithstanding anything to the contrary contained herein,
for purposes of calculating each and every instance where
Additional Rent is payable hereunder with regard to the
Additional Space, the Additional Space shall be deemed to
include 100% of the rentable area of the Second Floor Space,
100% of the rentable area of the Bridge if it is built, as
determined in accordance with the provisions of Section 22
hereof, and the rentable area of the Third Floor Space, as
determined in accordance with the provisions of Section 2
hereof. Commencing on the Additional Space Rent Commencement
Date and continuing thereafter until the Expiration Date of
the Lease, Tenant shall: (i) pay for electricity and gas
consumed on the Additional Space in accordance with Section
3.4 of the Original Lease, (ii) pay Additional Rent with
respect to the Additional Space in accordance with Section 3.5
of the Original Lease, and (iii) a portion of the Taxes in
accordance with Article 4 of the Lease, as hereby amended.
(c) In addition, subject to the provisions of Section 7(b)
hereof, Tenant shall pay with respect to the Additional Space
Tenant's OE Share (as hereinafter defined) of increases in
Operating Expenses over the Base Expense Year (as hereinafter
defined) in accordance with the terms of Article 37 of the
Lease, as amended by this Second Amendment.
12. DEFINITIONS. The second sentence of Section 4.1(d) of the Original Lease as
modified by the First Amendment is hereby deleted and substituted therefor is
the following:
"Tenant's Pro-Rata Share" shall mean a fraction, the
numerator of which shall be the total number of
rentable square feet in the Leased Premises (taking
into account that the rentable area of the Additional
Space shall be calculated in accordance with the
provisions of Section 11(b) hereof), as same may
increase or decrease from time to time, and the
denominator of which shall be the total number of
rentable square feet in Building 5 North and Building
5 South combined, as same may increase or decrease
from time to time, plus the rentable area of the
Bridge, if it is built; Landlord represents that as
of the date hereof the combined area of Building 5
North and Building 5 South, excluding the Bridge,
measured in rentable square feet is 102,938 rentable
square feet.
13. TAX PAYMENT; ENTERPRISE ZONE. (a) Commencing on the Additional Space Rent
Commencement Date, subparagraph 9(a)(ii) of the First Amendment (which modifies
Section 4.2 of the Original Lease) is hereby deleted and substituted therefor is
the following:
"Commencing on the Additional Space Rent Commencement Date,
Tenant shall pay to Landlord as Additional Rent due hereunder,
for any Tax Year, any part of which occurs after the
Additional Space Rent
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Commencement Date and during the Term or any Extension Term,
an amount (also the "TAX PAYMENT") equal to: (i) Tenant's
Pro-Rata Share (as defined in the Second Amendment) of the
Taxes attributable to the Base Building, plus (ii) 100% of the
Taxes attributable to all of the Tenant's Work (which for
purposes of the balance of this Article 4, unless specified to
the contrary, shall mean collectively Tenant's Work as defined
under the Original Lease, the First Amendment and the Second
Amendment)."
14. TAX RELIEF. Section 4.4 of the Original Lease as amended by the First
Amendment is hereby deleted and substituted therefor is the following: "Tenant
shall be entitled to Tenant's Pro-Rata Share of any real estate tax relief or
other forms of assistance or relief that may be negotiated by Landlord with the
City of New Haven in connection with the refurbishment of Building 5 North and
Building 5 South and the underlying land that is part of the tax parcel
containing Building 5 North and Building 5 South."
15. PARKING. The rental of the Additional Space will include the use of fifty
(50) parking spaces in addition to the eighty (80) parking spaces provided for
under the Original Lease and the twenty-five (25) parking spaces provided for
under the First Amendment. The term "TENANT'S PARKING SPACES" shall be amended
to include such additional fifty (50) parking spaces, bringing the total of
Tenant's Parking Spaces to one hundred fifty-five (155). One-half of said
additional fifty (50) parking spaces shall be made available to Tenant on the
Occupancy Date and the other half shall be made available to Tenant on the date
that is six (6) months following the Occupancy Date. All of Tenant's Parking
Spaces shall be located within the areas shown on EXHIBIT A-3 attached hereto
and made a part hereof at all times during the Term or any Extension Term.
16. OPTION TO LEASE FURTHER SPACE. Effective as of the Additional Space Lease
Commencement Date, Section 1.3B. of the Original Lease shall be amended so that
as amended it shall read in its entirety as follows:
B. BUILDING 5. Tenant will have the option to lease any available space
in Building 5 North and any available space on the third floor of
Building 5 South, provided that, in either case, such available space
is either 2,000 square feet or larger or contiguous to the Leased
Premises, in either case, as such space becomes available ("AVAILABLE
SPACE") on the same terms and conditions as set forth in the Original
Lease, except for Base Rent, Additional Rent and parking, for the
balance of the Term, or any extension thereof. Base Rent for the
Available Space shall be at fair market value as determined by the
Landlord. Additional Rent in addition to Base Rent, attributable to the
Available Space shall constitute: (i) Tenant's OE Share of increases in
Operating Expenses pursuant to the terms of Article 37 of the Lease as
modified below by this Second Amendment; (ii) the cost of electricity
and gas consumed on the Available Space in the manner set forth in the
Utilities Rider attached to the Original Lease as EXHIBIT C; and (iii)
Tenant's Pro-Rata Share of Taxes and Enterprise Zone benefits shall be
increased to include the rentable area of the Available Space in the
numerator with regard to the Base Building and Tenant shall be
responsible for 100% of the Taxes, and entitled to 100% of the
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Enterprise Zone benefits, attributable to its tenant improvements to
the Available Space. The same amount of parking spaces that Landlord is
offering to another tenant shall be offered to Tenant with the
Available Space. Landlord will notify Tenant in writing of the
availability of each piece of Available Space and the proposed fair
market value rent and number of accompanying parking spaces promptly
after becoming aware that such Available Space will be available for
lease. In order to exercise its option to lease the Available Space,
Tenant must notify Landlord of its acceptance in writing within ten
(10) business days after Tenant's receipt of written notice from
Landlord of the availability thereof. If Tenant fails to exercise its
option within said ten (10) business day period, Landlord shall be free
to lease the Available Space in question for a term or terms and for a
rental or rentals and upon such other terms as Landlord in its sole
discretion determines. Notwithstanding the foregoing, before leasing
the Available Space in question to a third party for a total effective
rent that is eighty-five (85%) percent of, or less than eighty-five
(85%) percent of the total effective rent at which Landlord offered the
space to Tenant, Landlord must re-offer such Available Space to Tenant
by written notice at the same rent (and number of parking spaces) that
Landlord is prepared to accept from a third party. Tenant shall have
five (5) business days from receipt of Landlord's re-offer to accept
the said Available Space at the said effective rent or Landlord shall
be free to lease the said Available Space to a third party. For
purposes of this Section 1.3B, space shall not be deemed "Available
Space" unless the existing tenant for the space has declined to extend
its tenancy.
17. OPERATING EXPENSES. Tenant's obligation to pay Operating Expenses for the
Additional Space and any Available Space shall be governed by the provisions of
Article 37 of the Lease except that:
(a) With respect to the Additional Space, "BASE EXPENSE YEAR" shall
mean the twelve (12) month period commencing on the date Tenant first
occupies the Additional Space for purposes of conducting its business
thereon. With respect to the Available Space, "BASE EXPENSE YEAR" shall
mean the twelve (12) month period commencing on the date Tenant first
occupies the Available Space for purposes of conducting its business
thereon. In any event, if the Building is not fully occupied during all
or a portion of either the Base Expense Year with respect to the
Additional Space or the Base Expense Year with respect to any Available
Space, Landlord shall, in accordance with sound accounting and
management practices, determine the amount of Operating Expenses that
would have been included in such Base Expense Year if the Building had
been fully occupied and the amount so determined shall be deemed to be
the Operating Expenses incurred in the corresponding Base Expense Year.
(b) With respect to the Additional Space, "TENANT'S OE SHARE" shall
mean a fraction, the numerator of which shall be the total of the
rentable area of the Additional Space calculated in accordance with the
provisions of Section 11(b) hereof, and the
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denominator of which shall be the total number of rentable square feet
in the Building 5 North and Building 5 South, plus the rentable area of
the Bridge, if it is built. With respect to the Available Space,
"TENANT'S OE SHARE" shall mean a fraction, the numerator of which shall
be the rentable area of the Available Space, and the denominator of
which shall be the total number of rentable square feet in the Building
5 North and Building 5 South, plus the rentable area of the Bridge, if
it is built.
(c) Tenant's obligation to begin paying Operating Expenses with respect
to the Additional Space shall not commence until the first Operating
Expense Year occurring immediately following the Base Expense Year
attributable to the Additional Space (as defined in this Second
Amendment), and Tenant's obligation to begin paying Operating Expenses
with respect to the Available Space in question shall not commence
until the first Operating Expense Year occurring immediately following
the Base Expense Year attributable to the Available Space.
(d) On or before the first day of each Operating Expense Year following
the Base Expense Year (as defined in this Second Amendment) Landlord
shall give Tenant statements of the estimated amount of increase in
Operating Expenses that Tenant will owe with respect to the Additional
Space (and any Available Space if Tenant exercises its option pursuant
to Section 11 hereof) for the ensuing Operating Expense Year, and
Tenant shall make payments monthly in accordance with such statement.
18. AS-IS CONDITION. Subject to completion of the Landlord's obligations set
forth in this Second Amendment, including without limitation, completion of the
Landlord's Work, Landlord shall tender Tenant possession of the Additional Space
in its then "as is" condition and Tenant agrees to accept possession of the
Additional Space in its then "as is" condition, broom clean.
19. EXTERIOR WORK-BUILDING 5 SOUTH. Landlord hereby agrees to use commercially
reasonable efforts to complete the EXTERIOR WORK (as defined in Section 5 of
EXHIBIT B-1) prior to the Occupancy Date. If Landlord has performed and
completed work to the exterior of Building 5 South, but, in Tenant's opinion,
the exterior of Building 5 South does not have a look comparable in quality to
Building 4 after December 31, 2000, then Tenant shall have the same rights and
remedies as it has under Section 2.4E. and Section 2.4G. of the Original Lease
with respect to work performed to the exterior of Building 5 North. If Landlord
has performed no work to the exterior of Building 5 South by December 31, 2000,
then, notwithstanding anything to the contrary contained in the Second
Amendment, Tenant's sole and exclusive remedy for such breach by Landlord of its
obligation to perform Exterior Work shall be the same as the remedy available to
Tenant under Section 2.4G of the Lease, subject to Section 4.2H, with respect to
a breach by Landlord of its obligation to perform Exterior Work to Building 5
North. In interpreting the provisions of Sections 2.4E., 2.4G. and 2.4H. of the
Original Lease to this Second Amendment: (i) the term "Building Five North"
shall be deemed to mean "Building Five South"; (ii) the term "Exterior Work"
shall be deemed to mean "Exterior Work" as herein defined; (iii) the term
"Completion Date" shall be deemed to mean the December 31, 2000; and
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(iv) the date for "Tenant's Notice" shall be deemed to be thirty (30) days
following December 31, 2000
20. LANDLORD'S WORK.
A. Landlord shall use its best efforts to complete the balance
of Landlord's Work described in EXHIBIT B-1 attached hereto by
December 31, 2000. Notwithstanding anything to the contrary
contained in this Second Amendment, in the event that all of
Landlord's Work described in EXHIBIT B-1 attached hereto
(other than the Exterior Work) is not substantially complete
by December 31, 2000, Tenant shall be entitled, as its sole
and exclusive remedy, to a pro rata reduction in Base Rent
with respect to the Additional Space for any period after
December 31, 2000 that such Landlord's Work (other than the
Exterior Work) is not substantially complete, such rent
reduction to be determined by a mutually-agreed upon
commercial real estate broker with ten (10) years of
experience in New Haven. If such Landlord's Work is
substantially completed after December 31, 2000, Base Rent
with respect to the Additional Space payable hereunder shall
be reinstated to the level set forth in Section 11(a) hereof
effective as of the date of substantial completion of such
Landlord's Work is achieved.
B. Substantial completion of the Landlord's Work shall be
evidenced by issuance of a certificate of occupancy.
21. TENANT'S WORK. Tenant, at Tenant's expense, agrees to make improvements to
the Additional Space pursuant to plans and specifications approved by Landlord.
Such improvements shall be deemed "TENANT'S WORK" and such plans and
specifications shall be deemed "TENANT'S PLANS", and the terms of Section 2.7(a)
of the Original Lease shall govern the approval of same. It is currently
Tenant's intention that the Tenant's Work will include the construction of the
Bridge to connect the second floor of Building 5 North and the second floor of
Building 5 South at the East end of the buildings. Tenant shall not be penalized
in any manner if Tenant does not build the Bridge as part of the Tenant's Work.
Subject to satisfaction of the funding contingency for the Prep Work and the
Interior Work set forth in Section 5 hereof, Tenant shall proceed with
reasonable due diligence to perform Tenant's Work following funding of Tenant's
new loan from Connecticut Innovations, Inc. (the "NEW CII LOAN") and the
issuance of a building permit therefor.
22. THE BRIDGE. If Tenant builds the Bridge, then for all purposes under the
Lease, the Bridge shall be deemed a part of the Leased Premises, except that
Tenant shall not be required to pay Base Rent with respect to the Bridge. The
rentable area of the Bridge shall be remeasured by Svigals Associates at
Tenant's expense promptly after construction and included as part of the Leased
Premises for purposes of calculating Tenant's Pro-Rata Share and for purposes of
calculating Tenant's OE Share (as both terms are defined in this Second
Amendment). The parties agree that the usable area and the rentable area of the
Bridge will be the same. Similarly, if the Bridge is not constructed, the
rentable area of the Leased Premises for purposes of calculating Additional Rent
shall not include the rentable area of the Bridge. Tenant shall have
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no obligation to remove or restore the Bridge upon surrender of the Leased
Premises to Landlord, notwithstanding the provisions of Section 6.2 of the
Original Lease.
23. LOBBY AND BATHROOMS. For all purposes under the Lease, the lobby and
bathrooms between the Original Leased Premises and the Additional Space shall be
deemed a part of the Additional Space and are included in the calculation of
Base Rent Tenant is obligated to pay hereunder. In addition, the rentable square
footage of the said lobby and bathrooms is included in the calculation of
Tenant's Pro-Rata Share of Taxes under Article 4 of the Lease, as amended by
this Second Amendment, and for purposes of calculating Tenant's OE Share as
defined in Section 12 hereof.
24. EXHAUST CHASES-ADDITIONAL SPACE. During preparation of the Tenant's Plans,
Landlord and Tenant shall agree upon the location of four (4) ventilation
exhaust chases, which shall be shown on Tenant's Plans. Landlord reserves the
right, at Landlord's sole expense, to build said ventilation exhaust chases in
the future, and shall undertake such building at a mutually agreeable time.
25. THIRD FLOOR BUILDING 5 SOUTH. In the event Landlord in its sole discretion
elects to construct a third floor in Building 5 South, then in such event
Landlord shall complete the base building construction associated with the
addition of a third floor and any known floor penetrations prior to the
Occupancy Date. Construction of tenant work on the third floor of Building 5
South will be subject to the provisions regarding Landlord's Work set forth in
Section 2.6 of the Original Lease as modified by this Second Amendment. If
during the performance of tenant work on the 3rd floor of Building 5 South,
Tenant is denied reasonable access to its space or Tenant is unable to conduct
it's business in the Additional Space, in either case due to the activities of
Landlord's or another tenant's contractors performing such construction, for a
period of three (3) consecutive business days, then, in such event, Tenant shall
receive, as Tenant's sole remedy, an abatement in Base Rent for the Additional
Space of one day for each day beyond said three (3)-day period that Tenant
continues to be denied reasonable access to its space or is unable to conduct
its business in the Additional Space.
26. SUBORDINATION AND NON-DISTURBANCE. As used herein, the term "LANDLORD'S
LENDER" shall mean and refer to the Connecticut Housing Finance Authority
("CHFA"), the Connecticut Development Authority ("CDA") and each future lender
who may from time to time extend credit to Landlord which extensions of credit
may be secured in whole or in part by a mortgage, deed of trust, ground lease or
other security interest affecting the real property of which the Additional
Space is a part. Tenant's obligations under the First Amendment and under this
Second Amendment are subject to receipt of non-disturbance agreements: (A) from
CDA, simultaneously with the execution and delivery of this Second Amendment,
and (B) from CHFA, both of which shall be substantially similar in form and
content to the form of Non-Disturbance, Subordination and Attornment Agreement
attached as EXHIBIT H and made a part of the Original Lease. Provided CHFA and
CDA execute and deliver said non-disturbance agreements, the Lease, as modified
by this Second Amendment, shall be subject and subordinated to: (a) all security
interests in favor of CHFA and CDA affecting the Leased Premises, including
without limitation the Additional Space, or the property of which the Leased
Premises are a part, and (b)
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all present and future mortgages, deeds of trust and other security interests,
including leasehold mortgages, granted by Landlord in favor of CHFA and CDA and
affecting the Leased Premises, including without limitation the Additional
Space, or the property of which the Leased Premises are a part. Tenant agrees to
execute, at no expense to Landlord, any instrument which may reasonably be
deemed necessary or desirable by Landlord, CHFA or CDA or to further effect the
subordination of the Lease, as modified by this Second Amendment to Lease, to
any such security interest, provided however, Tenant's non-disturbance rights
are not affected. The Tenant's failure to strictly comply with this section will
constitute an Event of Default under this Lease.
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27. NEW CII LOAN
A. Section 15.1B of the Original Lease is hereby modified to
permit Tenant to assign its right, title and interest in and
to this Second Amendment without Landlord's consent to CII as
collateral security for the New CII Loan, or to any Tenant's
Lender as collateral security for a similar loan to Tenant.
Tenant's Lender, including, without limitation, CII shall be
entitled to assign its rights under this Second Amendment or
to sublet the Additional Space to any entity, subject to the
provisions set forth in subsections 15.1B(a)-(d) of the
Original Lease.
B. Upon at least five (5) business days notice, Landlord, at
its expense, hereby agrees to enter into a new Consent and
Intercreditor Agreement substantially similar in form and
substance to the Intercreditor Agreement (as defined in
Section 15.5(d) of the Original Lease) but relating to the New
CII Loan and the First Amendment and this Second Amendment.
C. Upon the closing of the New CII Loan, Landlord agrees to
execute and deliver an affidavit (a) verifying the
nonexistence of any tenants' rights in the Additional Space,
(b) verifying the nonexistence of any security interests in
personal property and fixtures that form a part of the
Additional Space, other than the rights therein, if any, of
the CDA and CHFA as the current Landlord's Lenders, and United
States Department of Commerce, Economic Development
Administration and (c) that Landlord has no notice of any
facts or circumstances not of record which could give rise to
the claim of any third party to rights of adverse possession
or use over the Additional Space or any part thereof in
derogation of Landlord's title. Upon the execution of this
Second Amendment, Landlord further agrees to obtain and
deliver a subordination of mechanic's liens, subordinated as
to the lien in favor of CII, executed by any contractor(s) who
have furnished any labor, services or materials in connection
with construction or repair work to the Building on behalf of
Landlord and would have a right to file a mechanic's lien that
would have priority over the mortgage filed in connection with
the New CII Loan.
28. AMENDED NOTICE OF LEASE. Article 30 of the Original Lease is hereby amended
to provide that at the request of either party, the notice of lease relating to
the Original Lease shall be amended to reflect the addition of the Additional
Space.
29. HVAC SERVICE. The reference to "Building 5 North" in Section 36A of the
Original Lease, as amended by the First Amendment, is hereby deleted and
substituted therefor is a reference to "Building 5 North and Building 5 South".
Landlord hereby acknowledges that the Additional Space will contain some
laboratories and that the requirement set forth in Section 36B of the Lease for
24-hour operation of Tenant's HVAC System 365 days a year applies to said
laboratories as well.
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30. EFFECT. The Lease, as modified by this Second Amendment, remains in full
force and effect.
31. MERGER. All understandings, letters of intent or agreements between Tenant
and Landlord, which predate this Second Amendment are merged herein. No oral
statements or representations or prior written communications by or between the
parties dealing with the subject matter of this Second Amendment shall be
binding or effective. This Second Amendment and the Lease are the sole and
complete expression of the agreement between Landlord and Tenant as to the
subject matter thereof.
32. SEVERABILITY. If any of the provisions of this Second Amendment, or its
application, is held by any court or in arbitration to be invalid or
inapplicable, such decision shall not affect any other term, provision, covenant
or condition of this Second Amendment. Notwithstanding the foregoing, if the
invalid provision has the effect of reducing the rent to be paid by Tenant,
Landlord may cancel the Lease.
33. GOVERNING LAW. The laws of the State of Connecticut will govern the
interpretation of this Second Amendment.
34. BINDING NATURE. This Second Amendment shall be binding upon the parties
hereto and upon their heirs, administrators, executors, successors and assigns,
and shall not be construed against the party that drafted it. The paragraph
headings are for the parties' convenience and shall not be deemed to effect the
meaning of this Second Amendment or otherwise.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
SCIENCE PARK DEVELOPMENT CORPORATION
By: /s/ Dennis C. Lyndon
-----------------------
Dennis C. Lyndon
Director of Development
Duly Authorized
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ Kevin Rakin
--------------------------
Kevin Rakin
Executive Vice President
Duly Authorized
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Pursuant to Section 34.2 of the Lease dated September 15, 1998 by and
between Science Park Development Corporation and Genaissance Pharmaceuticals,
Inc., the undersigned hereby consent to the foregoing First Amendment to Lease.
CONNECTICUT DEVELOPMENT AUTHORITY
By: /s/ Richard R. Barredo Date: 12/14/99
----------------------
Print Name: Richard R. Barredo
Print Title: Senior Vice President
THE CONNECTICUT HOUSING FINANCE AUTHORITY
By: /s/ Gary E. King Date: 12/16/99
----------------------
Print Name: Gary E. King
Print Title: President and
Executive Director
CONNECTICUT INNOVATIONS, INC.
By: /s/ Victor Budnick Date: 12/14/99
-----------------------
Print Name: Victor Budnick
Print Title: President and
Executive Director
15
<PAGE>
EXHIBIT A-1
FLOOR PLAN OF 2ND FLOOR SPACE
BUILDING 5 SOUTH
<PAGE>
EXHIBIT A-2
FLOOR PLAN OF 3RD FLOOR SPACE
BUILDING 5 SOUTH
<PAGE>
EXHIBIT A-3
DESIGNATED PARKING AREAS
<PAGE>
EXHIBIT B-1
LANDLORD'S WORK - BUILDING 5 SOUTH
1. Building 5 South's entryway, including its exterior door, will be
renovated to include painting, new carpeting, acoustical ceilings.
2. All non-double pane windows will be replaced to match the new windows
at Building 5 North.
3. The fire alarm system will be updated as required by code.
4. The roof will be repaired or replaced as required.
5. The exterior of Building 5 South will be cleaned and upgraded with the
intent of achieving a look comparable in quality to Building 4 (that
portion of Landlord's Work described in this subparagraph 5 is referred
to in this Second Amendment as the "EXTERIOR WORK").
<PAGE>
EXHIBIT B-2
INTERIOR WORK - BUILDING 5 SOUTH
1. Piping and supply of chilled and hot water sufficient to operate
Tenant's HVAC System will be installed up to the Additional Space.
2. Modifications and/or upgrades to fire alarm system and sprinkler system
if required by fire marshal.
3. Installation of hot water supply and return.
4. Installation of baseboard heating system.
5. Window replacement work.
<PAGE>
EXHIBIT 10.8
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT (the "Agreement") is made as of February
11, 1998 (the "Effective Date"), by and between TERRAPIN TECHNOLOGIES, INC., a
Delaware corporation with its offices at 750 Gateway Boulevard, South San
Francisco, California 94080 ("Terrapin") and GENAISSANCE PHARMACEUTICALS, INC.,
a Delaware corporation with its offices at Five Science Park, New Haven,
Connecticut 06511 ("Genaissance").
RECITALS
WHEREAS, Terrapin has a proprietary technology known as TRAP-TM- (the
"TRAP-TM- Technology") and other screening and chemistry technologies and
possesses a highly diverse library (the "Terrapin Library") of small molecule
compounds (the "Terrapin Compounds") and is able to screen its library employing
such technologies;
WHEREAS, Genaissance has the capability to harvest estrogen receptor
isogenes (variation, mutation and genome subtypes) (the "Genaissance Targets")
and express these isogenes in assays suitable for screening (the "Genaissance
Assays") against selected compounds provided by Terrapin; and
WHEREAS, Terrapin and Genaissance desire to engage in joint research
and development in the area of selective estrogen receptor modulators (the
"Collaboration") that initially will apply the TRAP-TM- Technology to the
Terrapin Library in order to identify those Terrapin Compounds which are most
likely to show differential pharmacological activity in relation to the
Genaissance Targets and therefore may lead to candidates for pharmaceutical
development.
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants set forth below, the parties hereby agree as follows:
1. GENERAL GENAISSANCE RESPONSIBILITIES.
1.1 GENAISSANCE TEAM. Genaissance will provide a team, initially headed
by Dr. Christopher Hartnett and Dr. Nikolai Zvonok, to the Collaboration.
1.2 SELECTION OF GENAISSANCE TARGETS. Genaissance will harvest a
minimum of six (6) estrogen receptor isogenes (variation, mutation and genome
subtypes) from internal discovery efforts, as well as public domain information,
and express these isogenes in assays suitable for screening. The isogenes will
be deemed to be the "Genaissance Targets" and the assays will be deemed to be
the "Genaissance Assays".
2. GENERAL TERRAPIN RESPONSIBILITIES.
2.1 TERRAPIN TEAM. Terrapin will provide a team, initially headed by
Dr. Reinaldo Gomez and Dr. Hugo Villar, to the Collaboration.
<PAGE>
*CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
3. SCREENING PROGRAM.
3.1 PROVISION OF INITIAL COMPOUNDS. Within thirty (30) days of
notification by Genaissance that it has developed each Genaissance Assay,
Terrapin shall, based upon its knowledge of the Terrapin Library and using the
TRAP-TM- Technology, select and provide Genaissance with an initial set of
approximately ************* compounds (the "Initial Compounds") from the
Terrapin Library that Terrapin believes, in its sole discretion, represent
reasonable chemical compound diversity in the Terrapin Library. The Initial
Compounds shall include *****************************.
3.2 SCREENING OF INITIAL COMPOUNDS. Genaissance shall, within ninety
(90) days of receipt of the Initial Compounds, (i) screen each Initial Compound
for activity with respect to each Genaissance Target in the associated
Genaissance Assay and (ii) provide Terrapin with the Pharmacological Data
resulting therefrom for each of the Initial Compounds with respect to each
Genaissance Target (the "Initial Results"). For purposes of this Agreement,
"Pharmacological Data" shall mean the concentration of each compound that
elicits a **************** response in the applicable assay (the "****").
3.3 PROVISION OF SECOND ROUND COMPOUNDS. Within thirty (30) days of
receipt of the Initial Results for a given Genaissance Target, Terrapin shall,
based upon such Initial Results and using the TRAP-TM- Technology and/or, at
Terrapin's sole discretion, any other search technology available to Terrapin,
select and provide Genaissance with a set of additional compounds (the "Second
Round Compounds") from the Terrapin Library that Terrapin believes, in its sole
discretion, will exhibit the greatest likelihood of activity in relation to such
Genaissance Target.
3.4 SCREENING OF SECOND ROUND COMPOUNDS. Genaissance shall, within
thirty (30) days of receipt of a set of Second Round Compounds for a given
Genaissance Target, (i) screen each Second Round Compound for activity with
respect to such Genaissance Target in the associated Genaissance Assay and (ii)
provide Terrapin with the Pharmacological Data resulting therefrom for each of
the Second Round Compounds (the "Second Round Results").
3.5 PROVISION OF THIRD ROUND COMPOUNDS. Within thirty (30) days of
receipt of the Second Round Results for a given Genaissance Target, Terrapin
shall, based upon the Initial Results and Second Round Results and using the
TRAP-TM- Technology and/or, at Terrapin's sole discretion, any other search
technology available to Terrapin, select and provide Genaissance with a set of
additional compounds (the "Third Round Compounds") from the Terrapin Library
that Terrapin believes, in its sole discretion, will exhibit the greatest
likelihood of activity in relation to such Genaissance Target.
3.6 SCREENING OF THIRD ROUND COMPOUNDS. Genaissance shall, within
thirty (30) days of receipt of a set of Third Round Compounds for a given
Genaissance Target, (i) screen each Third Round Compound for activity with
respect to such Genaissance Target in the associated Genaissance Assay and (ii)
provide Terrapin with the Pharmacological Data resulting therefrom for each of
the Third Round Compounds.
2
<PAGE>
*CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
3.7 TOTAL COMPOUNDS; CODED FORM. A total of up to *********************
Terrapin Compounds will be provided per Genaissance Assay. All compounds
provided by Terrapin under this Article 3 shall be deemed to be Terrapin
Compounds and shall be provided in coded form. All information provided by
Genaissance to Terrapin under this Article 3 relating to the identity of the
Genaissance Targets and the Genaissance Assays shall be provided in coded form.
3.8 TERM OF SCREENING PROGRAM. The screening program described in this
Article 3 (the "Screening Program") shall be completed during the Screening
Period. From time to time and upon completion of the Screening Program, the
parties will meet to assess the results of the Screening Program. For purposes
of this Agreement, the "Screening Period" shall mean the period commencing on
the Effective Date and terminating on the twelve (12) month anniversary of the
Effective Date, unless extended by mutual agreement of the parties.
4. SHIPMENT OF COMPOUNDS; NO REVERSE ENGINEERING.
4.1 DELIVERIES. All deliveries pursuant to this Agreement shall be
shipped to the address and addressee specified by the receiving party and shall
be prepaid by the shipper.
4.2 COVENANT NOT TO REVERSE ENGINEER. Genaissance shall not attempt to
ascertain, by any means, the chemical structure or any other information
concerning any compound supplied by Terrapin hereunder unless and until Terrapin
has provided the chemical structure to Genaissance. Such covenant shall survive
during the term of this Agreement and for a period of five (5) years following
the expiration or earlier termination of this Agreement.
5. EXPLOITATION OF DEVELOPMENTS.
5.1 DURING COLLABORATION PERIOD.
5.1.1 During the Collaboration Period (as defined below), the
parties initially will work on a non-exclusive basis with one another with
respect to the Genaissance Assays and Genaissance Targets. It is presently
contemplated that such work may be converted to an exclusive basis if and when
mutually agreed to by the parties. At such time as the parties may discuss an
exclusive relationship, they will also discuss expanding the research roles of
the parties under the Collaboration.
5.1.2 During the Collaboration Period, the parties agree to
work together to identify one or more corporate partner(s), and will use good
faith efforts to enter into agreements with such identified corporate
partner(s), for the development and commercialization of Screening Program
Intellectual Property (as defined in Section 6.1 below), including any compounds
identified, either directly or indirectly, as a result of the Screening Program.
5.1.3 In the event Genaissance and Terrapin enter into
agreement with corporate partner(s) under Section 5.1.2, the parties agree to
divide all amounts received from such corporate partner(s), including, without
limitation, royalties, license fees, milestones, and equity, with each of
Genaissance and Terrapin receiving fifty percent (50%) of such amounts;
PROVIDED, HOWEVER, research revenues under any agreement with a corporate
partner will be divided on the
3
<PAGE>
*CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
basis of the financial commitments for research of each party hereto under the
development program(s) with such corporate partner(s).
5.1.4 The "Collaboration Period" shall mean (i) the Screening
Period and (ii) if the Success Criteria (as defined below) are met by the end of
the Screening Period, the one (1) year period beginning on the last day of the
Screening Period. In the event the parties identify one or more promising
Terrapin Compounds which do not meet the Success Criteria, the parties will meet
to discuss, in good faith, extending the Collaboration Period beyond the
Screening Period.
5.1.5 The "Success Criteria" shall be deemed to have been met
if, after the three rounds of screening described in Article 3, (i) one or more
Terrapin Compounds provided hereunder has an ***** in a Genaissance Assay of
less than or equal to ********************* and (ii) at least one of such
Terrapin Compounds is amenable and appropriate for further chemical
optimization, based upon mutual consultation between Terrapin and Genaissance.
5.1.6 Within fifteen (15) days following the three rounds of
screening described in Article 3, (i) Terrapin will notify Genaissance of the
identity of the Terrapin Compounds which had an **** in a Genaissance Assay of
less than or equal to ************************ and (ii) Genaissance will notify
Terrapin of the identity of the Genaissance Assays, and related Genaissance
Targets, in which each such Terrapin Compound exhibited such activity.
5.1.7 As part of the collaboration, it is understood and
agreed that, during the Collaboration Period, Terrapin may, at its option and
upon consultation with Genaissance, utilize its technologies and resources,
including its employees and Scientific Advisory Board, to do further work on
promising compounds identified under the Collaboration and to report the results
of such undertaking to Genaissance. In addition, as part of the collaboration,
it is understood and agreed that, during the Collaboration Period, Genaissance
may, at its option and upon consultation with Terrapin, utilize its technologies
and resources, including its employees and Scientific Advisory Board, to do
further work on promising isogene targets and assays identified under the
Collaboration and to report the results of such undertaking to Terrapin.
5.2 FOLLOWING COLLABORATION PERIOD. Following the Collaboration Period,
in the event the parties have not entered into an agreement with a corporate
partner under Section 5.1.2, then, subject to Article 6, the parties will be
under no obligation to collaborate further with respect to the Genaissance
Assays, the Genaissance Targets, the Terrapin Library, the Terrapin Compounds or
the TRAP-TM- Technology.
6. OWNERSHIP OF INTELLECTUAL PROPERTY.
6.1 DISCLOSURE OF INVENTIONS. If any employee of a party, either alone
or jointly with the other party, makes any invention or discovery (whether
patentable or not) or creates, conceives or reduces to practice any other
intellectual property (including, without limitation, any method, process, data,
information or know-how) arising as a direct result of the Screening Program
("Screening Program Intellectual Property"), such party shall promptly inform
the other party of it in writing.
4
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6.2 OWNERSHIP AND EXPLOITATION OF INVENTIONS. The parties will be joint
owners of any Screening Program Intellectual Property. In the event that the
parties do not enter into a broader collaboration with respect to such Screening
Program Intellectual Property, either between the two parties or with third
party corporate partner(s) under Section 5.1.2, then the parties shall consult
concerning the licensing and/or commercial exploitation of any Screening Program
Intellectual Property and neither party shall take any action or enter into any
agreements with respect thereto except pursuant to a subsequent agreement
between the parties.
6.3 PROSECUTION OF PATENTS.
6.3.1 The parties shall consult in advance with respect to the
filing, prosecution and maintenance of patent applications for any Screening
Program Intellectual Property.
6.3.2 Unless the parties otherwise agree, Terrapin shall in
the names of Genaissance and Terrapin file, prosecute and maintain patent
applications and patents on the Screening Program Intellectual Property relating
to the use or composition of compounds throughout the world and shall pay all
costs incurred with relation to the filing, prosecution and maintenance of such
applications and patents and Genaissance will reimburse to Terrapin one half
(1/2) of such costs upon receipt of invoices therefor together with the relevant
documents which verify such invoices.
6.3.3 Unless the parties otherwise agree, Genaissance shall in
the names of Genaissance and Terrapin file, prosecute and maintain patent
applications and patents on the Screening Program Intellectual Property relating
to targets or assays throughout the world and shall pay all costs incurred with
relation to the filing, prosecution and maintenance of such applications and
patents and Terrapin will reimburse to Genaissance one half (1/2) of such costs
upon receipt of invoices therefor together with the relevant documents which
verify such invoices.
7. CONFIDENTIAL INFORMATION.
7.1 NONDISCLOSURE OBLIGATIONS. Subject to the provisions of Section 7.2
below, during the term of this Agreement and for five (5) years following its
expiration or termination, any and all knowledge, know-how, screening results,
assay information, compound structures, practices, processes or other
information received by one party to this Agreement (the "Receiving Party") from
the other party to this Agreement (the "Disclosing Party") pursuant to this
Agreement (hereinafter referred to as "Confidential Information") shall be
received and maintained by the Receiving Party in strict confidence, shall not
be disclosed to any third party except as provided in this Agreement, and shall
not be used by the Receiving Party for any purpose other than those purposes
specified in this Agreement, unless the Receiving Party can demonstrate by
competent written proof that such Confidential Information:
(a) was already known to the Receiving Party, other
than under an obligation of confidentiality, at the time of disclosure by the
Disclosing Party;
(b) was generally available to the public or
otherwise part of the public domain at the time of its disclosure to the
Receiving Party;
5
<PAGE>
(c) became generally available to the public or
otherwise part of the public domain after its disclosure and other than through
any act of omission of the Receiving Party in breach of this Agreement;
(d) was disclosed to the Receiving Party, other than
under an obligation of confidentiality to a third party, by a third party who
had no obligation to the Disclosing Party not to disclose such information to
others; or
(e) was independently discovered or developed by the
Receiving Party without the use of Confidential Information belonging to the
Disclosing Party.
7.2 AUTHORIZED DISCLOSURE. Each party may disclose Confidential
Information belonging to the other party to the extent such disclosure is
reasonably necessary in the following instances:
(a) filing or prosecuting patents relating to
Screening Program Intellectual Property;
(b) prosecuting or defending litigation;
(c) complying with applicable governmental
regulations;
(d) disclosure to affiliates, sublicensees,
employees, consultants, or agents each of whom is bound by similar terms of
confidentiality and non-use at least equivalent in scope to those set forth in
this Article 7; and,
(e) disclosure to investment bankers.
Notwithstanding the foregoing, in the event a party is required to make a
disclosure of the other party's Confidential Information pursuant to this
Section 7.2 it will, except where impracticable, give reasonable advance notice
to the other party of such disclosure and use best efforts to take all
reasonable action to avoid disclosure of Confidential Information hereunder.
Notwithstanding anything in this Agreement, in no event will Genaissance
disclose the compound structure information disclosed by Terrapin for the
Terrapin Compounds to any third party.
8. REPRESENTATIONS; WARRANTIES; USE OF TERRAPIN COMPOUNDS.
8.1 BY GENAISSANCE. Genaissance represents and warrants to Terrapin
that it has the right to carry out the activities set forth in this Agreement
and that it has not previously entered and will not enter during the term of
this Agreement into any agreement with a third party in conflict with this
Agreement.
8.2 BY TERRAPIN. Terrapin represents and warrants to Genaissance that
it has the right to carry out the activities set forth in this Agreement and
that it has not previously entered and will not enter during the term of this
Agreement into any agreement with a third party in conflict with this Agreement.
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8.3 DISCLAIMER CONCERNING COMPOUNDS. THE COMPOUNDS SUPPLIED HEREUNDER
AND ANY CHEMICAL STRUCTURES DISCLOSED HEREUNDER ARE BEING SUPPLIED TO
GENAISSANCE WITH NO WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT THEY ARE
FREE FROM THE RIGHTFUL CLAIM OF ANY THIRD PARTY, BY WAY OF INFRINGEMENT OR THE
LIKE.
8.4 USE OF TERRAPIN COMPOUNDS. Genaissance shall use the Terrapin
Compounds solely for the purposes specified in this Agreement and in compliance
with all applicable laws and regulations. Genaissance shall not sell, transfer,
disclose or otherwise provide access to the Terrapin Compounds, any method or
process relating thereto or any material that could not have been made but for
the foregoing to any person or entity without the prior express written consent
of Terrapin, except that Genaissance may allow access to the Terrapin Compounds
to employees or agents for purposes consistent with this Agreement. Genaissance
will take reasonable steps to ensure that such employees and agents will use the
Terrapin Compounds in a manner that is consistent with the terms of this
Agreement. Genaissance acknowledges and agrees that the Terrapin Compounds may
have biological and/or chemical properties that are unpredictable and unknown at
the time of transfer, that they are to be used with caution and prudence, and
are not to be used for testing in or treatment of humans or other animals.
9. TERM; TERMINATION.
9.1 TERM. This Agreement shall become effective as of the Effective
Date and unless earlier terminated as hereinafter provided, shall continue in
force until the end of the Collaboration Period. The term of this Agreement may
be extended for additional periods from time to time upon mutual agreement of
the Parties hereto.
9.2 TERMINATION FOR DEFAULT. In the event that either party to this
Agreement shall be in default of any of its material obligations hereunder and
shall fail to remedy such default within thirty (30) days after receipt of
written notice thereof, the party not in default shall have the option of
terminating this Agreement by giving written notice thereof, notwithstanding
anything to the contrary contained in this Agreement.
10. ACCRUED RIGHTS; SURVIVING OBLIGATIONS.
10.1 Termination of this Agreement shall not affect any accrued rights
of either party. The terms of Sections 4.2, 8.3 and 8.4 and Articles 6 and 7 of
this Agreement shall survive termination of this Agreement. Promptly after
termination of this Agreement each party shall return or dispose of any
materials and information of the other in accordance with the instructions of
the other, including without limitation any compounds provided by Terrapin
hereunder and written materials disclosed hereunder.
11. GOVERNING LAW; DISPUTE RESOLUTION.
11.1 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without giving effect to
any choice or conflict
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of law provision or rule that would cause the application of the laws of any
jurisdiction other than the State of California.
11.2 DISPUTE RESOLUTION. In the event of any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement, the parties shall try to settle their differences amicably and in
good faith between themselves first, by referring the disputed matter to the
respective heads of research of each party and, if not resolved by the research
heads, by referring the disputed matter to the respective Chief Executive
Officers of each party.
12. MISCELLANEOUS.
12.1 NOTICES. All notices required or permitted to be given under this
Agreement shall be in writing and shall be mailed by registered or certified
airmail, postage prepaid, addressed to the signatory to whom such notice is
required or permitted to be given or transmitted by facsimile to the number
indicated below. All notices shall be deemed to have been given when mailed, as
evidenced by the postmark at the point of mailing, or transmitted by facsimile.
All notices to Genaissance shall be addressed as follows:
Genaissance Pharmaceuticals, Inc.
Five Science Park
New Haven, CT 06511
Fax: (203) 562-9377
with a copy to:
Michael Lytton
Palmer & Dodge
One Beacon Street
Boston, MA 02108-3190
Fax: (617) 227-4420
All notices to Terrapin shall be addressed as follows:
Terrapin Technologies, Inc.
750 Gateway Boulevard
South San Francisco, California 94080
Attention: President
Fax: (650) 244-9240
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Brian C. Cunningham, Esq.
Fax: (650) 857-0663
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Any party may, by written notice to the other, designate a new addressee,
address or facsimile number to which notices to the party giving the notice
shall thereafter be mailed or faxed.
12.2 INDEPENDENT CONTRACTORS. The parties shall perform their
obligations under this Agreement as independent contractors and nothing
contained in this Agreement shall be construed to be inconsistent with such
relationship status. This Agreement shall not constitute, create or in any way
be interpreted as a joint venture or partnership of any kind.
12.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement sets forth all the
covenants, promises, agreements, warranties, representations, conditions and
understandings between the parties hereto and supersedes and terminates all
prior agreements and understandings between the parties hereto with regard to
the subject matter hereof, and there are no covenants, promises, agreements,
warranties, representations, conditions or understandings, either oral or
written, between the parties hereto other than as set forth herein. No
subsequent alteration, amendment, change or addition to this Agreement shall be
binding upon the parties hereto unless reduced to writing and signed by the
respective authorized officers of the parties hereto.
12.4 AFFILIATES; ASSIGNMENT. Except as otherwise provided in this
Section 12.4, neither party may assign its rights or obligations under this
Agreement without the prior written consent of the other party, such consent not
to be unreasonably withheld, except that a party may assign its rights or
obligations to a third party in connection with the merger, consolidation,
reorganization or acquisition of stock or assets affecting substantially all of
the assets or actual voting control of the assigning party. This Agreement shall
be binding upon the successors and permitted assigns of the parties. Any
attempted delegation or assignment not in accordance with this Section 12.4
shall be of no force or effect.
12.5 HEADINGS. The headings used in this Agreement are for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
12.6 FORCE MAJEURE. Any delays in performance by any party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to, acts of God, embargoes, governmental
restrictions, strikes or other concerted acts of workers, fire, flood,
explosion, riots, wars, civil disorder, rebellion or sabotage. The party
suffering such occurrence shall immediately notify the other party and any time
for performance hereunder shall be extended by the actual time of delay caused
by the occurrence.
12.7 SEVERABILITY. If any term, condition or provision of this
Agreement is held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties to
this Agreement to the extent possible. In any event, all other terms, conditions
and provisions of this agreement shall be deemed valid and enforceable to the
full extent.
12.8 WAIVER. None of the terms, covenants, and conditions of this
Agreement can be waived except by the written consent of the party waiving
compliance.
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12.9 ENGLISH LANGUAGE. This Agreement has been prepared in the English
language and shall be construed in the English language.
IN WITNESS WHEREOF, the parties have by duly authorized persons,
executed this Agreement, as of the date first above written.
GENAISSANCE PHARMACEUTICALS, INC. TERRAPIN TECHNOLOGIES, INC.
By: /s/ GUALBERTO RUANO By: /s/ CLIFFORD ORENT
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Printed Name: GUALBERTO RUANO Printed Name: CLIFFORD ORENT
-------------------- -----------------
Title: CHIEF EXECUTIVE OFFICER Title: CHAIRMAN & CEO
--------------------------- ------------------------
Date: 11 FEBRUARY 1998 Date: FEBRUARY 11, 1998
--------------------------- ------------------------
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EXHIBIT 10.9
FIRST AMENDMENT TO THE
COLLABORATION AGREEMENT
This first Amendment to the Collaboration Agreement (this "First Amendment") is
made and dated February 11, 1999 (the "First Amendment Effective Date") by and
between Telik, Inc. of 750 Gateway Boulevard, South San Francisco, CA 94080, a
Delaware corporation formerly known as Terrapin Technologies, Inc. ("Telik") and
Genaissance Pharmaceuticals, Inc., a Delaware corporation with its offices at
Five Science Park, New Haven, CT 06511 ("Genaissance"). Genaissance and Telik
are sometimes referred to herein individually as a "Party" and collectively as
the "Parties."
RECITALS
A. The Parties are signatories to that Collaboration Agreement dated as
of February 11, 1998 (the "Agreement").
B. The Parties wish to make certain changes to the Agreement.
NOW, THEREFORE, in consideration of the above recitals the
Parties agree to amend the Agreement as follows:
1. Each reference in the Agreement to "Terrapin Technologies, Inc." is amended
and replaced by "Telik, Inc." and each reference in the Agreement to "Terrapin"
is amended and replaced by "Telik".
2. Amend Section 3.8 by deleting "twelve (12) month" and inserting in its place
"eighteen (18) month".
3. Unless otherwise expressly provided herein, defined terms used in this First
Amendment shall have the same meaning as set forth in the Agreement, and all
terms herein shall be incorporated into the Agreement. From and after the First
Amendment Effective Date, all references to the "Agreement" in all other
documents delivered in connection with the Agreement shall refer to the
Agreement, as amended hereby.
4. This First Amendment may be executed in counterparts and by facsimile.
IN WITNESS WHEREOF, the parties have executed this First Amendment and
Extension effective as of the date set forth above.
GENAISSANCE PHARMACEUTICALS, INC. TELIK, INC.
By: /s/ GUALBERTO RUANO By: /s/ REINALDO F. GOMEZ
----------------------------- -----------------------------
Printed Name: GUALBERTO RUANO Printed Name: REINALDO F. GOMEZ
------------------- -------------------
Title: CHIEF EXECUTIVE OFFICER Title: VP CORPORATE ALLIANCES
-------------------------- --------------------------
Date: 2/19/99 Date: 2/19/99
-------------------------- --------------------------
<PAGE>
Exhibit 10.10
LICENSE AGREEMENT
BETWEEN
VISIBLE GENETICS, INC.("VGI")
AND BIOS LABORATORIES, INC. ("BIOS")
Agreement made and entered into this 21st day of November, 1996,
(hereinafter referred to as the "Effective Date") by and between BIOS
LABORATORIES, INC., a corporation duly organized and existing under the laws of
the State of Delaware and having its principal office at Five Science Park, New
Haven, State of Connecticut, U.S.A. (hereinafter referred to as "BIOS"), and
VISIBLE GENETICS, INC., a corporation duly organized and existing under the laws
of the Province of Ontario having its principal office at 700 Bay Street,
Toronto, Ontario, Canada M5G 1Z6 (hereinafter referred to as "VGI").
WITNESSETH
WHEREAS, BIOS, among other things, has heretofore been in the
business of designing, developing, using, selling and licensing others to use
and sell, technology relating to "Coupled Amplification and Sequencing of DNA"
disclosed in U.S. Patent No. 5,427,911(hereinafter "CAS Technology"), and
continues to make improvements therein, has acquired substantial know-how,
substantial goodwill and substantial reputation in the area of CAS Technology,
and has acquired certain rights thereto;
WHEREAS, BIOS is an exclusive licensee to make, have made, use, sell
and
<PAGE>
practice the invention covered by U.S. Patent No. 5,427,911 by virtue of an
Agreement with Yale University and has the right to sublicense the rights
granted thereunder to third parties subject to rights heretofore granted to the
United States government, Yale University and Amersham Life Science, Inc.
(hereinafter referred to as "Amersham");
WHEREAS, VGI desires to obtain a FIELD OF USE license under BIOS'
PATENT RIGHTS (as later defined herein) to commercialize CAS Technology in
conjunction with VGI's chemistry kit currently known as "CLIP" and any other
chemistry systems that make use of the CAS Technology upon the terms and
conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual undertakings and
covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the following words and phrases
shall have the following meanings:
1.1 PATENT RIGHTS shall include all rights exclusively licensed to
BIOS under U.S. Patent No. 5,427,911 (hereinafter the "'911 patent"), together
with any reissue or reexamination of such patent, and any extensions of such
patent, subject to a royalty-free, non-exclusive license heretofore granted to
the United States government; the rights retained by Yale University in
accordance with the June 9, 1994 license agreement between Yale and BIOS to
make, use and practice the inventions for Yale's own non-commercial purposes;
and the exclusive license granted to Amersham for non-diagnostic research
applications only, including preclinical,
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non-patient-charged research but excluding all patient-charged diagnostic
applications whether or not FDA approval is required; and shall include any and
all rights under the IMPROVEMENTS on the '911 patent.
1.2 "LICENSED PRODUCT" shall mean VGI's chemistry kits that make use
of the CAS Technology and any chemistry system that makes use of the CAS
Technology. For greater clarity, "LICENSED PRODUCT" shall not include hardware,
software, or non-chemistry components.
1.3 "NET SALES" shall mean the gross invoice price billed by VGI,
its distributors, agents or sublicensees to END USERS of LICENSED PRODUCTS less
credits or allowances on account of any rejection or returns of LICENSED
PRODUCTS previously billed, and less any import duties, taxes or use taxes which
are included in the gross invoice price, and less any accounts past due over 180
days, except that the amount of any such accounts that are subsequently
collected shall be restored to NET SALES. No deductions shall be made for any
amounts including commissions paid to individuals whether they be with
independent sales agencies or regularly employed by VGI and on its payroll, or
for cost of collections. LICENSED PRODUCTS shall be deemed to have been
"billed", when shipped, delivered or when invoiced, whichever is first. In the
event VGI is unable to account for sales by any distributor, agent or
sublicensee, NET SALES shall be calculated as the price to the distributor or
agent multiplied by 1.5, which factor represents a 33 1/3% margin for the
distributor or agent.
1.4 "END USER" shall mean any entity billed for LICENSED PRODUCTS
who is not a reseller.
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1.5 "FIELD OF USE" shall mean diagnostic applications only,
including but not limited to human and veterinary purposes.
1.6 "PARTY" shall mean BIOS or VGI; the term "PARTIES" shall mean
BIOS and VGI.
1.7 "VGI" shall mean and include any subsidiary, affiliated or
related firm, association, corporation, or entity owned or controlled by VGI and
for the purposes of Articles 1.3 and 1.4 above shall include any transferee of
LICENSED PRODUCTS.
1.8 "QUARTER YEAR" shall mean the three month periods ending March
31, June 30, September 30 and December 31 of each calendar year.
1.9 "IMPROVEMENTS" shall mean any and all improvements to the CAS
Technology conceived or invented by BIOS during the term of this Agreement,
including, without limitation, all patents and patent applications related
thereto, whether in existence as of the date of this Agreement or coming into
existence hereafter.
ARTICLE 2
GRANT
2.1 BIOS hereby grants to VGI, subject to the terms and conditions
contained herein, a worldwide exclusive license within the FIELD OF USE under
the PATENT RIGHTS to make, have made, use, and sell LICENSED PRODUCTS, until the
termination of the PATENT RIGHTS.
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*CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
2.2 VGI shall have the right to grant sublicenses hereunder anywhere
in the world only during the term of this Agreement. VGI shall pay to BIOS a
sublicense issue fee of $100,000 immediately upon the grant of each sublicense
permitted hereunder (which fee shall not be considered a prepayment of
Royalties), and VGI shall pay to BIOS Running Royalties of ***************** on
NET SALES of LICENSED PRODUCTS sold by VGI's sublicensees in the United States,
in the manner set forth in Paragraph 4.2a.
2.3 All sublicenses granted by VGI shall provide that the
obligations to BIOS within Articles 1, 2, 4 through 12, and 15 of this Agreement
shall be binding on the sublicensee as if it were a party to this Agreement. All
sublicenses granted hereunder shall be coterminable with this Agreement, subject
to Paragraph 12.4 hereof.
2.4 VGI shall forward to BIOS a copy of the executed original of any
and all sublicense agreements, promptly after execution. The copy may be
redacted to delete any proprietary and confidential information contained in the
sublicense agreement.
2.5 VGI and any sublicensee thereof shall comply with the relevant
provisions of 37 C.F.R. Part 401, a copy of which is attached hereto and
incorporated herein by reference.
2.6 The term of this Agreement shall commence upon the Effective
Date and shall continue for the life of the last to expire patent within the
PATENT RIGHTS.
2.7 BIOS reserves to itself the right to practice under the PATENT
RIGHTS within the FIELD OF USE only for BIOS' own non-commercial research use,
except that the
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research may be part of a grant or a contract research agreement for which a fee
is paid.
2.8 In the event VGI enters into any agreement or license with
Amersham regarding VGI's CLIP technology or the CAS Technology, VGI shall use
its best efforts to ensure that any such agreement or license shall not
adversely affect or shall enhance BIOS' income or payments under the license
herein granted to VGI or its license of the CAS Technology to Amersham.
2.9 The license granted hereunder shall not be construed to confer
any rights upon either party by implication, estoppel or otherwise as to any
technology not specifically identified herein.
ARTICLE 3
DUE DILIGENCE
3.1 VGI shall, with all reasonable due diligence and good faith, use
its best efforts to bring one or more LICENSED PRODUCTS to market through a
thorough, vigorous and diligent program for the exploitation of the PATENT
RIGHTS within two (2) years following the Effective Date of this Agreement. VGI
will provide to BIOS technical and commercial reports for each QUARTER YEAR and
shall at BIOS' request have quarterly research and sales meetings with BIOS.
3.2 In the event VGI fails to bring one or more LICENSED PRODUCTS to
market within two (2) years following the Effective Date of this Agreement, BIOS
shall have the sole right to convert the exclusive license granted hereunder to
a non-exclusive license upon notice to VGI, whereupon BIOS shall have the right
to grant non-exclusive licenses and to
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<PAGE>
*CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
practice without limitation under the PATENT RIGHTS and to make, have made, use,
sell, distribute and import the LICENSED PRODUCTS for all purposes within the
FIELD OF USE. If BIOS shall exercise its right to convert the exclusive license
granted hereunder to a non-exclusive license, BIOS shall promptly deliver back
to VGI ************************************* of the common shares of the capital
stock of VGI which BIOS has received on the Effective Date of this Agreement.
ARTICLE 4
ROYALTIES AND OTHER PAYMENTS
As consideration for the rights, privileges and license granted
hereunder, VGI shall make the following payments to BIOS.
4.1 Upon execution of this Agreement, VGI shall pay or deliver to
BIOS the following:
a. ************************************** Dollars by cash
or certified check, of which Fifty Thousand (U.S.
$50,000) Dollars has already been paid.
b. ***************************** common shares of the
capital stock of VGI, which BIOS agrees to hold for a
period of two (2) years from the Effective Date of this
Agreement; provided, however, that BIOS shall have the
right to pledge or assign the shares to any third party
who agrees to hold the shares for the same two-year
period from the Effective Date of this Agreement. The
certificate for ************************************* of
such shares shall be held in escrow by Robinson & Cole
to ensure the return of such shares to VGI in the event
BIOS exercises its right pursuant to Paragraph 3.2 of
this
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<PAGE>
*CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Agreement.
c. The payment and the delivery of shares under this
Paragraph 4.1 shall not be considered prepayments of the
Royalties under Paragraph 4.2 of this Agreement.
4.2 VGI shall pay to BIOS royalties in the manner hereinafter
provided until termination of the PATENTS RIGHTS or until this Agreement is
terminated:
a. Running Royalties in an amount equal to ************
**** of NET SALES of LICENSED PRODUCTS sold in the
United States, to be paid by VGI within sixty (60) days
after each QUARTER YEAR.
b. Running Royalties in an amount equal to ***********
*********************** of all NET SALES of LICENSED
PRODUCTS sold throughout the world except the United
States to be paid by VGI within sixty (60) days after
each QUARTER YEAR.
No minimum Royalties shall be required hereunder.
4.3 All Royalties and other payments under this Agreement shall be
paid to BIOS in United States dollars, in full, in New Haven, Connecticut.
Royalties earned from foreign sales will be converted into United States dollars
at the exchange rates in effect at the end of the applicable QUARTER YEAR.
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4.4 VGI hereby grants to BIOS a worldwide non-exclusive royalty-free
license of the CLIP technology, including the technology that is the subject of
applications for patents filed by VGI which are currently pending, only for
BIOS' own non-commercial research use during the term of this Agreement, except
that the research may be part of a grant or a contract research agreement for
which a fee is paid.
4.5 In accordance with Paragraph 2 of the Letter of Understanding
between the PARTIES dated July 24, 1996 VGI shall enter into a Research
Agreement with BIOS to design a commercial D-Loop mitochondrial kit that makes
use of the CAS Technology (The "Research Agreement"), for six (6) months
effective as of October 1, 1996, providing for five (5) monthly payments of
$20,000, with the first such payment to be made upon the execution of this
Agreement, which five (5) payments shall be in addition to an initial payment of
$20,000 which has been made prior to the date of this Agreement. VGI shall also
provide to BIOS free of charge a full OpenGene Sequencing System as soon as
possible, but not later than December 1, 1996, which shall immediately become
the property of BIOS.
ARTICLE 5
REPORTS AND RECORDS
5.1 VGI shall keep full, true and accurate records, books of account
containing all particulars in sufficient detail and form so as to enable
verification of the amounts payable to BIOS hereunder. Said records shall be
kept at VGI's principal place of business or the principal place of business of
the appropriate division or affiliate of VGI to which this Agreement relates.
Said records and the supporting data shall be maintained and kept open at all
reasonable times for no less than three (3) years following the end of the
calendar year to which they pertain, to the inspection of BIOS or its agents for
BIOS to verify the amount of royalties payable by VGI under
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this Agreement. Such examination shall be at BIOS' expense not more than once in
any calendar year, during normal business hours, and upon ten (10) days prior
written notice to VGI unless such inspection should lead to the discovery of a
greater than ten percent (10%) discrepancy in reporting to BIOS' detriment, in
which event VGI agrees to pay the full cost of such inspection. Any inspection
hereunder shall be subject to the parties entering into a mutually acceptable
confidentiality agreement.
5.2 Within sixty (60) days after each QUARTER YEAR, VGI shall
deliver to BIOS a written report providing at least the following:
a. number of LICENSED PRODUCTS made, used, and sold by VGI,
its distributors, agents, sublicensees and transferees;
b. total billings for LICENSED PRODUCTS by VGI, its
distributors, agents, sublicensees, and transferees;
c. credits or allowances, if any, on account of rejection
or returns on LICENSED PRODUCTS previously sold, and
import duties, taxes and use taxes;
d. accounting of royalties paid or due BIOS and other
payments received pursuant to Article 4; and
e. total royalties due and owed to BIOS.
5.3 With each such report submitted, VGI shall pay to BIOS the
royalties and other payments due and payable under this Agreement. If no
royalties or other payments shall be due, VGI shall so report.
5.4 The payments set forth in this Agreement and amounts due to BIOS
under Article 4 shall, if overdue, bear interest until payment at a per annum
rate two percent (2%) above
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<PAGE>
the prime rate in effect as published in the Wall Street Journal on the due
date. The payment of such interest shall not foreclose BIOS from exercising any
other rights it may have as a consequence of the lateness of any payment.
ARTICLE 6
PATENT OBLIGATIONS
6.1 BIOS shall maintain at its own cost during the term of this
Agreement the PATENT RIGHTS.
6.2 VGI hereby grants BIOS a worldwide non-exclusive royalty-free
perpetual license to exploit any improvements in relation to CAS Technology
conceived or invented by VGI during the term of this Agreement, for BIOS' own
non-commercial research use (except that the research may be part of a grant or
contract research agreement for which a fee is paid), including, without
limitation, all patents and patent applications related thereto, whether in
existence as of the date of the Agreement or coming into existence hereafter.
6.3 VGI shall mark and shall require its distributors, agents,
sublicensees, transferees, and importers to mark LICENSED PRODUCTS, made, used
or sold in the United States with all applicable United States patent numbers
and notices required by U.S. law.
ARTICLE 7
INFRINGEMENT
7.1 Each party shall promptly notify the other in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
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7.2 During the term of this Agreement, BIOS shall have the right,
but shall not be obligated, to bring any legal action for infringement or for
defending any counterclaim of invalidity or action of a third party for
declaratory judgment of non-infringement or interference relating to such PATENT
RIGHTS. In furtherance of such right, VGI hereby agrees that BIOS may include
VGI as a party plaintiff in any such suit, and VGI agrees to fully cooperate
with BIOS in the prosecution of such infringements. If BIOS decides not to
exercise such rights to bring legal action within three (3) months of VGI giving
notice thereof to BIOS, VGI shall be entitled to do so in its own right if
legally permissible, provided, however, that BIOS through counsel of its own
selection, shall oversee such legal action and be provided the opportunity to
approve all actions which are case dispositive. All fees, costs and expenses of
any such infringement action shall be borne by the party bringing the action and
such party shall obtain any recovery or damages, if any, whether by judgment,
award, decree or settlement, including interest for past infringement. The
excess of such recoveries, damages and interest over VGI's out of pocket
expenses in connection with the prosecution or defense of such actions shall be
included in VGI's NET SALES under this Agreement for the benefit of BIOS. VGI
may settle any such actions solely at its own expense and through counsel of its
own selection; provided, however, that BIOS shall be entitled in each instance
to participate through counsel of its selection and at its own expense in any
such settlement and to approve the terms of such settlement, such approval not
to be unreasonably withheld.
7.3 In the event that BIOS is involved with the enforcement and/or
defense of the PATENT RIGHTS by litigation, VGI may not withhold any payments
otherwise deemed earned and due to BIOS under Article 4 hereunder.
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7.4 In any patent infringement suit that BIOS may institute to
enforce the PATENT RIGHTS pursuant to this Agreement, VGI shall, at the request
of BIOS, cooperate in all reasonable respects and, to the extent reasonably
possible, have its employees testify when requested and make available relevant
records, papers, information, samples, specimens, and the like during the term
of this Agreement.
ARTICLE 8
PRODUCT LIABILITY
8.1 VGI shall at all times during the term of this Agreement and
thereafter, indemnify, defend and hold, BIOS's trustees, directors, officers,
employees, affiliates and agents harmless against all claims, proceedings,
demands and liabilities, including legal expenses and reasonable attorneys'
fees, arising out of the death of or injury to any person or persons or out of
damage to property resulting from the production, manufacture, sales, use,
lease, importation, distribution, consumption, advertisement or other
disposition of the LICENSED PRODUCT(s) and arising from any breach of any
obligation hereof or negligence of VGI and/or its distributors, importers,
agents, transferees and sublicensees hereunder except to the extent that any
such claims, proceedings, demands or liabilities arise out of or were caused by
the negligence or default of BIOS.
8.2 VGI shall obtain and carry in full force and effect commercial
and product liability insurance of an amount and scope which VGI shall deem
appropriate and BIOS shall be entitled to a certificate of coverage on request
on reasonable notice.
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8.3 Except as otherwise expressly set forth in this Agreement, BIOS,
its trustees, directors, officers, employees, affiliates and agents make no
representations and extend no warranties of any kind, either express or implied,
including, but not limited to, warranties of merchantability, fitness for a
particular purpose, validity or patentability of any of the subject matter
covered under PATENT RIGHTS, and the absence of latent or other defects, whether
or not discoverable. Nothing in this Agreement shall be construed as a
representation made or warranty given by BIOS that the practice by VGI of the
license granted hereunder does not infringe the patent or other rights of any
third party. In no event shall BIOS, its trustees, directors, officers,
employees, affiliates and agents be liable for incidental or consequential
damages of any kind, including economic damage or injury to property and lost
profits, regardless of whether BIOS shall be advised, shall have other reason to
know, or in fact shall know of the possibility of such damages. VGI shall make
no statements, representations or warranties whatsoever to any third parties
which are inconsistent with such disclaimer given by BIOS.
8.4 BIOS warrants that it is legally entitled to grant the existing
rights granted by this Agreement and that the PATENT RIGHTS for the '911 patent
are currently existing.
ARTICLE 9
EXPORT CONTROLS
VGI, its distributors, agents, transferees and sublicensees shall
make all reasonable efforts, if not contrary to Canadian law, to comply with all
foreign and United States federal, state, and local laws, regulations, rules and
orders applicable to the testing, production, transportation, packaging,
labeling, export, import, sale and use of the LICENSED PRODUCTS. In particular,
VGI, its distributors, agents, transferees and sublicensees shall be responsible
for assuring compliance with all U.S. export and import laws and regulations
applicable to this license
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and their activities hereunder.
ARTICLE 10
NON-USE OF NAMES; ANNOUNCEMENTS
10.1 (a) VGI, its distributors, agents, transferees and sublicensees
shall not use the names or trademarks of BIOS nor any adaptation thereof, nor
the names of any of its employees, in any advertising, promotional or sales
literature without prior written consent obtained from BIOS, which consent shall
not be unreasonably withheld or delayed, or from said employee, in each case,
except that they may state that it is licensed by BIOS under the PATENT RIGHTS.
(b) BIOS, its distributors, agents, transferees and
sublicensees shall not use the names or trademarks of VGI nor any adaptation
thereof, nor the names of any of its employees, in any advertising, promotional
or sales literature without prior written consent obtained from VGI, which
consent shall not be unreasonably withheld or delayed, or from said employee, in
each case, except that they may say that BIOS has granted a license to VGI under
the PATENT RIGHTS.
10.2 Each party agrees that, prior to any announcement by them
concerning this Agreement, its subsequent operation or performance or any
subsequent material connected with it, except as may be required by law, none
shall disclose the existence, substance or details of this Agreement without the
prior written consent of the others, such consent not to be unreasonably
withheld or delayed; provided that each PARTY may disclose information
concerning this Agreement to its lenders, and its stockholders, and to the
investment and business public as it may deem necessary or appropriate to
fulfill its obligations of disclosure to them. Furthermore, nothing herein shall
prevent any party from disclosing such information as is reasonably necessary
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to its distributors, agents, transferees or sublicensees; provided however, each
party shall take such steps as necessary to ensure that such distributors,
agents, transferees and sublicensees conduct themselves as if they were bound by
the provisions of this paragraph. In cases in which disclosure may be required
by law, the disclosing party, prior to such disclosure, shall so far as is
practicable, notify the non-disclosing parties of the contents of the proposed
disclosure. Consistent with applicable law, and stock exchange requirements, the
non-disclosing parties shall have the right to make reasonable changes to the
disclosure to protect their interests. The disclosing party shall not
unreasonably refuse to include such changes in its disclosure. Once a joint
announcement of the parties has been made, no party shall have any obligation of
non-disclosure with respect to information contained in the joint announcement,
provided however the parties agree that all other information with respect to
this Agreement shall remain subject to the non-disclosure obligation.
ARTICLE 11
DISPUTE RESOLUTION
11.1 In the event of any controversy, dispute, disagreement or claim
arising out of or in connection with or relating to any provision of this
Agreement or the breach thereof, the parties shall try to settle such conflicts
amicably between themselves. Subject to the limitation stated in the final
sentence of this section, any party hereto who is unable to satisfy by mutual
agreement any claim or demand arising directly or indirectly out of or in
connection with this Agreement, the interpretation hereof, the performance or
non-performance and/or the rights, obligations or liabilities of the parties
hereunder, shall cause such claim or demand to be determined by submission
thereof to arbitration before the American Arbitration Association pursuant to
the Connecticut Arbitration Law and the rules then applicable of the American
Arbitration Association. A submission to arbitration shall be filed within
ninety (90) days after
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written notice of failure to agree has been given, and in no event after the
date upon which institution of legal proceedings based on such controversy or
claim would be barred by the applicable statute of limitation.
11.2 All arbitration proceedings shall be heard and decided by a
single arbitrator mutually acceptable to VGI and BIOS. In the event that VGI and
BIOS are unable to agree on the selection of a single arbitrator, then the
proceedings shall be heard by a panel of three arbitrators, one of whom is
chosen by VGI, one of whom is chosen by BIOS, and the third of whom is appointed
by the American Arbitration Association from its panel of arbitrators. Such
arbitration shall be held in New Haven, Connecticut. The award through
arbitration shall be final and binding. Either party may enter any such award in
a court having jurisdiction or may make application to such court for judicial
acceptance of the award and an order of enforcement, as the case may be.
Notwithstanding the foregoing, either party may, without recourse to
arbitration, assert against the other party a third-party claim or cross-claim
in any action brought by a third party to which the subject matter of this
Agreement may be relevant.
11.3 Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement.
ARTICLE 12
TERMINATION
12.1 If either party shall cease to carry on its business, it shall
promptly communicate such action to the other within thirty (30) days and this
Agreement shall be terminable upon written notice by the other. Failure to give
notice of termination or take any step or action in the case of any violation or
breach of the terms of this Agreement shall not be deemed
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a waiver of any rights, remedies or causes of action, nor prejudice any rights
with respect to such violation or breach.
12.2 Should VGI fail to make any payment whatsoever due and payable
to BIOS hereunder, unless the failure to make such payment is the result of a
bona fide dispute as to whether the amount in issue is in fact due and payable
hereunder, BIOS shall have the right to terminate this Agreement effective on
thirty (30) days' written notice, unless VGI shall make all such payments to
BIOS within said thirty (30) day period. Upon the expiration of the thirty (30)
day period, if VGI shall not have made all such payments to BIOS, the rights,
privileges and license granted hereunder shall automatically terminate.
12.3 Upon any material breach or default of this Agreement by either
party other than those occurrences set out in paragraphs 12.1 and 12.2
hereinabove, which shall always take precedence in that order over any material
breach or default referred to in this paragraph, the other party shall have the
right to terminate this Agreement (including in the case of BIOS the rights,
privileges and license granted hereunder) effective on sixty (60) days' written
notice. Such termination shall become automatically effective unless the
defaulting party shall have cured any such material breach or default prior to
the expiration of the sixty (60) day period.
12.4 Upon termination of this Agreement for any reason, nothing
herein shall be construed to release either party from any obligation that
matured prior to the effective date of such termination; and Articles 1, 4, 5,
6, 7, 8, 9, 10, 11, 12, 13, and 15 shall survive any such termination of this
Agreement. VGI, its distributors, agents, transferees, sublicensees and
importers may, however, after the effective date of such termination, sell all
LICENSED PRODUCTS, and complete LICENSED PRODUCTS in the process of manufacture
at the time
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of such termination and sell the same within one (1) year of the effective date
of the termination of this Agreement, provided that they shall make the payments
to BIOS as required by Article 4 of this Agreement and shall submit the reports
required by Article 5 hereof.
12.5 Upon termination of this Agreement for any reason, any
sublicensee not then in default may seek a license directly from BIOS and BIOS
shall give serious consideration to the grant of such a license.
12.6 Waiver by either party of a single default or breach of a
succession of defaults or breaches shall not deprive such party of any right to
terminate this Agreement pursuant to the terms hereof upon the occasion of any
subsequent default or breach.
ARTICLE 13
PAYMENTS, NOTICES
AND OTHER COMMUNICATIONS
Any payment, notice or other communication pursuant to this
Agreement shall be sufficiently made or given on the date of mailing if sent to
such party by certified or registered mail, return receipt requested, postage
prepaid, addressed to it at its address below or as it shall designate by
written notice given to the other party:
In the case of BIOS:
Chief Financial Officer
BIOS Laboratories, Inc.
Five Science Park
New Haven, Connecticut
U.S.A. 06511
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In the case of VGI:
Attention: The President
Visible Genetics, Inc.
Suite 1000, 700 Bay Street
Toronto, Ontario
Canada M5G 1Z6
and shall be deemed received four (4) working days thereafter (excluding public
holidays).
ARTICLE 14
ASSIGNMENT
VGI shall have the right to assign this Agreement to any person,
firm or corporation upon the condition precedent that (a) any such assignee
shall be approved by BIOS (whose approval shall not be unreasonably withheld or
delayed) and (b) any such assignee shall, by a writing approved by BIOS (whose
approval shall not be unreasonably withheld or delayed) as sufficient in form
and content, agree to assume and to perform all of the obligations on VGI's part
to be performed hereunder. A copy of the fully executed original of said
assignment and assumption agreement shall be delivered to BIOS before the
assignment shall become operative. VGI covenants that after such permitted
assignment, it will not directly or indirectly participate in, contribute,
cause, suffer or permit, when within its power to permit, any breach or
violation of or failure to perform any of the covenants or provisions of this
Agreement by or on the part of its assignee.
ARTICLE 15
MISCELLANEOUS PROVISIONS
15.1 This Agreement shall be construed, governed, interpreted and
applied in accordance with the laws of the State of New York, U.S.A., except
where the federal laws of the
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United States are applicable and have precedence.
15.2 The PARTIES acknowledge that the Research Agreement and
Paragraphs 2 and 3 of the Letter of Understanding between the PARTIES dated July
24, 1996 survive this Agreement, and all other prior agreements,
representations, undertakings, understandings, affirmations and promises
relating to the subject matter hereof are merged and superseded hereby. Neither
of the PARTIES has entered into this Agreement in reliance upon any
representation, warranty or undertaking by or on behalf of another party which
is not expressly set out or referenced herein.
15.3 This Agreement shall not be subject to any change or
modification except by the execution of a written instrument subscribed to by
the PARTIES.
15.4 This Agreement shall be binding upon, and inure in favor of,
the PARTIES and their respective heirs, personal representatives, successors and
assigns.
15.5 The provisions of this Agreement are deemed separable, and in
the event that any provision of this Agreement shall be determined to be void,
invalid or unenforceable by a judgment or a decree of a court of final
jurisdiction or by a lower court whose judgment or decree becomes final by
reason of or failure to appeal therefrom, such invalidity or unenforceability
shall not in any way affect the validity or enforceability of any other
provision or provisions hereof, but shall be confined in its operation to the
provisions adjudged invalid and unenforceable.
15.6 Any delays in or failure by either PARTY in performance of any
obligations hereunder shall be excused if and to the extent caused by such
occurrences beyond such party's
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reasonable control, including but not limited to such occurrences as acts of
God, strikes or other labor disturbances, fire, earthquake, sabotage, war and
other causes which cannot reasonably be controlled by the party who failed to
perform. Either PARTY may terminate this Agreement by written notice if such
occurrences extend for a period of not less than six (6) months.
15.7 This Agreement may be executed in two or more counterparts, any
one of which need not contain the signatures of more than one party, but all
such counterparts taken together will constitute one and the same Agreement.
IN WITNESS WHEREOF, the PARTIES have caused this Agreement to be
duly executed in duplicate originals by their duly authorized representatives on
the day and year set forth below.
BIOS LABORATORIES, INC. VISIBLE GENETICS, INC.
By /s/ Gualberto Ruano By /s/ John Stevens
------------------------------ ------------------------------
Name GUALBERTO RUANO Name John Stevens
---------------------------- ----------------------------
Title Chief Executive Officer Title CEO
--------------------------- ---------------------------
Date 21 November 1996 Date 21 Nov 1996
---------------------------- ----------------------------
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Exhibit 10.11
PATENT LICENSE AMENDING AGREEMENT
This Amending Agreement (the "Amendment") to the Patent License Agreement, which
shall be effective as of the last date of execution, is made by and between
Genaissance Pharmaceuticals, Inc. a Delaware corporation having its principal
place of business at Five Science Park, New Haven, Connecticut, 06511,
("Genaissance"), and Visible Genetics Inc., an Ontario company with offices at
700 Bay Street, Suite 1000, Toronto, Ontario, Canada M5G 1Z6 ("VGI").
WITNESSETH:
WHEREAS, on November 21, 1996, BIOS Laboratories Inc. (Bios) and VGI
entered into a Patent License Agreement (the "Agreement") pursuant to which Bios
granted to VGI, inter alia, a worldwide exclusive license within the FIELD OF
USE (as defined in the Agreement) under the PATENT RIGHTS (as defined in the
Agreement) to make, have made, use and sell LICENSED PRODUCTS (as defined in the
Agreement);
WHEREAS, in March, 1997 BIOS Laboratories Inc. changed its name to
Genaissance Pharmaceuticals Inc. (Genaissance);
WHEREAS, on December 1, 1998, Genaissance waived its right pursuant to
Section 3.2 of the Agreement to convert the Agreement from an exclusive license
to a non-exclusive license; and
WHEREAS, the parties desire to amend certain terms of the Agreement upon
the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties intending to be legally bound agree as follows:
1.) Definitions. All capitalized terms used herein and not otherwise defined
herein shall have the respective meanings given to them in the Agreement.
2.) Amendments to Agreement. The Agreement is, effective as of the Effective
Date hereof, hereby amended as follows:
i) The names "BIOS LABORATORIES, INC." and "BIOS" are hereby deleted from
the entire Agreement and are replaced in each instance by the name
"Genaissance Pharmaceuticals, Inc." or "Genaissance" as appropriate.
ii) The second "WHEREAS" paragraph is amended to read as follows:
WHEREAS, Genaissance is an exclusive licensee to make, have made,
use. sell and practice the invention covered by U.S. Patent No.
5,427,911 by virtue of an
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*CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.
Agreement with Yale University and has the right to sublicense the
rights granted hereunder to third parties subject to rights
heretofore granted to the United States government and Yale
University.
iii) Paragraph 1.1 is hereby amended to read as follows:
"PATENT RIGHTS shall include all rights exclusively licensed to
Genaissance under U.S. Patent No. 5,427,911 (hereinafter the "911
patent), together with any reissue or reexamination of such patent,
and any extensions of such patent, subject to a royalty-free,
non-exclusive license heretofore granted to the United States
government, and the rights retained by Yale University in accordance
with the June 9, 1994 license agreement between Yale and BIOS to
make, use and practice the inventions for Yale's own non-commercial
purposes, and shall include any and all rights under the
IMPROVEMENTS on the '911 patent.
iv) Paragraph 1.5 is hereby amended to read as follows:
"FIELD OF USE" shall mean all diagnostic and research applications,
including but not limited to human and veterinary purposes.
v) Paragraph 2.2 of Article 2 is hereby amended to read as follows:
VGI shall have the right to grant sublicenses hereunder anywhere in
the world only during the term of this Agreement. VGI shall pay to
Genaissance a sublicense issue fee of $100,000 immediately upon the
grant of each sublicense permitted hereunder, which fee shall not be
considered a prepayment of Royalties), and VGI shall pay to
Genaissance Running Royalties of ***********************************
on NET SALES of LICENSED PRODUCTS sold by VGI's sublicensees in the
United States, in the manner set forth in Paragraph 4.2a.
vi) Paragraph 2.8 is deleted in its entirety.
vii) Paragraph 2.9 is renumbered as 2.8.
viii) Paragraph 4.2 of Article 4 is hereby amended to read as follows:
VGI shall pay to Genaissance royalties in the manner hereinafter
provided until termination of the PATENT RIGHTS or until this
Agreement is terminated:
a. Running royalties in an amount equal to *******************
*************** of NET SALES of LICENSED PRODUCTS sold by VGI
throughout the world, to be paid by VGI within sixty (60) days after
each QUARTER YEAR.
b. No minimum Royalties shall be required hereunder.
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3.) Additional Payments
VGI shall pay to Genaissance, within seven (7) days of the Effective Date
of this Amendment, two million, fifty thousand U.S. dollars (US
$2,050,000), with such payment to be paid by bank wire transfer in
immediately available funds to:
State Street
ABA #011000028
Account #17039843
FFC: Genaissance Pharmaceuticals
Account Number: DE0590
4.) Representations and Warranties
Each party hereby represents and warrants to the other that it has full
authority and power to enter into this Amendment, that it has secured any
and all necessary approvals, permits or consents deemed necessary or
advisable for the consummation of the transactions contemplated hereby and
that upon execution by such party, this Amendment shall immediately be a
valid and binding obligation of such party, enforceable against it in
accordance with its terms.
5.) Publicity Genaissance and VGI agree that a joint press release, the timing
and contents of which to be mutually agreed upon, will be issued after
execution of this Amendment and information contained in such press
release can be used as a routine reference in the usual course of business
to describe the terms of this transaction, and Genaissance and VGI may
disclose such information without consulting the other party.
6.) Effect of Amendments. On and after the Effective Date hereof, the
Agreement shall be deemed to be amended and supplemented as hereinabove
set forth, as fully and with the same force and effect as if the
amendments set forth herein had originally been set forth in the
Agreement.
7.) Limitations. Except as amended and supplemented hereby, all the terms and
provisions of the Agreement shall remain unchanged and in full force and
effect. No alteration or amendment to this Amendment shall be binding on
any party hereto unless reduced to writing signed by both parties.
8.) Counterparts. This Amendment may be executed in two or more counterparts,
all such counterparts taken together shall constitute the original
thereof.
9.) Facsimile Copies. For purposes of this Amendment a signed facsimile copy
shall have the same force and effect as an original signed agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date
first above written.
GENAISSANCE PHARMACEUTICALS, INC. VISIBLE GENETICS, INC.
By: /s/ Kevin Rakin By: /s/ Marguerite Ethier
Name: Kevin Rakin Name: Marguerite Ethier
Title: Executive Vice-President Title: Vice President and General Counsel
and Chief Financial Officer Visible Genetics Inc.
Date: 3/15/2000 Date: 3/16/2000
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Exhibit 10.14
[LOGO] FINOVA(R)
FINANCIAL INNOVATORS
FINOVA Technology Finance, Inc.
10 Waterside Drive
Farmington, Connecticut 06032-3065
(860) 676-1818
MASTER LEASE No. S6930, Dated October 2, 1998
FINOVA Technology Finance, Inc. ("we", "us" or "FINOVA") agrees to lease to
Genaissance Pharmaceuticals, Inc. ("you" or "Lessee") and you agree to lease
from us, the Equipment described in any schedule to this Lease (a "Schedule").
The Equipment also includes any replacement parts, repairs, additions and
accessories that you may add to the Equipment. We may treat any Schedule as a
separate lease containing all of the provisions of this Lease.
1. PURCHASING AND INSTALLING THE EQUIPMENT
We will purchase the Equipment from the Supplier you chose. The Supplier will
deliver the Equipment to you at your expense. You will properly install the
Equipment at your expense at the location(s) indicated in the Schedule.
2. TERM
o The Term of each Schedule begins when any of the Equipment on that
Schedule is delivered to you, or a later date that we agree to in writing.
o The Term continues until you fully perform all your obligations under this
Lease and the Schedule.
o If the Equipment is not delivered, installed and accepted by you by the
date indicated in the Schedule, we may terminate this Lease and the
Schedule as to the Equipment that was not delivered, installed and
accepted by giving you 10 days' written notice of termination. Any advance
rental payment you may have paid us is nonrefundable, even if the Term
never starts or if we rightfully terminate this Lease or the Schedule.
o Before we make any progress payment or final payment for the Equipment on
any Schedule, we require the following:
* That no payment is past due to us under any lease, loan or other financial
arrangement that you or any guarantor have with us or with FINOVA Capital
Corporation.
* That you are complying with all terms of this Lease.
* That we have received all the documents we requested, including the signed
Schedule and Delivery and Acceptance Certificate.
* That there has been no material adverse change in your financial
condition, business, operations or prospects, or that of any guarantor,
from the condition that you disclosed to us in your application for
credit.
3. RENT
o The rent is indicated on the Schedule. The rent is payable periodically in
advance from time to time (for example, monthly). You agree that you owe
us the total of all of these rent payments over the Term of the Schedule.
o The first rent payment is due at the beginning of the Term or at a later
date that we agree to in writing. Subsequent rent payments are due on the
same day of each successive period until you pay us in full all of the
rent and any other charges or expenses you owe us.
o If the first rent payment is due later than the beginning of the Term, you
will also pay us interim rent on the first rent payment date. The interim
rent will be for the period from the beginning of the Term until the date
that the first rent payment is due. Interim rent will be calculated at the
same rate as the regular rent payment, but on a daily basis for the number
of days for which interim rent is due.
<PAGE>
o YOUR OBLIGATION TO PAY US ALL RENT IS ABSOLUTE AND UNCONDITIONAL. YOU ARE
NOT EXCUSED FROM PAYING THE RENT, IN FULL, FOR ANY REASON. YOU AGREE THAT
YOU HAVE NO DEFENSE FOR FAILURE TO PAY THE RENT AND YOU WILL NOT MAKE ANY
COUNTERCLAIM OR SETOFFS TO VOID PAYING THE RENT.
4. NON-CANCELABLE LEASE. YOU AGREE THAT YOU MAY NOT CANCEL OR TERMINATE THIS
LEASE OR ANY SCHEDULE.
5. PROTECTION OF OUR INTEREST IN THE EQUIPMENT; FEES.
o The Equipment is our property. It will remain our property. You will not
own the Equipment unless the Schedule gives you an option to purchase the
Equipment and you have exercised that option and paid us in full for the
Equipment and any other amounts you may owe us. If we request, you will
put labels stating "PROPERTY OF FINOVA" on the Equipment where they are
clearly visible.
o You give us permission to add to this Lease or any Schedule the serial
numbers and other information about the Equipment.
o While this Lease is intended to be a lease (and not a loan), you grant us
a security interest in the Equipment to protect our interest in the
Equipment if this Lease is later determined to be a security agreement.
You give us permission to file this Lease or a Uniform Commercial Code
financing statement, at your expense, in order to perfect this security
interest. You also give us permission to sign your name on the Uniform
Commercial Code financing statements where this is permitted by law.
o You will pay our cost to do searches for other filings or judgments
against you or your affiliates. You will also pay any filing, recording or
stamp fees or taxes resulting from filing this Lease or a Uniform
Commercial Code financing statement. You will also pay our fees in effect
from time to time for documentation, administration and Termination of
this Lease.
o At your expense, you will defend our ownership rights in the Equipment
against, and keep the Equipment free of, any legal process, liens,
security interests, attachments, levies and executions. You will give us
immediate written notice of any legal process, liens, attachments, levies
or executions, and you will indemnify us against any loss that results to
us from these causes.
o You will notify us at least 15 days before you change the address of your
principal executive office.
o You will promptly sign and return additional documents that we may request
in order to protect our interest in the Equipment.
o The Equipment is personal property and will remain personal property. You
will not incorporate it into real estate and will not anything that will
cause the Equipment become part of real estate or a fixture.
6. CARE, USE, LOCATION AND ALTERATION OF THE EQUIPMENT
o You will make sure that the Equipment is maintained in good operating
condition, and that it is serviced, repaired and overhauled when this is
necessary to keep the Equipment in good operating condition. All
maintenance must be done according to the Supplier's or Manufacturer's
requirements or recommendations. All maintenance must also comply with any
legal or regulatory requirements.
o You will maintain service logs for the Equipment and permit us to inspect
the Equipment, the service logs and service reports. You give us
permission to make copies of the service logs and service reports.
o We will give you prior notice if we, or our agent, want to inspect the
Equipment or the service logs or service reports. We may inspect it during
regular business hours. You will pay our travel, meals and lodging costs
to inspect the Equipment, but only for one inspection per year. If we find
during an inspection that you are not complying with this Lease, you will
pay our travel, meals and lodging costs, our salary costs, and the costs
and fees of our agents for
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reinspection. You will promptly cure any problems with the Equipment that
are discovered during our inspection.
o You will use the Equipment only for business purposes. You will obey all
legal and regulatory requirements in your use of the Equipment.
o You will make all additions, modifications and improvements to the
Equipment that are required by law or government regulation. Otherwise,
you will not alter the Equipment without our written permission. You will
replace all worn, lost, stolen or destroyed parts of the Equipment with
replacement parts that are as good or better than the original parts. The
new parts will become our property upon replacement.
o You will not remove the Equipment from the location indicated in the
Schedule without our written permission.
7. RETURN OF EQUIPMENT. Unless otherwise stated in the Schedule:
o You must give us written notice at least 120 days before the end of the
Term if you want to purchase the equipment from us (assuming the Schedule
provides you with an option to purchase the Equipment).
o You must give us written notice at least 120 days before the end of the
Term if you want to return the Equipment to us.
o If you do not give us written notice at least 120 days before the end of
the Term either that you want to purchase or that you want to return the
Equipment, you will continue to rent the Equipment and this Lease and the
Schedule will be automatically extended for one year with monthly rental
payments equal to 1.5% of the original equipment cost, payable monthly in
advance.
o If you do give us 120 days' written notice that you want to purchase the
Equipment but you do not pay us the purchase price, you will continue to
rent the Equipment. The rent will be the fair market rental value of the
Equipment, as determined by us. You will continue to pay us this rent
until you have paid the purchase price for the Equipment. The rent
payments will not be credited to the purchase price.
o If you do give us 120 days written notice that you want to return the
Equipment to us, but you do not return the Equipment in compliance with
the return conditions contained in the next paragraph, you will continue
to rent the Equipment. The rent will be the fair market rental value of
the Equipment, as determined by us. You will continue to pay us this rent
until you have returned the Equipment to us in compliance with these
return conditions.
o Return conditions: - You will return the Equipment, freight and insurance
prepaid by you, to us at a location we request in the United States of
America. It will be returned in good operating condition, as required by
section 6 above. The Equipment will not be subject to any liens when it is
returned
* You will pack or crate the Equipment for shipping in the original
containers, or comparable ones. You will do this carefully and
follow all recommendations of the Supplier and the Manufacturer as
to packing or crating.
* You will also return to us the plans, specifications, operating
manuals, software documentation, discs, warranties and other
documents furnished by the Manufacturer or Supplier. You will also
return to us all service logs and service reports, as well as all
written materials that you may have concerning the maintenance and
operation of the Equipment.
* At our request, you will provide us with up to 60 days free storage
of the Equipment at your location, and will let us (or our agent)
have access to the Equipment in order to inspect it and sell it.
* You will pay us what it costs us to repair the Equipment if you do
not return it in the required condition.
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8. RISK OF LOSS
o You have the complete risk of loss or damage to the Equipment. Loss or
damage to the Equipment will not relieve you of your obligation to pay
rent.
o If any Equipment is lost or damaged, you have two choices (although if you
are in default under this Lease, we and not you will have the two
options). The choices are:
(1) Repair or replace the damaged or lost Equipment so that, once again, we
own Equipment in good operating condition and have clear title to it.
(2) Pay us the present value (as of the date of payment) of the remaining rent
payments and our residual interest in the Equipment. We will calculate the
present value using a discount rate of five (5%) percent per year. Once
you have paid us this amount and any other amount that you may owe us, you
(or your insurer) may keep the Equipment for salvage purposes, on an "AS
IS, WHERE IS" basis.
9. INSURANCE
o Until you have properly returned the Equipment to us, you will keep it
insured. The amount of the insurance, the coverage, and the insurance
company must be acceptable to us.
o If you do not provide us with written evidence of insurance that is
acceptable to us, we may buy the insurance ourselves, at your expense. You
will promptly pay us the cost of this insurance. We have no obligation to
purchase any insurance. Any insurance that we purchase will be our
insurance, and not yours, and may insure the Equipment beyond the end of
the Term.
o Insurance proceeds may be used to repair or replace damaged or lost
Equipment or to pay us the present value of the rent and our residual
interest in the Equipment. (See section 8, "Risk of Loss", above.)
o You appoint us as your "attorney-in-fact" to make claims under the
insurance policies, to receive payments under the insurance policies, and
to endorse your name on all documents, checks or drafts relating to
insurance claims for Equipment.
10. TAXES
o You will pay all sales, use, excise, stamp, documentary and ad valorum
taxes, license and registration fees, assessments, fines, penalties and
similar charges imposed on the ownership, possession, use or lease of the
Equipment.
o You will pay all taxes (other than our federal or state net income taxes)
imposed on you or on us or the rent payments.
o You will reimburse us for any of these taxes that we pay or advance.
o Unless we notify you otherwise, we will file and pay for any personal
property taxes on the Equipment. You will reimburse us for the full amount
of these taxes without regard to early payment discount. We may estimate
the amount of these taxes in advance and bill you periodically in advance
for these taxes.
11. INDEMNITY
o You will indemnify us, defend us and hold us harmless. This applies to any
and all claims, expenses and attorney's fees concerning or arising from
the Equipment, this Lease, or any Schedule. It includes any claims
concerning the manufacture, selection, delivery, possession, use,
operation or return of the Equipment.
o This obligation of yours to indemnify us continues even after the Term is
over, a claim or loss may not occur until after the term in over.
12. DEFAULT
You are in default if any of the following happens:
o You do not pay us, when it is due, any rent payment or other payment that
you owe us under this Lease, any Schedule, or any other lease, loan or
other financial arrangement that you have with us or with FINOVA Capital
Corporation.
o Any of the financial information that you give us is not true and
complete, or you fail to tell us anything that would make the financial
information misleading.
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o You do something you are not permitted to do, or you fail to do anything
that is required of you, under this Lease, any Schedule or any other
lease, loan or other financial arrangement that you have with us.
o An event of default occurs for any other lease, loan or obligation of
yours (or any guarantor) that exceeds 25,000.
o You file bankruptcy, or involuntary bankruptcy is filed against you or any
guarantor and is not dismissed within 60 days.
o You are subject to any other insolvency proceeding other than bankruptcy
(for example, a receivership action or an assignment for benefit of
creditors) and such proceeding that is involuntary is not dismissed within
60 days.
o Without our permission, you sell all or a substantial part of your assets,
merge or consolidate, if you are not the surviving entity or a majority of
your voting stock or interests (or any guarantor's voting stock or
interests) is transferred.
o There is a material adverse change in your financial condition, business,
operations or prospects, or that of any guarantor, from the condition that
you disclosed to us in your application for credit.
13. REMEDIES, DEFAULT INTEREST, LATE FEES
If you are in default we may exercise one or more of our "remedies." Each of our
remedies is independent. We may exercise any of our remedies, all of our
remedies or none of our remedies. We may exercise them in any order we choose.
Our exercise of any remedy will not prevent us from exercising any other remedy
or be an "election of remedies." If we do not exercise a remedy, or if we delay
in exercising a remedy, this does not mean that we are forgiving your default or
that we are giving up our right to exercise the remedy. Our remedies allow us to
do one or more of the following:
o Require you to immediately pay us all rent for the entire Term for any or
all Schedules.
o Require you to immediately pay us all amounts that you are required to pay
us for the entire Term of any other leases, loans or other financial
arrangements that you have with us.
o Sue you for all rent and other amounts you owe us plus the greater of (1)
the actual residual value of the Equipment or (2) the residual value we
assumed when we leased it to you. Future rent and residual value will be
discounted to present value using a discount rate of five (5%) percent per
year.
o Require you at your expense to assemble the Equipment at a location we
request in the United States of America.
o Remove and repossess the Equipment from where it is located, without
demand or notice, or make the Equipment inoperable. We have your
permission to remove any physical obstructions to removal of the
Equipment. We may also disconnect and separate all Equipment from other
property. No court order, court hearing or "legal process" will be
required for us to repossess the Equipment. You will not be entitled to
any damages resulting from removal or repossession of the Equipment. We
may use, ship, store, repair or lease any Equipment that we repossess. We
may sell any repossessed Equipment at private or public sale. You give us
permission to show the Equipment to buyers at your location free of charge
during normal business hours. If we do this, we do not have to remove the
Equipment from your location. If we repossess the Equipment and sell it,
we will give you credit for the net sale price, after subtracting our
costs of repossessing and selling the Equipment. If we rent the Equipment
to somebody else, we will give you credit for the net rent received, after
subtracting our costs of repossessing and renting the Equipment, but the
credit will be discounted to present value using the discount rate that we
used in calculating your rental payment under the Schedule for the
Equipment. The credit will be applied against what you owe us under this
Lease, the Schedules and any other leases, loans or other financial
arrangements that you have with us. If the credit exceeds the amount you
owe under this Lease, the Schedules and any other leases, loans or other
financial arrangements that you have with us, we will refund the amount of
the excess to you.
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o You will also pay us the following:
o All our expenses of enforcing our remedies. This includes all our expenses
to repossess, store, ship, repair and sell the Equipment.
o Our reasonable attorney's fees and expenses.
o Default interest on everything you owe us from the date of your default to
the date on which we are paid in full. The "default interest rate" will be
one and one-half (1.5%) percent per month. If this interest rate exceeds
the highest legal interest rate, you will only be required to pay us
default interest at the highest legal interest rate.
You realize that the damages we could suffer as a result of your default are
very uncertain. You also realize that the value of an unexpired lease Term is
difficult or impossible to calculate. This is why we have agreed with you in
advance on the discount rates and default interest rate to be used in
calculating the payments you will owe us if you default. You agree that, for
these reasons, the payments you will owe us if you default are "agreed" or
"liquidated" damages. You understand that these payments are not "penalties" or
"forfeitures."
You will pay us a late fee whenever you pay any amount that you owe us more than
ten (10) days after it is due. You will pay the late fee within one month after
the late payment originally due. The late fee will be ten (10%) percent of the
late payment. If this exceeds the highest legal amount we can charge you; you
will only be required to pay the highest legal amount. The late fee is intended
to reimburse us for our collection costs that are caused by late payment. It is
charged in addition to all other amounts you are required to pay us, including
default interest.
14. PERFORMING YOUR OBLIGATIONS IF YOU DO NOT
If you do not perform one or more of your obligations under this Lease or a
Schedule, we may perform it for you. We will notify you in writing at least ten
(10) days before we do this. We do not have to perform any of your obligations
for you. If we do choose to perform them, you will pay us all of our expenses to
perform the obligations. You will also reimburse us for any money that we
advance to perform your obligations, together with interest at the default
interest rate on that amount. This will be additional "rent" that you will owe
us and you will pay it at the same time that your next rent payment is due.
15. ASSIGNMENT
WE MAY ASSIGN THIS LEASE OR ANY SCHEDULE OR ANY RENT PAYMENTS WITHOUT YOUR
PERMISSION.
WE MAY GRANT A SECURITY INTEREST IN THE EQUIPMENT WITHOUT YOUR PERMISSION.
THE PERSON TO WHOM WE ASSIGN IS CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT
HAVE ANY OF OUR OBLIGATIONS UNDER THIS LEASE. YOU WILL NOT BE ABLE TO RAISE ANY
DEFENSE, COUNTERCLAIM OR OFFSET AGAINST THE ASSIGNEE.
AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE EQUIPMENT SO LONG AS YOU
ARE NOT IN DEFAULT.
UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS LEASE OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO SUBLET THE
EQUIPMENT OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR WRITTEN PERMISSION.
16. UNIFORM COMMERCIAL CODE DISCLAIMERS OF WARRANTIES AND WAIVERS
WE DID NOT MANUFACTURE OR SUPPLY THE EQUIPMENT. WE ARE NOT A DEALER IN THE
EQUIPMENT. INSTEAD, YOU CHOSE THE EQUIPMENT.
WE DO NOT MAKE ANY WARRANTY AS TO THE EQUIPMENT. WE DO NOT MAKE ANY WARRANTY AS
TO "MERCHANTABILITY" OR "SUITABILITY" OR "FITNESS FOR A PARTICULAR PURPOSE" OR
"NONINFRINGEMENT" OF ANY PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT.
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WE WILL NOT BE RESPONSIBLE FOR ANY LOSS, DAMAGE, OR INJURY TO YOU OR ANYBODY
ELSE AS A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN THE EQUIPMENT UNDER
"STRICT LIABILITY" LAWS OR ANY OTHER LAWS.
WE WILL NOT BE RESPONSIBLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
LOSS OF PROFITS OR GOODWILL.
WE MAKE NO WARRANTY AS TO THE TREATMENT OF THIS LEASE FOR TAX OR ACCOUNTING
PURPOSES.
If the Equipment is unsatisfactory, you will continue to pay us all rent and
other amounts you are required to pay us. You must seek repair or replacement of
the Equipment solely from the Manufacturer or Supplier and not from us. You may
use our rights under any Manufacturer or Supplier warranties on the Equipment to
get it repaired or replaced. Neither the Manufacturer nor the Supplier is our
"agent," so they cannot speak for us and they are not allowed to make any
changes in this Lease or any Schedule, or give up any of our rights.
17. UNIFORM COMMERCIAL CODE ARTICLE 2A PROVISIONS
This Lease is a "Finance Lease" under Article 2A of the Uniform Commercial Code.
You agree that (a) we hive advised you of the identity of the Supplier, (b) you
may have rights under the "supply contract" under which we are purchasing the
Equipment from the Supplier and (c) you may contact the Supplier for a
description of these rights.
YOU WAIVE ANY AND ALL OF YOUR RIGHTS AND REMEDIES UNDER ARTICLE 2A OF THE
UNIFORM COMMERCIAL CODE, INCLUDING SECTIONS 2A-508 THROUGH 2A-522 OF THE UNIFORM
COMMERCIAL CODE.
18. ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF
PROCESS, WAIVER OF JURY TRIAL
THIS LEASE WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.
THIS LEASE IS GOVERNED BY THE LAWS OF THE STATE OF ARIZONA, THE STATE IN WHICH
OUR OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS AND CONDITIONS OF
THIS LEASE OCCURRED AND FROM WHICH PAYMENT FOR THE EQUIPMENT WILL BE ORDERED
HOWEVER, IF THIS LEASE IS UNENFORCEABLE UNDER ARIZONA LAW, IT WILL INSTEAD BE
GOVERNED BY THE LAWS OF THE STATE IN WHICH THE EQUIPMENT IS LOCATED.
YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN NEW HAVEN
COUNTY, CONNECTICUT. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL
JURISDICTION OF THESE CONNECTICUT COURTS. YOU WILL NOT CLAIM THAT NEW HAVEN
COUNTY, CONNECTICUT, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER
"VENUE."
YOU AND WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU AND
YOU MAY SERVE US WITH PROCESS IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE ADDRESS INDICATED AFTER OUR SIGNATURES BELOW.
YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.
19. INFORMATION SUPPLIED BY YOU AND ANY GUARANTOR
o All financial information and other information that you or any guarantor
have given us is true and complete. You or any guarantor have not failed
to tell us anything that would make the financial information misleading.
There has been no material adverse change in your financial condition,
business, operations or prospects, or the financial condition of any
guarantor, from the financial condition that you disclosed to us in your
application for credit.
o You have supplied us with information about the Equipment. You promise to
us that the amount we are paying for the Equipment is no more than the
fair and usual price for this kind of
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Equipment, taking into account any discounts, rebates and allowances that
you or any affiliate of yours may have been given for the Equipment.
o During the Term you will promptly give copies any filings you make with
the Securities and Exchange Commission (SEC). You and any guarantor will
also provide us with the following financial statements:
* Quarterly balance sheet and statements of earnings and cash flow - within
45 days after the end of your first three fiscal quarters in each fiscal
year. These will be certified by the chief financial officer.
* Annual balance sheet and statements of earnings and cash flow - within 90
days after the end of each fiscal year. These will be audited by
independent auditors acceptable to FINOVA. Their audit report must be
unqualified.
* At the same time, you deliver the foregoing financial statements, you
shall furnish to us a certificate of an executive officer of corporation
to the effect that no default exists, or, if such cannot be so certified
specifying in reasonable detail the exceptions, if any to such statement.
These financial statements will be prepared according to generally accepted
accounting principles, consistently applied.
All financial statements and SEC filings that you or any guarantor provide us
will be true and complete. They will not fail to tell us anything that would
make them misleading.
20. NOTICES
We may give you written notice in person, by mail, by overnight delivery
service, or by fax. Notice will be sent to your address below your signature.
Mail notice will be effective three (3) days after we mail it with prepaid
postage to the right address. Overnight delivery notice requires a receipt and
tracking number. Fax notice requires a receipt from the sending machine showing
that it has been sent to your fax number and received.
You may give us notice the same way that we may give you notice.
21. GENERAL
This Lease benefits our successors and assigns. This Lease benefits only those
successors and assigns of yours that we have approved in writing.
This Lease binds your successors and assigns. This Lease binds only those
successors and assigns of ours that clearly assume our obligations in writing.
TIME IS OF THE ESSENCE OF THIS LEASE.
This Lease and all of the Schedules is the entire agreement between you and us
concerning the Equipment.
Only an employee of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Lease or any Schedule on our behalf, and this must be
in writing. Only he or she may give up any of our rights, and this must be in
writing. If more than one person is the Lessee under this Lease, then each of
you is jointly and severally liable for your obligations under this Lease.
This Lease is only for your benefit and for our benefit, as well as our
successors and assigns. It is not intended to benefit any other person.
If any provision in this Lease is unenforceable, then that provision must be
deleted. Only unenforceable provisions are to be deleted. The rest of the lease
will remain as written.
22. COVENANT
o You shall take all action necessary to assure that there will be no
material adverse change to your business by reason of the advent of the
year 2000, including without limitation that all computer based systems,
embedded microchips and other processing capabilities effectively
recognize and process dates after April 1, 1999. At our request, you will
provide to us assurance reasonably acceptable to us that your
computer-based systems, embedded microchips and other processing
capabilities are year 2000 compatible.
23. REPRESENTATIONS AND WARRANTIES
You represent and warrant to us as follows:
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o You have complied with all "environmental laws" and will continue to
comply with all "environmental laws." No "hazardous substances" are used,
generated, treated, stored or disposed of by you or at your properties
except in compliance with all environmental laws. "Environmental laws"
mean all federal, state or local environmental laws and regulations,
including the following laws: CERCLA, RCRA, Hazardous Materials Transport
Act and The Federal Water Pollution Control Act. "Hazardous substances"
means all hazardous or toxic wastes, materials or substances, as defined
in the environmental laws, as well as oil, flammable substances, asbestos
that is or could become friable, urea formaldehyde insulation,
polychlorinated biphenyls and radon gas.
o You have taken all action necessary to assure that there will be no
material adverse change to your business by reason of the advent of the
year 2000, including without limitation that all computer based systems,
embedded microchips and other processing capabilities effectively
recognize and process dates after April 1, 1999.
24. PUBLICITY
We may make press releases and publish a tombstone announcing this transaction
and its total amount. You may not publicize this transaction in any way without
our prior written consent.
LESSOR: LESSEE:
FINOVA TECHNOLOGY FINANCE, INC. GENAISSANCE PHARMACEUTICALS, INC.
10 Waterside Drive Five Science Park
Farmington, Connecticut 06032-3065 New Haven, Connecticut 06511
BY: /s/ Linda A. Moschitto BY: /s/ Kevin Rakin
-------------------------------------- ---------------------------------
PRINTED NAME: Linda A. Moschitto PRINTED NAME: KEVIN RAKIN
---------------------------- -----------------------
TITLE: Director - Contract Administration TITLE: EXECUTIVE VICE PRESIDENT
----------------------------------- ------------------------------
FAX NUMBER: (860) 676-1814 Taxpayer ID# 06-1338846
------------------------
DATE ACCEPTED: November 10, 1998 FAX NUMBER: 203 562-9377
--------------------------- -------------------------
DATED: November 4, 1998
------------------------------
STATE OF CONNECTICUT
COUNTY OF NEW HAVEN
I acknowledge that KEVIN RAKIN, who stated that he is EXECUTIVE VICE
PRESIDENT of the Lessee named above, signed this Master Lease Agreement in my
presence today: NOVEMBER 4, 1998. He/she acknowledged to me that his/her
signature on this Master Lease Agreement was authorized by a valid resolution or
other valid authorization from Lessee's board of directors or other governing
body.
/s/ Jean Bernard
---------------------------------
Notary Public
[SEAL] MY COMMISSION EXPIRES 7/31/2000
Schedules to be filed by amendment
<PAGE>
Exhibit 10.15
TECHNOLOGY FINANCE [LOGO] FINOVA
FINANCIAL INNOVATORS
FINOVA CAPITAL CORPORATION
TECHNOLOGY FINANCE
10 WATERSIDE DRIVE
FARMINGTON, CT 06032
January 24, 2000
TEL 860 676 1818
FAX 860 676 1814
Mr. Kevin Rakin
Senior Vice President and
Chief Financial Officer
Genaissance Pharmaceuticals, Inc.
Five Science Park
New Haven, CT 06511
Dear Mr. Rakin:
FINOVA Capital Corporation ("we" or "Lessor") is pleased to enter into the
following leasing arrangement with Genaissance Pharmaceuticals, Inc. ("you" or
"Lessee") on the terms and conditions hereinafter set forth.
The outline of this Commitment is as follows:
Lessee: Genaissance Pharmaceuticals, Inc.
Lessor: FINOVA Capital Corporation
Equipment: Nine (9) Perkin-Elmer Laboratory Systems. All
Equipment shall be new and is subject to review and
acceptance by Lessor.
Credit Line: $2,900,000 line of credit for Equipment. Initially
$1,300,000 of the Credit Line shall be available.
Lessor shall make the remaining $1,600,000 available
when the Lessor receives a minimum of $25 million
Series B equity funding.
Equipment Location: Five Science Park, New Haven, CT 06511
Anticipated Delivery: January 2000 through April 2000
Closing Date: The date on which all conditions to a Schedule (as
hereinafter defined) are satisfied by the Lessee and
Lessor makes payment for the Equipment covered under
each Schedule to the Master Lease (each a "Schedule"
and collectively the "Schedules") with an aggregate
cost of not less than $250,000, but no later than
April 30, 2000.
Term: From each Closing Date until 48 months from the 30th
day of the month coincident with or (as the case may
be) the month next following such Closing Date.
Monthly Rent: Monthly Rent equal to 2.448% of Equipment Cost subject
to adjustment shall be payable monthly in advance. The
first and last Monthly Rent Payments are due upon
signing such Schedule.
<PAGE>
[LOGO] FINOVA
FINANCIAL INNOVATORS
Adjustment to Monthly
Rent Payments: If, on the second business day preceding the Closing
Date for each Schedule, the highest yield for
four-year U.S. Treasury Notes as published in The Wall
Street Journal on such date is greater or less than
the yield as published on December 3, 1999, the
Monthly Rent Payments shall be increased or decreased
(point for point) to reflect such change in the yield.
The yield as of December 3, 1999 was 6.29%. As of the
Closing Date, the Monthly Rent Payments shall be fixed
for the entire Term of such Schedule.
Interim Rent: Interim Rent shall accrue from each Closing Date until
the 29th day of the month (27th day of the month in
the case of February) unless the Closing Date is on
the 30th or 31st day of a month. If the Closing Date
is the 31st day of a month, Interim Rent shall accrue
until the 29th day of the next following month. If the
Closing Date is the 30th day of a month, there shall
be no Interim Rent. Interim Rent shall be at the daily
equivalent of the currently adjusted Monthly Rent
Payment.
Purchase Option: The Lessee shall have the option to purchase all (but
not less than all) the Equipment at the expiration of
the term of each Schedule for its then Fair Market
Value, plus applicable sales and other taxes. It shall
be agreed that the Fair Market Value shall not be less
than ten percent (10%) nor more than fifteen percent
(15%) of the original Equipment Cost.
Automatic
Renewal Obligation: In the Event the Lessee does not exercise the Purchase
Option for the Equipment subject to a Schedule, the
Schedule shall automatically renew for a term of one
year with Monthly Rental Payments equal to 1.25% of
the original Equipment Cost payable monthly in
advance. At the expiration of the renewal period, the
Lessee would have the option to purchase all (but not
less than all) the Equipment for its then current Fair
Market Value, plus applicable sales and other taxes.
Net Lease: The Lease shall be a net-net-net lease containing the
usual provisions in the Lessor's lease agreements and
such other or different provisions that are agreed to
by the parties. The Lessee shall be responsible for
maintenance, insurance, taxes, and all other costs and
expenses.
Taxes: Sales or use taxes shall be added to the Equipment
Cost or collected on the gross rentals, as
appropriate.
Insurance: Lessee shall, at its own expense, maintain and deliver
evidence to Lessor of such insurance required by
Lessor, written by insurers and in amounts
satisfactory to Lessor.
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[LOGO] FINOVA
FINANCIAL INNOVATORS
Lease Provisions
and Covenants: All documentation shall be prepared and reviewed by us
or our counsel and shall be in form and substance
satisfactory to us and our counsel in our and our
counsel's sole and absolute discretion, and shall
include, without limitation, a schedule, a master
lease agreement, opinion of outside counsel, financing
statements, releases, waivers and consents (including,
but not limited to, landlord's and mortgagee's
waivers), corporate resolutions and incumbencies,
insurance letter, insurance certificates and copies of
insurance policies, and such other documents as we and
our counsel deem appropriate in our or their sole
discretion (collectively, the "Lease Documents"). The
Lease Documents contemplated hereby shall contain such
conditions, representations, warranties, covenants,
events of default (including, without limitation,
cross default provisions), remedies, and other terms
and provisions as are customarily required by lessors
in transactions of this type or as the parties shall
agree.
Additional Covenants: There shall be no actual or threatened conflict with,
or violation of, any regulatory statute, standard or
rule relating to the Lessee, its present or future
operations, or the Equipment.
All information supplied by the Lessee shall be
correct and shall not omit any statement necessary to
make the information supplied not be misleading. There
shall be no material breach of the representations and
warranties of the Lessee in the Lease Agreement. The
representations shall include that the Cost of each
item of the Equipment does not exceed the fair and
usual price for like quantity purchases of such item.
The Lessor shall not be responsible for any failure of
suppliers or manufacturers of the Equipment or their
distributors to perform their obligations to the
Lessor or the Lessee. The master lease agreement shall
also contain the following covenant.
Financial Reporting. During the period of the
Commitment and the Term of the Lease, Lessee shall
deliver to Lessor or cause to be delivered to Lessor
the Lessee's quarterly financial statements within 45
days following the end of each respective fiscal
quarter and annual financial statements within 90 days
following the end of each respective fiscal year. All
annual financial statements shall be prepared in
accordance with generally accepted accounting
principles ("GAAP") and be audited by a reputable firm
of certified public accountants acceptable to Lessor,
and shall be accompanied by a certificate executed by
the Chief Financial Officer to the effect that the
Lessee has complied with all covenants contained in
the Lease Documents and there are no events of default
thereunder ("Compliance Certificate"). All quarterly
financial statements may be internally prepared in
accordance with GAAP, and accompanied by a Compliance
Certificate executed by the Lessee's Chief Financial
Officer.
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[LOGO] FINOVA
FINANCIAL INNOVATORS
Warrant Coverage: In consideration for this Commitment by the Lessor,
the Lessee shall grant to the Lessor, effective the
date of acceptance of this Commitment, and delivered
prior to the initial Closing Date, warrants to
purchase shares of the common stock of the Lessee at a
price equal to the lower of (a) the most recent strike
price per share as of the initial Closing Date or (b)
$5.50 per share. The total amount of warrants shall
equal 3% of the Credit Line initially made available
and 5% of the remaining $1.6 million Credit Line. The
warrants shall be exercisable from their date of grant
until the close of business five years from their date
of grant. The warrants shall contain (a) piggyback
registration rights, subject to underwriter cutbacks
or eliminations without adverse discrimination, (b)
not less than 45 days advance notice and opportunity
to exercise in the event of an initial public offering
("IPO") or merger, (c) antidilution protection and
nondiscriminatory liquidation rights, (d) cashless
exercise (conversion) provisions, and (e) a one time
right at any time subsequent to an IPO in conjunction
with other holders of registration rights granted by
the Lessee to cause a registration for public offering
at the expense of the Lessee.
Fees and Expenses: The Lessee shall be responsible for the Lessor's fees
and expenses in connection with the transaction,
including the expenses of counsel to prepare and
review the documentation, not to exceed $6,500.
Survival: This Commitment Letter shall survive closing. However,
if there is any conflict between the terms and
conditions of the Master Lease Agreement and Schedules
and those of this Commitment Letter, the Master Lease
Agreement and Schedules shall control.
This Commitment and the Closing of each Schedule contemplated herein are
subject, amongst other things, to receipt by us, in form and substance
satisfactory to us and our counsel, at or prior to Closing, of:
(i) all documentation and other requirements set forth herein
including but not limited to the Lease Documents and other
requirements set forth herein and as may be required by our
counsel; and
(ii) our receipt, in form and substance satisfactory to us, of all
financial and credit information requested by us, which reflects
no material adverse change in your condition, business, financial
or otherwise; and
(iii) evidence that the Equipment is free and clear of all liens and
encumbrances; and
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FINANCIAL INNOVATORS
(iv) evidence of such insurance required by us, written by insurers and
in amounts satisfactory to us; and
(v) such opinions of your outside counsel, certificates, waivers,
releases, Uniform Commercial Code Financing Statements, due
diligence searches, and further documents as may be required by us
or our counsel; and
(vi) evidence that no payment is past due to the Lessor from the
Lessee, whether as a borrower, a lessee, a guarantor or in some
other capacity and that there be no default under any agreement,
instrument or document between the Lessor and the Lessee
(including, without limitation, the Lease Documents); and
(vii) evidence that the Lessee is in compliance with the provisions of
this Commitment; and
(viii) our receipt of Lessor's standard year 2000 compliance
questionnaire, duly completed by Lessee, and Lessee's answers
thereto shall be satisfactory to Lessor.
In addition to all other conditions and requirements set forth herein, this
Commitment and the closing of each Schedule contemplated hereunder shall be
subject, in our sole judgment, that there be no material adverse change in your
financial, business or other condition. This Commitment is not assignable
without our prior written consent. We reserve the right to cancel this
Commitment in the event you or any of your officers, employees, agents or
representatives. has made any misrepresentation to us or has withheld any
information from us with regard to the transaction contemplated hereby.
As used in this Commitment, the terms "satisfactory to us" or "acceptable to us"
or "satisfactory to our counsel" or "acceptable to our counsel" or terms of
similar import mean satisfactory or acceptable to us or our counsel in our or
its sole judgment and discretion.
This Commitment and the Lease Documents shall be governed by the laws of the
State of Arizona. Any dispute arising under this Commitment shall be litigated
by you only in any federal or state court located in the State of Arizona, or
any state court located in Maricopa County, Arizona; and you hereby irrevocably
submit to the personal jurisdiction of such courts and waive any objection that
may exist as to venue or convenience of such forums. Nothing contained herein
shall preclude us from commencing any action in any court having jurisdiction
thereof.
In the event that the Schedules do not close prior to May 1, 2000 because of
your failure to satisfy the conditions for the closing, or because of a material
adverse change in your financial, business or other condition, this Commitment
shall terminate and we shall have no liability to you and we shall retain, as
earned, the Commitment Fee.
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[LOGO] FINOVA
FINANCIAL INNOVATORS
In the event we fail to complete this transaction and such failure is not
because of your inability to satisfy all the conditions for closing or a
material adverse change in your financial, business or other condition, our
liability shall be limited to a return of the Commitment Fee, if any, less Fees
and Expenses due hereunder.
Please execute the copy of this letter acknowledging your acceptance of the
terms hereof and return it to us. If a copy of this Commitment is not executed
and returned by you on or before January 31, 2000, this Commitment shall be
deemed withdrawn.
Sincerely,
FINOVA CAPITAL CORPORATION
By /s/ Dannion C. McGary
---------------------------------
Dannion C. McGary
Vice President
Accepted this ____ day of January, 2000
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ Kevin Rakin
-----------------------------
Kevin Rakin
Senior Vice President and Chief Financial Officer
6
Exhibit 10.16
MASTER EQUIPMENT LEASE AGREEMENT
NO. 7667 DATED June 10, 1999
Lessor: Lessee:
OXFORD VENTURE FINANCE, LLC GENAISSANCE PHARMACEUTICALS, INC.
a Virginia limited liability corporation a Delaware corporation
Address: Address:
133 NORTH FAIRFAX STREET FIVE SCIENCE PARK
ALEXANDRIA, VIRGINIA 22314 NEW HAVEN, CT 06511
Subject to the terms and conditions set forth herein and in any
Lease Schedule, Lessor agrees to lease to Lessee, and Lessee agrees to lease
from Lessor each item of Equipment specified on a Lease Schedule and Lessee
grants to Lessor the following rights:
1. DEFINITIONS. To the extent not otherwise specifically defined in
this Agreement, unless the context otherwise requires, all other terms contained
in this Agreement shall have the meanings assigned or referred to them in the
UCC. The following terms shall have the following meanings:
"Acceptance Certificate" with respect to each item of Equipment
shall mean a certificate in the form satisfactory to Lessor, executed by Lessee
to evidence acceptance by Lessee of the Equipment to which such certificate
relates.
"Acceptance Date" with respect to each item of Equipment shall have
the meaning assigned to such term in Section 3 of this Agreement.
"Affiliate" shall mean, with respect to any person, firm or entity,
any other person, firm or entity controlling, controlled by, or under common
control with such person, firm or entity; for the purposes hereof "control"
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of any such person, firm or
entity, whether through the legal or beneficial ownership of voting securities,
by contract or otherwise.
"Agreement" shall mean this Master Equipment Lease Agreement, as
amended or modified from time to time.
"Attorneys' Fees and Expenses" shall mean all reasonable attorneys'
fees and legal costs and expenses (including, without limitation, those fees,
costs and expenses incurred in connection with bankruptcy proceedings, including
Relief from Stay Motions, Cash Collateral Motions and disputes concerning any
proposed disclosure statement and/or bankruptcy plan).
"Collateral" shall mean all Equipment and any licenses, trademarks
or other tangible or intangible property ancillary to the Equipment and all
products, proceeds, rents and profits therefrom or thereof, including proceeds
in the form of goods, accounts, chattel paper, documents, instruments and
insurance proceeds.
"Default" shall have the meaning ascribed to such term in Section 10
of this Agreement.
"Equipment" shall mean one or more items or units of personal
property, leased by Lessor to Lessee hereunder, as described in each Lease
Schedule wherever the same may be located, including all present and future
additions, attachments, accessions and accessories thereto and all replacements,
substitutions and a right to use license for any software related to any of the
foregoing and proceeds thereof, including all proceeds of insurance thereon.
"Event of Default" shall have the meaning ascribed to such term in
Section 10 of this Agreement.
"Lease" shall mean the applicable Lease Schedule incorporating the
terms and conditions of this Agreement, including all exhibits, addenda,
schedules, certificates, riders and all other documents and instruments executed
and delivered in connection with the applicable Lease Schedule or this Master
Equipment Lease Agreement.
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"Lease Schedule" shall mean each Lease Schedule, which incorporates
by reference the terms and conditions of this Agreement and describes one or
more items of Equipment and specific terms and conditions with respect thereto.
"Lease Term" with respect to each item of Equipment shall have the
meaning assigned to such term in the Lease Schedule applicable to such item of
Equipment.
"Lease Term Commencement Date" with respect to each item of
Equipment shall have the meaning assigned to such term in the Lease Schedule
applicable to such item of Equipment.
"Obligations" shall mean all liabilities, absolute or contingent,
joint, several or independent, of Lessee or any Affiliate of Lessee now or
hereafter existing, due or to become due to, or held or to be held by, Lessor
for its own account or as agent for another or others, whether created directly
or acquired by assignment or otherwise and howsoever evidenced, including,
without limitation, the Lease, and all rent, taxes, fees, charges, expenses and
Attorneys' Fees and Expenses chargeable to Lessee or incurred by Lessor under
the Lease, or any other document or instrument delivered in connection herewith.
"Person" shall mean any individual, partnership, joint venture,
firm, corporation, association, trust, or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Rental Payment" with respect to each item of Equipment shall have
the meaning assigned to such term in the Lease Schedule applicable to such item
of Equipment.
"Rental Payment Date" with respect to each item of Equipment shall
have the meaning assigned to such term in the Lease Schedule applicable to such
item of Equipment.
"Security Deposit" with respect to each item of Equipment shall have
the meaning assigned to such term in the Lease Schedule applicable to such item
of Equipment.
"UCC" shall mean the Uniform Commercial Code as enacted in the State
of Connecticut.
2. INDEPENDENT LEASE; CROSS-COLLATERALIZATION; SECURITY INTEREST.
Each Lease Schedule shall constitute a separate, distinct and independent Lease
of Equipment and contractual obligation of Lessee. As security for the due and
punctual payment of any and all of the present and future Obligations of Lessee
to Lessor, and without prejudice to Lessor's ownership interest in the
Collateral, Lessee hereby (i) grants to Lessor with respect to each Lease and
for the full amount of all Obligations, a security interest in all of the
Collateral and all collateral securing any other lease or security agreement
between Lessee and Lessor, whether now in existence or hereafter entered into
and (ii) assigns to Lessor all of its rights, title and interest in surplus
money to which Lessee may be entitled upon the sale of all such Collateral. The
extent to which Lessor shall have a purchase money security interest in any item
of Collateral under a Lease which is deemed to create a security interest under
the UCC shall be determined by reference to the Acquisition Cost of such item
financed by Lessor and the aggregate amount of all Obligations under the Lease.
3. ACCEPTANCE OF EQUIPMENT. The Equipment is to be delivered and
installed at the location specified or referred to in the applicable Lease
Schedule. The Equipment shall be deemed to have been accepted by Lessee for all
purposes under this Lease upon Lessee's execution of an Acceptance Certificate
with respect to such Equipment (the "Acceptance Date"). Lessor shall not be
liable or responsible for any failure or delay in the delivery of the Equipment
to Lessee for whatever reason.
4. TERM AND RENT; NON-CANCELABLE; LATE CHARGES. The Lease Term for
any Lease shall be as specified in the applicable Lease Schedule. Upon Lessee's
acceptance of Equipment under a Lease, the Lease shall be noncancelable. The
obligations of Lessee to pay rent and all other amounts when due and to perform
as required under the Lease are unconditional and irrevocable and are not
subject to cancellation, termination, prepayment, modification, repudiation,
revocation or excuse. The Lease is a net Lease. Lessee shall not be entitled to
any abatement, reduction, offset or counterclaim with respect to its obligations
under the Lease for any reason whatsoever, whether arising out of claims against
the Lessor, the manufacturer or supplier, defect in, lack of fitness for use,
loss of possession or use of or damage or destruction of the Equipment or
otherwise. Rental Payments shall be in the amounts and shall be due and payable
as set forth in the applicable
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<PAGE>
Lease Schedule. Lessee shall, in addition, pay interim rent to Lessor on a
pro-rata, per-diem basis from the Acceptance Date to the Lease Term Commencement
Date set forth in the applicable Lease Schedule, payable on such Lease Term
Commencement Date. If any rent or other amount payable hereunder shall not be
paid within 5 days of the date when due, Lessee shall pay as an administrative
and late charge an amount equal to 5% of the amount of any such overdue payment.
In addition, Lessee shall pay overdue interest on any delinquent payment or
other amounts due under the Lease (by reason of acceleration or otherwise) from
the due date until paid at the rate of one and one-half percent (1.5%) per month
or the maximum amount permitted by applicable law, whichever is lower. All
payments to be made to Lessor shall be made to Lessor in immediately available
funds at the address shown above, or at such other place as Lessor shall specify
in writing.
5. POSSESSION; PERSONAL PROPERTY. No right, title or interest in the
Equipment shall pass to Lessee other than the right to maintain possession and
use of the Equipment for the Lease Term (provided no Event of Default has
occurred) free from interference by any person claiming by, through, or under
Lessor. The Equipment shall always remain personal property even though the
Equipment may hereafter become attached or affixed to real property.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. Lessee hereby
represents and warrants to and covenants with Lessor (provided that if Lessee is
an individual or sole proprietorship, the representations, warranties and
covenants relating to corporate status shall not apply) that, as of the date
hereof and for so long as any Obligations shall remain outstanding:
(a) Lessee is duly organized and is existing in good standing under
the laws of its jurisdiction of organization and is duly qualified and in good
standing in those jurisdictions where the conduct of its business or the
ownership of its properties requires qualification;
(b) Lessee has the power and authority to enter into and perform the
Lease and any other document or instrument delivered in connection herewith and
to incur the Obligations;
(c) Lessee's chief executive office is located at the address set
forth above;
(d) Lessee does not utilize, and has not in the last five years
utilized, any trade names in the conduct of its business except as set forth on
Schedule 1 hereto;
(e) Lessee has not changed its name, been the surviving entity in a
merger, acquired any business; or changed the location of its chief executive
office within the previous five years, except as set forth on Schedule 2 hereto;
(f) Neither the execution, delivery or performance by Lessee of the
Lease nor compliance by it with the terms and provisions hereof, nor the
consummation of the transactions contemplated herein, (i) will contravene any
applicable provision of any law, statute, rule or regulation, or any order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict or be inconsistent with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in any lien upon any property, pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or any other material agreement or
instrument to which Lessee is a party or by which it or any of its property or
assets are bound or to which it may be subject or (iii) will violate any
provision of its Certificate of Incorporation or By-Laws, or other governance
documents.
(g) The Lease and any document or instrument delivered in connection
herewith and the transactions contemplated hereby or thereby are duly
authorized, executed and delivered, and the Lease and such other documents and
instruments constitute valid and legally binding obligations of Lessee and are
enforceable against Lessee in accordance with their respective terms;
(h) No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by any
governmental or public body or authority, or any subdivision thereof, is
required to authorize or required in connection with (i) the execution, delivery
and performance of the Lease or (ii) the legality, validity, binding effect or
enforceability of the Lease.
(i) Lessee has filed all federal, state and local tax returns and
other reports it is required to file, has paid or made adequate provision for
payment of all such taxes, assessments and other governmental charges, shall pay
or deposit
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promptly when due all sales, use, excise, personal property, income,
withholding, corporate, franchise and other taxes, assessments and governmental
charges upon or relating to the manufacture, purchase, ownership, maintenance,
modification, delivery, installation, possession, condition, use, acceptance,
rejection, operation or return of the Equipment and, upon request by Lessor,
Lessee will submit to Lessor proof satisfactory to Lessor that such payments
and/or deposits have been made;
(j) There are no pending or threatened actions or proceedings before
any court or administrative agency, an unfavorable resolution of which could
have a material adverse effect on Lessee's financial condition or operations;
(k) No representation, warranty or statement by Lessee contained in
the Lease or in any certificate or other document furnished or to be furnished
by Lessee pursuant to the Lease contains or at the time of delivery shall
contain any untrue statement of material fact, or omits, or shall omit at the
time of delivery, to state a material fact necessary to make it not misleading;
(l) All financial statements delivered and to be delivered by Lessee
to Lessor in connection with the execution and delivery of the Lease are true
and correct in all material respects and have been prepared in accordance with
generally accepted accounting principles, and at all times since the date of the
most recent financial statements, there has been no material change in Lessee's
financial affairs or business operations. Lessee shall furnish Lessor: (i)
within 120 days after the last day of each fiscal year of Lessee, a financial
statement including a balance sheet, income statement, statement of retained
earnings and statement of cash flows, each prepared in accordance with generally
accepted accounting principles consistently applied with a report signed by an
independent certified public accountant satisfactory to Lessor; (i) upon the
request of Lessor, within 45 days after the close of each quarter of each fiscal
year of Lessee, financial statements similar to those described in the
immediately preceding clause, prepared by Lessee and certified by the chief
financial officer of Lessee; (iii) promptly upon the request of Lessor, such tax
returns or financial statements regarding any guarantor of the Obligations or
any Affiliate of Lessee as Lessor may reasonably request from time to time; (iv)
promptly upon request of Lessor, in form satisfactory to Lessor, such other and
additional information as Lessor may reasonably request from time to time, and;
(v) promptly inform Lessor of any Defaults (defined below) or any events or
changes in the financial condition of Lessee occurring since the date of the
last financial statements of Lessee delivered to Lessor which, individually or
cumulatively, when viewed in light of prior financial statements, may result in
a material adverse change in the financial condition of Lessee;
(m) Lessee shall permit Lessor, through its authorized attorneys,
accountants and representatives, to inspect and examine the Equipment and the
books, accounts, records, ledgers and assets of every kind and description of
Lessee with respect thereto at all reasonable times; provided, however, that the
failure of Lessor to inspect the Equipment or to inform Lessee of any
noncompliance shall not relieve Lessee of any of its Obligations hereunder; and;
(n) The Equipment is personal property and not a fixture under the
law of the jurisdiction in which the Equipment is located even though the
Equipment may hereafter become attached or affixed to real property;
(o) Each site where Equipment is located, if not owned by Lessee, is
leased by Lessee pursuant to a valid lease or rental agreement which permits the
possession, use and operation of the Equipment at such location;
(p) Lessee shall provide Lessor with disclaimers and waivers from
landlords, mortgagees and other persons holding any interest or claim in and to
any premises where Equipment is located, acceptable in all respects to Lessor,
which may be necessary or advisable in the reasonable discretion of Lessor to
confirm that the rights of Lessor in the Equipment are and will remain valid and
superior against all other parties;
(q) The Equipment is in the possession of Lessee at the location(s)
specified in the applicable Lease Schedule, and shall not be removed from such
location without the prior written consent of Lessor, which consent shall in any
event be conditioned upon Lessee having completed all notifications, filings,
recordings, and other actions in such new location as Lessor may require to
protect and perfect Lessor's interests in the Collateral;
(r) Lessee shall not, without the prior written consent of Lessor,
sell, offer to sell, lease, rent, hire or in any other manner dispose, transfer
or surrender use and possession of any Equipment;
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(s) Lessee will not, directly or indirectly, create, incur or permit
to exist any lien, encumbrance, mortgage, pledge, attachment or security
interest on or with respect to the Equipment other than in connection with the
execution and delivery of the Lease;
(t) Lessee shall permit each item of Equipment to be used only
within the continental United States by qualified personnel solely for business
purposes and the purpose for which it was designed and, at its sole expense,
shall service, repair, overhaul and maintain each item of Equipment in the same
condition as when received, ordinary wear and tear excepted, in good operating
order, consistent with prudent industry practice (but, in no event less than the
same extent to which Lessee maintains other similar equipment in the prudent
management of its assets and properties) and in compliance with all applicable
laws, ordinances, regulations, and conditions of all insurance policies required
to be maintained by Lessee under the Lease and all manuals, orders,
recommendations, instructions and other written requirements as to the repair
and maintenance of such item of Equipment issued at any time by the vendor
and/or manufacturer thereof;
(u) If any item of Equipment does not comply with the requirements
of the Lease, Lessee shall bring such Equipment into compliance with the
provisions hereof; and Lessee shall not use any Equipment, nor allow the same to
be used, for any unlawful purpose;
(v) Lessee acknowledges that Lessor has not selected, manufactured
or supplied the Equipment to Lessee and has acquired any Equipment subject
hereto solely in connection with this Lease and Lessee has received and approved
the terms of any purchase order or agreement with respect to the Equipment; and
(w) Lessee has all permits, licenses and other authorizations which
are required with respect to its business under Environmental Laws (as defined
below) and is in compliance with all terms and conditions of such permits,
licenses and other authorizations, including all limitations, restrictions,
standards, prohibitions, requirements, obligations, schedules and timetables.
The Lessee is not presently in violation of any Environmental Laws.
"Environmental Laws" shall mean any Federal, state or local law relating to
releases or threatened releases of Hazardous Substances; the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous Substances
or materials containing Hazardous Substances; or otherwise relating to pollution
of the environment or the protection of human health. "Hazardous Substances"
shall mean substances or materials which contain substances defined in or
regulated as toxic or hazardous materials, chemicals, substances, waste or
pollutants under any present or future Federal statutes and their state
counterparts, as well as any implementing regulations as amended from time to
time and as interpreted by administering agencies.
7. DISCLAIMER OF WARRANTIES; LIMITATION OF REMEDY; LIMITATION OF
LIABILITY. Lessee has selected both the Equipment and the supplier (identified
in the Lease Schedule, herein ("Supplier") from whom at Lessee's request Lessor
agrees to purchase the Equipment. LESSEE ACKNOWLEDGES THAT LESSOR HAS NO SPECIAL
FAMILIARITY OR EXPERTISE WITH RESPECT TO THE EQUIPMENT. LESSEE AGREES THAT THE
EQUIPMENT LEASED UNDER THE LEASE IS LEASED "AS IS" AND IS OF A SIZE, DESIGN AND
CAPACITY SELECTED BY LESSEE AND THAT LESSEE IS SATISFIED THAT THE SAME IS
SUITABLE FOR LESSEE'S PURPOSES, AND THAT EXCEPT AS MAY OTHERWISE BE SPECIFICALLY
PROVIDED HEREIN OR IN THE LEASE SCHEDULE, LESSOR HAS MADE NO REPRESENTATION OR
WARRANTY AS TO ANY MATTER WHATSOEVER. LESSOR DISCLAIMS, AND LESSEE HEREBY
EXPRESSLY WAIVES AS TO LESSOR, ALL WARRANTIES WITH RESPECT TO THE EQUIPMENT
INCLUDING BUT NOT LIMITED TO ALL EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, QUALITY, CAPACITY, OR
WORKMANSHIP, ALL EXPRESS OR IMPLIED WARRANTIES AGAINST PATENT INFRINGEMENTS OR
DEFECTS, WHETHER HIDDEN OR APPARENT, AND ALL EXPRESS OR IMPLIED WARRANTIES WITH
RESPECT TO COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY LAW,
REGULATION, SPECIFICATION OR CONTRACT RELATIVE THERETO. IN NO EVENT SHALL LESSOR
BE LIABLE (INCLUDING WITHOUT LIMITATION, UNDER ANY THEORY IN TORTS) FOR ANY LOSS
OF USE, REVENUE, ANTICIPATED PROFITS OR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE LEASE OR THE USE,
PERFORMANCE OR MAINTENANCE OF THE EQUIPMENT. If the Equipment is not properly
installed, does not operate as represented or warranted by the Supplier,
manufacturer and/or service company or is unsatisfactory for any reason, Lessee
shall make any claim on account thereof solely against the Supplier,
manufacturer and/or service company and shall, nevertheless, pay Lessor all
amounts payable under the Lease and any such claims shall not act as a defense,
counterclaim, deduction, setoff or otherwise limit Lessee's Obligations under
the Lease. For the Lease Term, for so long as no Default (as hereinafter
defined) has occurred and is continuing, Lessor assigns to Lessee (to the extent
permitted by law) any
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right Lessor may have against the Supplier (under a "Supply Contract", as
defined in the Lease Schedule), manufacturer and/or service company to enforce,
at Lessee's expense (if any), any product warranties with respect to the
Equipment, provided however, Lessee shall indemnify and defend Lessor from and
against all claims, expenses, damages, losses and liabilities incurred or
suffered by Lessor in connection with any such action taken. TO THE EXTENT
PERMITTED BY LAW, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES LESSEE
MAY HAVE UNDER ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE.
8. RISK OF LOSS AND DAMAGE; INSURANCE. Lessee assumes all risk of
loss, damage or destruction to the Equipment from whatever cause and for
whatever reason. If all or a portion of an item of Equipment shall become lost
stolen, destroyed, damaged beyond repair or rendered permanently unfit for use
for any reason, or in the event of any condemnation, confiscation, theft or
seizure or requisition of title to or use of such item of Equipment, Lessee
shall immediately pay to Lessor, in addition to unpaid rent, late charges and
additional rent then past due, an amount equal to the remaining periodic
installments and all other sums due under the Lease, discounted to present value
at the rate of six percent (6%) per annum, less the net amount of the recovery,
if any, received by Lessor from insurance on the Equipment. During the Lease
Term and until the Equipment has been either (i) purchased by Lessee or
(ii) returned to, and accepted by, Lessor in the condition required by the Lease
Schedule, Lessee shall procure and maintain insurance in such amounts and with
such coverages, and upon such terms and with such companies, as Lessor may
approve, at Lessee's expense; provided, however, that in no event shall such
insurance be less than the following coverages and amounts: (a) Worker's
Compensation and Employer's Liability Insurance, in the full statutory amounts
provided by law; (b) Comprehensive General Liability Insurance including
product/completed operations and contractual liability coverage, with minimum
limits on a per occurrence basis, as reasonably required by Lessor, and Combined
Single Limit Bodily Injury and Property Damage on an aggregate basis as
reasonably required by Lessor, or, in either case, as otherwise specified in any
Lease Schedule hereto; and (c) All Risk Physical Damage Insurance, including
earthquake and flood, on each item of Equipment, in an amount equal to the
remaining periodic installments due under the Lease, discounted to present value
at the rate of six percent (6%) per annum; or its full replacement value. Lessor
will be included as an additional insured on each such Comprehensive General
Liability Insurance policy. On each such All Risk Physical Damage Insurance
policy Lessor shall be named as loss payee. Such policies shall be endorsed to
provide that the coverage afforded to Lessor shall not be rescinded, impaired or
invalidated by any act or neglect of Lessee. Lessee agrees to waive Lessee's
rights and its insurance carrier's rights of subrogation against Lessor for any
and all loss or damage. In addition to the foregoing minimum insurance coverage,
Lessee shall procure and maintain such other insurance coverage as Lessor may
reasonably require. All policies shall be endorsed or contain a clause requiring
the insurer to furnish Lessor with at least 30 days prior written notice of any
material change, cancellation or non-renewal of coverage. Upon execution of the
Lease, and thereafter, 30 days prior to the expiration of each insurance policy
required hereunder, Lessee shall furnish Lessor with a certificate of insurance
or other evidence satisfactory to Lessor that the insurance coverages required
under such policy are and will continue in effect, provided, however, that
Lessor shall be under no duty either to ascertain the existence of or to examine
such insurance coverage or to advise Lessee in the event such insurance coverage
should not comply with the requirements hereof. If Lessee shall at any time or
times hereafter fail to obtain and/or maintain any of the policies of insurance
required herein, or fail to pay any premium in whole or in part relating to any
such policies, Lessor may, but shall not be obligated to, obtain and/or cause to
be maintained insurance coverage with respect to the Equipment, including, at
Lessor's option, the coverage provided by all or any of the policies of Lessee
and pay all or any part of the premium therefor, without waiving any Event of
Default by Lessee, and any sums so disbursed by Lessor shall be additional
Obligations of Lessee to Lessor payable on demand. Lessor shall have the right
to settle and compromise any and all claims under any of the All Risk Physical
Damage policies required to be maintained by Lessee hereunder and Lessee hereby
appoints Lessor as its attorney-in--fact, with power to demand, receive and
receipt for all monies payable thereunder, to execute in the name of Lessee or
Lessor or both any proof of loss, notice, draft or other instruments in
connection with such policies or any loss thereunder and generally to do and
perform any and all acts as Lessee, but for this appointment, might or could
perform.
9. TAXES AND OTHER CHARGES. Lessee agrees to comply with all laws,
regulations and governmental orders related to the Lease and to the manufacture,
purchase, ownership, maintenance, modification, delivery, installation,
possession, condition, use, acceptance, rejection, operation or return of the
Equipment and to pay when due, and to defend and indemnify and hold Lessor
harmless from and against any and all claims, losses, damages, penalties,
actions, suits and liabilities resulting from license fees, assessments, and
sales, use, property, excise, privilege and other taxes (including any related
interest or penalties) or other charges or fees now or hereafter imposed by any
governmental body or agency upon any Equipment, or with respect to the
manufacturing, ordering, shipment, purchase, ownership, delivery, installation,
leasing, operation, possession, use, return, or other disposition thereof or the
rentals hereunder (other than taxes on or measured solely by the net income of
Lessor). In no event shall Lessor have any obligation to advise, submit bills or
any advice or
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material to Lessee with respect to any tax on or relating to the Equipment or
its manufacturing, ordering, shipment, purchase, ownership, delivery,
installation, leasing, operation, possession, use, return, or other disposition
thereof or the rentals hereunder. If local law does not permit direct payment by
Lessee of any of the foregoing and/or if Lessor is required to file a report or
return, Lessee will timely advise Lessor as to its inability under local law to
make direct payment and the amount thereof and/or furnish Lessor with such
forms, data and information as will enable it to make and file such report or
return. Lessee shall promptly furnish to Lessor written evidence of Lessee's
payment of the foregoing when due, or, at Lessor's request, remit such payments
to Lessor. If any of the foregoing shall be paid by Lessor, Lessee shall
reimburse Lessor therefor promptly upon demand as additional rent hereunder.
10. EVENTS OF DEFAULT. An "Event of Default" under the Lease shall
be deemed to have occurred upon the occurrence or existence of any one or more
of the following events or conditions (each a "Default") and after the giving of
any required notice or the passage of any required period of time (or both)
specified below with respect to such Default: (a) Lessee shall fail to make any
payment due in respect of any Lease within 5 days of its due date; or (b) Lessee
shall fail to obtain or maintain any of the insurance required under the Lease;
or (c) Lessee shall remove, sell, transfer, encumber, or part with possession of
any Equipment; or (d) Lessee shall fail to perform or observe any other
covenant, condition or agreement under the Lease, and such failure shall
continue for 20 days after notice thereof to Lessee; or (e) Lessee or any of its
Affiliates shall default in the payment or performance of any Obligation owing
to Lessor, and such default shall continue for 20 days after notice thereof to
Lessee; or (f) any representation or warranty made by Lessee herein or in any
certificate, agreement, statement or document heretofore or hereafter furnished
Lessor, including without limitation any financial information disclosed to
Lessor, shall prove to be false or incorrect in any material respect; or (g)
death or judicial declaration of incompetence of Lessee, if an individual; or
(h) the commencement of any bankruptcy, insolvency, arrangement, reorganization,
receivership, liquidation or other similar proceeding by or against Lessee or
any of its properties or businesses, or the appointment of a trustee, receiver,
liquidator or custodian for Lessee or any of its properties or businesses, or if
Lessee suffers the entry of an order for relief under Title 11 of the United
States Code; or (i) the making by Lessee of a general assignment or deed of
trust for the benefit of creditors; or (j) Lessee shall default in any payment
or other material obligation to any other lender and such lender has accelerated
the debt in accordance with its terms; or (k) Lessee shall merge with or
consolidate into any other entity or sell all or substantially all of its assets
or in any manner terminate its existence; or (l) if Lessee is a privately held
corporation, more than 50% of Lessee's voting capital stock, or effective
control of Lessee's voting capital stock, issued and outstanding from time to
time, is not retained by the holders of such stock on the date the Lease is
executed, unless, however, Lessor shall have given prior written consent with
respect thereto, which consent will not be unreasonably withheld; or (m) if
Lessee is a publicly held corporation, there shall be a change in the ownership
of Lessee's stock such that Lessee is no longer subject to the reporting
requirements of the Securities Exchange Act of 1934 or no longer has a class of
equity securities registered under Section 12 of the Securities Act of 1933; or
(n) Lessor shall determine that there has been a material adverse change in the
financial condition or business operations of Lessee since the date of execution
of the Lease, or that Lessee's ability to perform its Obligations is materially
impaired; or (o) if Lessee leases the premises where any Equipment is located, a
breach by Lessee of any such lease and the commencement of an action by the
landlord to evict Lessee or to repossess the premises; or (p) any event or
condition set forth in subsections (e) through (o) of this Section 10 shall
occur with respect to any guarantor or other person liable or responsible, in
whole or in part, for payment or performance of any Obligations; or (q) any
event or condition set forth in subsections (e) through (o) shall occur with
respect to any Affiliate of Lessee. Lessee shall promptly notify Lessor of the
occurrence of any Event of Default or the occurrence or existence of any event
or condition which, upon the giving of notice or lapse of time, or both, would
constitute an Event of Default.
11. RIGHTS AND REMEDIES; ACCELERATION. Upon the occurrence of an
Event of Default, Lessor shall have all of the rights and remedies enumerated
herein (all of which are cumulative and not exclusive of any other right or
remedy available to Lessor) and Lessor may, at its sole option and discretion,
exercise one or more of the following remedies with respect to any or all of the
Collateral (i) by written notice to Lessee, terminate any or all Leases, as such
notice shall specify, and, with respect to such terminated Leases, declare
immediately due and payable and recover from Lessee, as liquidated damages for
loss of Lessor's bargain and not as a penalty, an amount equal to the aggregate
of all unpaid periodic installment payments and other sums due under the Leases
to the date of default plus the charges set forth in Section 4 hereof, if any,
plus the remaining periodic installments and other sums due under the Leases,
discounted to present value at the rate of six percent (6%) per annum; (ii)
Lessor may declare at its option, all or any part of the Obligations immediately
due and payable, without demand, notice of intention to accelerate, notice of
acceleration, notice of nonpayment, presentment, protest, notice of dishonor, or
any other notice whatsoever, all of which are hereby waived by Lessee and any
endorser, guarantor, surety or other party liable in any capacity for any of the
Obligations; (iii) cause Lessee to promptly ship, with insurance and freight
prepaid by Lessee, any or all Equipment to such location as Lessor may designate
in accordance with the terms of Lease Schedules, or
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<PAGE>
Lessor, at its option, may enter upon the premises where the Equipment is
located and take immediate possession of and remove the same by summary
proceedings or otherwise, all without liability to Lessor for or by reason of
damage to property or such entry or taking possession except for Lessor's gross
negligence or willful misconduct; (iv) sell any or all Equipment at public or
private sale or otherwise dispose of, hold, use, operate, lease to others or
keep idle the Equipment, all as Lessor in its sole discretion may determine and
all free and clear of any rights of Lessee; (v) remedy such default, including
making repairs or modifications to the Equipment, for the account and expense of
Lessee, and Lessee agrees to reimburse Lessor for all of Lessor's costs and
expenses; (vi) apply any Security Deposit or other cash collateral or sale or
remarketing proceeds of the Equipment at any time to reduce any amounts due to
Lessor, (vii) exercise any other right or remedy which may be available to
Lessor under applicable law, or proceed by appropriate court action to enforce
the terms hereof or to recover damages for the breach hereof, including
Attorneys' Fees and Expenses. Any notice required to be given by Lessor of a
sale or other disposition or other intended action which is made in accordance
with the terms of the Lease at least seven (7) days prior to such proposed
action, shall constitute fair and reasonable notice to Lessee of any such
action. Lender shall be liable to Lessor only for its gross negligence or
willful misconduct in failing to comply with any applicable law imposing duties
upon Lessor; Lessor's liability for any such failure shall be limited to the
actual loss suffered by Lessee directly resulting from such failure; and in no
event shall Lessor have any liability to Lessee for incidental, consequential,
punitive or exemplary damages. No remedy referred to in this Section 11 shall be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lessor at law or in equity.
(b) The exercise or pursuit by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise or pursuit by
Lessor of any or all such other remedies, and all remedies hereunder shall
survive termination of the Lease. In the event Lessor takes possession and
disposes of the Collateral, the proceeds of any such disposition shall be
applied in the following order: (1) to all of Lessor's costs, charges and
expenses incurred in taking, removing, holding, repairing and selling or leasing
the Equipment; (2) to pay the Lessor the remaining amount of any Obligations
owed to Lessor and (3) the balance, if any, to Lessee. A termination shall occur
only upon written notice by Lessor and only with respect to such Equipment as
Lessor shall specify in such notice. Termination under this Section 11 shall not
affect Lessee's duty to perform Lessee's Obligations under the Lease in full.
Lessee agrees to reimburse Lessor on demand for any and all costs and expenses
incurred by Lessor in enforcing its rights and remedies hereunder following the
occurrence of an Event of Default, including, without limitation, Attorneys'
Fees and Expenses, and the costs of repossession, storage, insuring, reletting,
selling and disposing of any and all Equipment.
12. RETURN OF EQUIPMENT; EXTENSION OF TERM. Upon demand of Lessor
pursuant to Section II hereof, or unless Lessee purchases the Equipment pursuant
to the Option to Purchase contained in the Lease Schedule, Lessee, at its own
risk and expense, shall immediately return the Equipment to Lessor in accordance
with the Lease Schedule. Should Lessee fail to provide timely notice of exercise
of the Option to Purchase as provided in the Lease Schedule or return the
Equipment to Lessor in the time and manner provided in the Lease Schedule, the
Lease Term shall be extended for successive 30 day periods until Lessee returns
the Equipment to Lessor in accordance with the Lease Schedule, or Lessor
terminates the Lease by 10 days written notice to Lessee. In the event any Lease
is extended pursuant to the preceding sentence, the Rental Payments in effect
prior to the expiration of the Lease Term, and all other provisions of the
Lease, shall continue to apply.
13. INDEMNITY. (a) Lessee agrees to indemnify, reimburse and hold
Lessor and its successors, Affiliates, assigns, officers, directors, employees,
agents and servants (hereinafter in this Section 13 referred to individually as
"Indemnitee', and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all costs, expenses or disbursements,
including Attorneys' Fees and Expenses, of whatsoever kind and nature imposed
on, asserted against or incurred by any of the Indemnitees in any way relating
to or arising out of the Lease or any other document executed in connection
herewith or therewith or in any other way connected with the administration of
the transactions contemplated hereby or thereby or the enforcement of any of the
terms of, or the preservation of any rights under any thereof, or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Equipment
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim, or any claim based on license, patent, trademark or
copyright infringement, or any obligation or liability to the manufacturer or
Supplier of the Equipment arising under any Supply Contracts, including purchase
orders issued by Lessee or Lessor or assigned to Lessor; provided, however that
no Indemnitee
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shall be indemnified pursuant to this Section 13 for losses, damages or
liabilities caused solely by the gross negligence or willful misconduct of such
Indemnitee. Lessee agrees that upon written notice by any Indemnitee of the
assertion of such a liability, obligation, damage, injury, penalty, claim,
demand, action, suit or judgment, Lessee shall assume full responsibility for
the defense thereof. Each Indemnitee agrees to use its best efforts to promptly
notify Lessee of any such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of Section 13(a) hereof, Lessee
agrees to pay, or reimburse Lessor for any, and all reasonable fees, costs and
expenses (including Attorneys Fees and Expenses) of whatever kind or nature
incurred in connection with the creation, preservation or protection of Lessor's
liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other fees, costs and expenses in connection
with protecting, maintaining or preserving the Collateral and Lessor's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.
(c) Lessee shall, at its sole cost and expense, protect, defend,
indemnify, release and hold harmless the Indemnitees from and against any and
all Losses imposed upon or incurred by or asserted against any Indemnitees, and
arising out of or in any way relating to any one or more of the following,
unless caused solely by the gross negligence or willful misconduct of any
Indemnitee: (i) any presence of any Hazardous Substances in, on, above or under
Lessee's leased or owned real property (the "Property"); (ii) any past, present
or threatened Release of Hazardous Substances in, on, above, under or from the
Property; (iii) any past or present violation of any Environmental Laws. The
term "Release" of any Hazardous Substance includes, but is not limited to, any
release, deposit, discharge, emission, leaking, spilling, seeping, migrating,
injecting, pumping, pouring, emptying, escaping, dumping, disposing or other
movement of Hazardous Substances. The term "Losses" includes any and all claims,
suits, liabilities (including, without limitation, strict liabilities), actions,
proceedings, obligations, debts, damages, losses, costs, expenses, diminution's
in value, fines, penalties, charges, fees, expenses, judgments, awards, amounts
paid in settlement, costs of remediating a Hazardous Substance (whether or not
performed voluntarily), engineers' fees, environmental consultants' fees, and
costs of investigation (including, but not limited to sampling, testing and
analysis of soil, water, air, building materials and other materials and
substances whether solid, liquid or gas) or punitive damages, of whatever kind
or nature (including, but not limited to Attorneys' Fees and Expenses).
(d) Without limiting the application of Section 13(a), (b) or (c)
hereof, Lessee agrees to pay, indemnify and hold each Indemnitee harmless from
and against any loss, costs, damages and expenses (including Attorneys' Fees and
Expenses) which such Indemnitee may suffer, expend or incur in consequence of or
growing out of any misrepresentation or omission of a material fact by Lessee in
the Lease or in any writing contemplated by or made or delivered pursuant to or
in connection with the Lease.
(e) If and to the extent that the obligations of Lessee under this
Section 13 are unenforceable for any reason, Lessee hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.
14. MAINTENANCE; INSPECTION. During the Lease Term for each item of
Equipment, Lessee shall, unless Lessor shall otherwise consent in writing:(a)
maintain conspicuously on any Equipment such labels, plates, decals or other
markings as Lessor may reasonably require, stating that Lessor is owner of such
Equipment; (b) furnish to Lessor such information concerning the condition,
location, use and operation of the Equipment as Lessor may request; (c) permit
any person designated by Lessor to visit and inspect any Equipment and any
records maintained in connection therewith, provided, however, that the failure
of Lessor to inspect the Equipment or to inform Lessee of any noncompliance
shall not relieve Lessee of any of its obligations hereunder; and (d) make no
additions, alterations, modifications or improvements (collectively,
"Improvements") to any item of Equipment that are not readily removable without
causing material damage to such item of Equipment or which will cause the value,
utility or useful life of such item of Equipment to materially decline. If any
such Improvement is made and cannot be removed without causing material damage
or decline in value, utility or useful life (a "Non-Severable Improvement" ),
then Lessee warrants that such Non-Severable Improvement shall immediately
become Lessor's property upon being installed and shall be free and clear of all
liens and encumbrances and shall become Equipment subject to all of the terms
and conditions of the Lease. All such Improvements that are not Non-Severable
Improvements shall be removed by Lessee prior to the return of the item of
Equipment hereunder or such Improvements shall also become the sole and absolute
property of Lessor without any further payment by Lessor to Lessee and shall be
free and clear of all liens and
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encumbrances whatsoever. Lessee shall repair all damage to any item of Equipment
caused by the removal of any Improvement so as to restore such item of Equipment
to the same condition which existed prior to its installation and as required by
the Lease.
15. FURTHER ASSURANCES. Lessee shall promptly execute and deliver to
Lessor such further documents and take such further action as Lessor may require
in order to more effectively carry out the intent and purpose of the Lease.
Lessee shall execute and deliver to Lessor upon Lessor's request any and all
schedules, forms and other reports and information as Lessor may deem necessary
or appropriate to respond to requirements or regulations imposed by any
governmental authorities or to comply with the provisions of the law of any
jurisdiction in which Lessee may then be conducting business or in which any of
the Equipment may be located. Lessee shall execute and deliver to Lessor upon
Lessor's request such further and additional documents, instruments and
assurances as Lessor deems necessary to acknowledge and confirm, for the benefit
of Lessor or any assignee or transferee of any of Lessor's rights, title and
interests hereunder in accordance with Section 16 hereof (an "Assignee"), all of
the terms and conditions of all or any part of the Lease and Lessor's or
Assignee's rights with respect thereto, and Lessee's compliance with all of the
terms and provisions thereof.
16. ASSIGNMENT. The provisions of the Lease shall be binding upon
and shall inure to the benefit of the heirs, administrators, successors and
assigns of Lessor and Lessee, provided, however, Lessee may not assign any of
its rights, sublease Equipment or delegate any of its obligations under the
Lease without the prior written consent of Lessor in its sole discretion. Lessor
may, from time to time, absolutely or as security, without notice to Lessee,
sell, assign, transfer, participate, pledge or otherwise dispose of all or any
part of a Lease, the Obligations and/or the Collateral therefor, subject to the
rights of Lessee under the Lease for the use and possession of the Equipment. In
such event, each and every immediate and successive Assignee shall have the
right to enforce the Lease with respect to those Obligations and/or Collateral
transferred to the Assignee, by legal action or otherwise, for its own benefit
as fully as if such Assignee were herein by name specifically given such rights.
Lessee agrees that the rights of any such Assignee hereunder or with respect to
the related Obligations, shall not be subject to any defense, set off or
counterclaim that Lessee may assert or claim against Lessor, and that any such
Assignee shall have all of Lessor's rights hereunder but none of Lessor's
obligations. Lessor shall have an unimpaired right to enforce the Lease for its
benefit with respect to that portion of any Lease, Obligations and/or Collateral
that Lessor has not sold, assigned, pledged or otherwise transferred.
17. GOVERNING LAW; MEDIATION OF THE LEASE. THE LEASE AND THE LEGAL
RELATIONS OF THE PARTIES HERETO SHALL IN ALL RESPECTS BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT, WITHOUT
REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW. LESSEE HEREBY CONSENTS AND
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
CONNECTICUT AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT FOR
THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ITS
OBLIGATIONS UNDER THE LEASE, AND EXPRESSLY WAIVES ANY OBJECTIONS THAT IT MAY
HAVE TO THE VENUE OF SUCH COURTS. LESSEE HEREBY EXPRESSLY WAVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THE LEASE. Any action
by Lessee against Lessor for any cause of action under the Lease shall be
brought within one year after any such cause of action first arises. If
requested by Lessor, Lessee agrees that prior to the commencement of any
litigation regarding the terms and conditions of the Lease, the parties hereto
shall subject themselves to non-binding mediation with a qualified mediator
mutually satisfactory to both parties.
18. NOTICES. Any demand or notice required or permitted to be given
hereunder shall be deemed effective (a) when deposited in the United States
mail, and sent by certified mail, return receipt requested, postage prepaid,
addressed to Lessor or to Lessee at the addresses set forth herein, or to such
other address as may be hereafter provided by the party to be notified by
written notice complying with the provisions hereof or (b) when transmitted to
Lessor or Lessee by facsimile at the respective numbers provided for such
purpose; provided, that such facsimile notice is promptly followed by notice
given in accordance with the immediately preceding subsection (a).
19. SECURITY DEPOSIT. Lessor may, at its option, apply the Security
Deposit, if any is indicated in a Lease Schedule, to cure any default of Lessee,
whereupon Lessee shall promptly restore such Security Deposit to its original
amount. Lessor shall return to Lessee any unapplied Security Deposit, without
interest, upon full payment and performance of Lessee's Obligations under the
Lease.
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20. MISCELLANEOUS; GENERAL PROVISIONS. The Lease will not be binding
on Lessor until accepted and executed by Lessor at its executive office in South
Norwalk, Connecticut. All options, powers and rights granted to Lessor hereunder
or under any promissory note, guaranty, letter of credit agreement, depository
agreement, instrument, document or other writing delivered to Lessor shall be
cumulative and shall be in addition to any other options, powers or rights which
Lessor may now or hereafter have under any applicable law or otherwise. Time is
of the essence in the payment and performance of all of Lessee's obligations
under the Lease. The captions in the Lease are for convenience only and shall
not define or limit any of the terms thereof.
Any provisions of this Lease which are unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such unenforceability without invalidating the remaining provisions hereof, and
any such unenforceability in any jurisdiction shall not render unenforceable
such provisions in any other jurisdiction. To the extent permitted by applicable
law, Lessee hereby waives any provisions of law which render any provision of
the Lease unenforceable in any respect.
LESSEE ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS
A PART IS A COMMERCIAL TRANSACTION AND EXCEPT AS OTHERWISE PROVIDED IN THE
LEASE, LESSEE HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE
AND JUDICIAL HEARING IN CONNECTION WITH LESSOR'S TAKING POSSESSION OR LESSOR'S
DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL
PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH
RIGHT WHICH LESSEE WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF
THE UNITED STATES OR OF ANY STATE, INCLUDING, WITHOUT LIMITATION, ITS RIGHTS TO
NOTICE AND HEARING UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES.
THE LEASE AND ANY OTHER WRITTEN AGREEMENT(S) BETWEEN THE PARTIES
EXECUTED SIMULTANEOUSLY HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES CONCERNING THE SUBJECT MATTER HEREOF, AND SUPERSEDE AND MAY NOT BE
CONTRADICTED BY ANY PRIOR WRITTEN AGREEMENTS BETWEEN THE PARTIES, INCLUDING,
WITHOUT LIMITATION, PROPOSALS, LETTERS, COMMITMENT LETTERS OR BY ANY PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. LESSEE
ACKNOWLEDGES AND CERTIFIES THAT NO SUCH ORAL AGREEMENTS EXIST. THE LEASE MAY NOT
BE AMENDED, NOR MAY ANY RIGHTS UNDER THE LEASE BE WAIVED, EXCEPT BY AN
INSTRUMENT IN WRITING SIGNED BY THE PARTY AGAINST WHOM SUCH AGREEMENT OR WAIVER
IS ASSERTED. The failure of Lessor at any time or times hereafter to require
strict performance by Lessee of any of the provisions, warranties, terms and
conditions contained in the Lease or in any other agreement, guaranty, note,
depository agreement, letter of credit instrument or document now or at any time
or times hereafter executed by Lessee or an Affiliate of Lessee and delivered to
Lessor shall not waive, affect or diminish any right of Lessor at any time or
times hereafter to demand strict performance thereof. The Lease may be executed
in any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute but one and the same instrument. The
section headings herein are included for convenience only and shall not be
deemed to be a part of the Lease. Each reference herein to "Lessor" shall be
deemed to include its successors and assigns, and each reference to "Lessee" and
any pronouns referring thereto as used herein shall be construed in the
masculine, feminine, neuter, singular or plural, as the context may require, and
shall be deemed to include the legal representatives, successors and assigns of
Lessee, all of whom shall be bound by the provisions hereof. EACH REFERENCE
HEREIN TO "LESSEE" SHALL MEAN AND INCLUDE ANY AND ALL LESSEES WHO SIGN BELOW,
EACH OF WHOM SHALL BE JOINTLY AND SEVERALLY LIABLE UNDER THE LEASE.
The Lease, and all related documents, including (a) amendments,
addenda, consents, waivers and modifications which may be executed
contemporaneously or subsequently herewith, (b) documents received by Lessor
from the Lessee, and (c) financial statements, certificates and other
information previously or subsequently furnished to Lessor, may be reproduced by
Lessor by any photographic, photostatic, microfilm, micro-card, miniature
photographic, compact disk reproduction or other similar process and Lessor may
destroy any original document so reproduced. Lessee agrees, herein waives all
right to object to the admissibility of such reproduction and stipulates that
any such reproduction shall, to the extent permitted by law, be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original itself is in existence and whether or not the
reproduction was made by Lessor in the regular course of business) and that any
enlargement, facsimile or further reproduction of the reproduction shall
likewise be admissible in evidence.
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21. SURVIVAL. Sections 7, 8, 9, 11, 12, 13, 14, 17, 18, 19 and 20
shall survive and continue in full force and effect without regard to the
payment in full of all Obligations under the Lease.
Executed and delivered by duly authorized representatives of the parties
hereto as of the date set forth below.
LESSOR: LESSEE:
OXFORD VENTURE FINANCE, LLC GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ J.A. Philbrick By: /s/ Kevin Rakin
---------------------------- ----------------------------
Name: J.A. PHILBRICK Name: KEVIN RAKIN
-------------------------- --------------------------
Title: PRESIDENT Title: EVP & CFO
------------------------- -------------------------
Date: 6-10-99 Date: 6/14/99
-------------------------- --------------------------
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<PAGE>
SCHEDULE 1
Trade Names
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<PAGE>
SCHEDULE 2
Name Changes; Changes in Chief Executive Office
Lessee is formerly known as BIOS Laboratories, Inc.
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Schedules to be filed by amendment
<PAGE>
RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT
RATE ADJUSTMENT RIDER AND ACKNOWLEDGMENT (this "Rider") to the Equipment
Lease Schedule No. 01 (the "Lease Schedule") and the related Master Equipment
Lease Agreement No. 7667 dated June 10, 1999 (the "Master Lease" and together
with the Lease Schedule, the "Lease"), between GENAISSANCE PHARMACEUTICALS,
INC., as lessee (the "Lessee") and OXFORD VENTURE FINANCE, LLC, as Lessor
("Oxford"). This Rider is entered into pursuant to and incorporates by this
reference all of the terms and provisions of the Lease. By its execution and
delivery of this Rider, Lessee hereby reaffirms all of the representations,
warranties and covenants contained in the Lease as of the date hereof, and
further represents and warrants to Lessor that no Default has occurred and is
continuing as of the date hereof.
1. Purpose. This Rider amends and restates the terms of the payments set
forth in Acceptance Certificate.
2. Definitions. The following terms shall have the following meanings
herein:
(a) "Adjustment Date" shall mean [the date Oxford disburses any portion of
the proceeds of the Lease][the date Oxford receives Lessee's executed Acceptance
Certificate in Oxford's standard form (following delivery) evidencing Lessee's
acceptance of the Equipment described in the Lease].
(b) "Final T-Note Average" shall mean the average of the yields on U.S.
Treasury Notes maturing in 3 years, as published by the Dow Jones Telerate
Access Service, Page 19901, for the close of business on each business day of
the two full calendar weeks immediately preceding the week containing the
Adjustment Date.
(c) "Preliminary Payments" shall mean the payments set forth in the Lease
Schedule, consisting of $15,548.99 due upon execution (the "Advance Payment")
followed by 47 consecutive monthly payments.
(d) "Preliminary T-Note Average" shall mean 5.01%.
3. Adjustment of Payments. The Preliminary Payments were calculated based
on a spread over the Preliminary T-Note Average. Should the Final T-Note Average
differ from the Preliminary T-Note Average, then the Preliminary Payments shall
be revised. For each increase or decrease of one (1) basis point (i.e., 1/100 of
1%) in the Final T-Note Average above or below the Preliminary T-Note Average,
the Preliminary Payments shall be revised as follows (complete below as
applicable):
The Advance Payment, due upon execution of the Equipment Schedule, shall
remain unchanged.
Each of the monthly payments initially scheduled, in the amount of
$15,548.99, shall increase or decrease by $2.87.
THE CALCULATION OF THE CONTRACT PAYMENTS UNDER THIS RIDER WILL SUPERSEDE
ANY PRIOR PROPOSAL OR QUOTATION. LESSEE HEREBY ACKNOWLEDGES AND AGREES TO THE
CALCULATION OF THE PAYMENT SCHEDULE SET FORTH HEREIN.
<PAGE>
4. Oxford's Requirements. The commencement of the Lease is subject to
satisfaction of all documentation and credit requirements of Oxford. If such
requirements are not satisfied by the Adjustment Date, then Oxford may, at its
sole option, declare that the Adjustment Date shall be the date when such
requirements are satisfied.
Dated as of: June 10, 1999
OXFORD VENTURE FINANCE, LLC GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ J.A. Philbrick By: /s/ Kevin Rakin
---------------------------- ----------------------------
Name: J.A. PHILBRICK Name: KEVIN RAKIN
-------------------------- --------------------------
Title: PRESIDENT Title: EVP & CFO
------------------------- -------------------------
<PAGE>
Exhibit 10.17
NEWCOURT FINANCIAL USA INC. Newcourt Financial USA Inc.
MASTER LEASE AGREEMENT 301 Lee Farm Corporate Park
83 Wooster Heights Road
Danbury, CT 06810
LESSEE: ________________________ MASTER LEASE AGREEMENT NO. ________________
ADDRESS: _______________________ DATE: _____________________________________
NEWCOURT FINANCIAL USA INC. ("Lessor") hereby leases to Lessee and Lessee leases
from Lessor, in accordance with the terms and conditions hereinafter set forth,
the equipment and property together with all replacements, substitutions,
additions, accessories, alterations and repairs incorporated therein or now or
hereafter affixed thereto (herein collectively referred to as the "Equipment")
described in each Equipment Schedule which may be executed by Lessor and Lessee
from time to time (individually a "Schedule" and collectively, the "Schedules"),
each of which is made a part hereof. For all purposes of this Master Lease
Agreement ("Lease"), each Schedule relating to one or more items of Equipment
shall be deemed a separate lease incorporating all of the terms and provisions
of this Lease. In the event of a conflict between the terms of this Lease and
the terms and conditions of a Schedule, the terms and conditions of the Schedule
shall govern and control that Schedule.
________________________________________________________________________________
1. TERM AND RENTAL. The term of this Lease (the "Minimum Lease Term") for any
item of Equipment shall be set forth in the Schedule relating to such item of
Equipment and shall commence (the "Commencement Date") on the acceptance Date
("Acceptance Date"), which shall be the applicable of: (1) the date of delivery
of the Equipment to Lessee; (2) in the case of Equipment which is the subject of
a sale and leaseback between Lessor and Lessee, the date upon which Lessor
purchases such Equipment from Lessee; or (3) in the case of Equipment requiring
installation, the date of installation of the Equipment. If the Acceptance Date
is other than the first day of a calendar month, then the Commencement Date of
the Minimum Lease Term set forth in any Schedule shall be the first day of the
calendar month following the month which includes the Acceptance Date and Lessee
shall pay to Lessor, in addition to all other sums due hereunder, an amount
equal to one-thirtieth of the amount of the average monthly rental payment due
or to become due hereunder multiplied by the number of days from and including
the Acceptance Date to the Commencement Date of the Minimum Lease Term set forth
in the Schedule. Lessee agrees to pay the total rental for the entire term
hereof, which shall be the total amount of all rental payments set forth in the
Schedule, plus such additional amounts as may become due hereunder or pursuant
to any written modification hereof or additional written agreement hereto.
Except as otherwise specified in the Schedule, rental payments hereunder shall
be monthly and shall be payable in advance on the first day of each month during
the term of this Lease beginning with the Commencement Date of the Minimum Lease
Term and shall be sent to the address of the Lessor specified in this Lease or
in the Schedule or as otherwise directed by the Lessor in writing. Time is of
the essence. Rental payments or any other payments due hereunder not made on or
before the due date shall be overdue and shall be subject to a service charge in
an amount equal to five percent (5%) per month of the overdue payments or the
maximum rate permitted by law whichever is less (the "Service Charge Rate"). If
Lessor shall at any time accept a rental payment after it shall become due, such
acceptance shall not constitute or be construed as a waiver of any or all of
Lessor's rights hereunder, including without limitation those rights of Lessor
set forth in Sections 12 and 13 hereof.
2. TITLE. This is an agreement of lease only. Lessee shall have no right, title
or interest in or to the Equipment leased hereunder, except as to the use
thereof subject to the terms and conditions of this Lease. All of the Equipment
shall remain personal property (whether or not the Equipment may at any time
become attached or affixed to real property). The Equipment is and shall remain
the sole and exclusive property of Lessor or its assignees. All replacements,
substitutions, modifications, repairs, alterations, additions and accessories
incorporated in or affixed to the Equipment (herein collectively called
"additions" and included in the definition of "Equipment"), whether before or
after the Commencement Date, shall become the property of Lessor upon being so
incorporated or affixed and shall be returned to Lessor as provided in Section
3. Upon the request of Lessor, Lessee will affix to the Equipment labels or
other markings supplied by Lessor indicating its ownership of the Equipment and
shall keep the same affixed for the entire term of this
<PAGE>
Lease. Lessee agrees to promptly execute and deliver or cause to be executed and
delivered to Lessor and Lessor is hereby authorized to record or file, any
statement and/or instrument requested by Lessor for the purpose of showing
Lessor's interest in the Equipment, including without limitation, financing
statements, security agreements, and waivers with respect to rights in the
Equipment from any owners or mortgagees of any real estate where the Equipment
may be located. In the event that Lessee fails or refuses to execute and/or file
Uniform Commercial Code financing statements or other instruments or recordings
which Lessor or its assignee reasonably deems necessary to perfect or maintain
perfection of Lessor's or its assignee's interests hereunder, Lessee hereby
appoints Lessor or Lessee's limited attorney-in-fact to execute and record all
documents necessary to perfect or maintain the perfection of Lessor's interests
hereunder. Lessee shall pay Lessor for any costs and fees relating to any
filings hereunder including, but not limited to, costs, fees, searches, document
preparation, documentary stamps, privilege taxes and reasonable attorneys' fees.
If any item of Equipment includes computer software, Lessee shall execute and
deliver and shall cause Seller (as hereinafter defined) to deliver all such
documents as are necessary to effectuate assignment of all applicable software
licenses to Lessor. Lessee shall at its expense: (i) indemnify, protect and
defend Lessor's title to the Equipment from and against all persons claiming
against or through Lessee; (ii) at all times keep the Equipment free from any
and all liens, encumbrances, attachments, levies, executions, burdens, charges
or legal process of any and every type whatsoever; (iii) give Lessor immediate
written notice of any breach of this Lease described in clause (ii); and (iv)
indemnify, protect and save Lessor harmless from any loss, cost or expense
(including reasonable attorneys' fees) caused by the Lessee's breach of any of
the provisions of this Lease, whether incurred by Lessor in pursuing its rights
against Lessee or defending against any claims or defenses asserted by or
through Lessee. In the event that this transaction is not deemed to be a lease
governed by Article 2A of the UCC, as security for the full and prompt payment
and performance of all present and future liabilities and obligations of Lessee
to Lessor under the Lease, Lessee grants to Lessor a security interest in all
Lessee's rights and interest in the Equipment and all accessions and
modifications thereto and all proceeds and products of the foregoing.
3. ACCEPTANCE AND RETURN OF EQUIPMENT. Lessor shall, at any time prior to
unconditional acceptance of all Equipment by Lessee, have the right to cancel
this Lease with respect to such Equipment (and if the Equipment or any portion
thereof has not previously been delivered, Lessor may refuse to pay for the
Equipment or any portion thereof or refuse to cause the same to be delivered)
if: (a) the Acceptance Date with respect to any item of Equipment to be leased
pursuant to any Schedule has not occurred within sixty (60) days of the
estimated Acceptance Date set forth in such Schedule or (b) there shall be, in
the reasonable judgment of Lessor, a material adverse change in the financial
condition or credit standing of Lessee or of any guarantor of Lessee's
performance under this Lease since the date of the most recent financial
statements of Lessee or of such guarantor submitted to Lessor. Upon any
cancellation by Lessor pursuant to this Section or the provisions of any
Schedule, Lessee shall forthwith reimburse to Lessor all sums paid by Lessor
with respect to such Equipment plus all costs and expenses of Lessor incurred in
connection with such Equipment and any interest or rentals due hereunder in
connection with such Equipment and shall pay to Lessor all other sums then due
hereunder, whereupon if Lessee is not in then in default and has full performed
all of its obligations hereunder, Lessor will, upon request of Lessee, transfer
to Lessee without warranty or recourse any rights that Lessor may then have with
respect to such Equipment. Lessee agrees to promptly execute and deliver to
Lessor (in no event later than 15 days after the Acceptance Date) a confirmation
by Lessee or unconditional acceptance of the Equipment in the form supplied by
Lessor (the "Equipment Acceptance"). Lessee agrees, before execution of the
aforesaid Equipment Acceptance, to inform Lessor in writing of any defects in
the Equipment, or in the installation thereof, which have come to the attention
of Lessee or its agents and which might give rise to all claim by Lessee against
the Seller or any other person. If Lessee fails to give notice to Lessor of any
such defects or fails to deliver to Lessor the Equipment Acceptance as provided
herein, it shall be deemed an acknowledgment by Lessee (for purposes of this
Lease only) that no such defects in the Equipment or its installation exist and
it shall be conclusively presumed, solely as between Lessor and its assignees
and Lessee, that such Equipment has been unconditionally accepted by Lessee for
lease hereunder. Except as otherwise provided in any Schedule, Lessee shall
provide Lessor ninety (90) days prior written notice by registered or certified
mail of its intention to return the Equipment upon expiration of the Minimum
Lease Term. Upon expiration or the cancellation or termination of the Lease with
respect to any Equipment, Lessee shall, at its own expense, assemble, crate,
insure and deliver all of the
2
<PAGE>
Equipment and all of the service records and all software and software
documentation subject to this Lease and any Schedules hereto to Lessor in the
same good condition and repair as when received, reasonable wear and tear
resulting only from proper use thereof excepted, to such reasonable destination
within the continental United States as Lessor shall designate. Lessee shall,
immediately prior to such return of each item of Equipment, provide to Lessor a
letter from the manufacturer of the Equipment or another service organization
reasonably acceptable to Lessor certifying that said item is in good working
order, reasonable wear and tear resulting only from proper use thereof excepted,
that such item is eligible for a maintenance agreement by such manufacturer and
all software is included thereon. If any computer software requires relicensing
when removed from Lessee's premises, Lessee shall bear all costs of such
relicensing. If Lessee fails for any reason to provide the notice set forth
above or to re-deliver the Equipment back to Lessor in accordance with the terms
set forth above, Lessee shall pay to Lessor, at Lessor's election, an amount
equal to the highest monthly payment set forth in the Schedule for a period of
not less than three (3) months ("Holdover Period") and at the end of such
Holdover Period, Lessee shall return the Equipment to Lessor as provided herein.
If Lessee fails or refuses to return the Equipment as provided herein at the end
of any Holdover Period, the term of such schedule shall be deemed to have been
automatically renewed for successive Holdover Periods until Lessee returns the
Equipment in accordance with the terms set forth above and during which time,
Lessee shall pay to Lessor, at Lessor's option, an amount equal to one hundred
percent (100%) of the highest monthly payment set forth in the Schedule or the
highest rate permitted by law, whichever is less, for each month or portion
thereof, until Lessee returns the Equipment to Lessor.
4. DISCLAIMER OF WARRANTIES. LESSEE HAS EXCLUSIVELY SELECTED AND CHOSEN THE
TYPE, DESIGN, CONFIGURATION, SPECIFICATION AND QUALITY OF THE EQUIPMENT HEREIN
LEASED AND THE VENDOR, DEALER, SELLER, MANUFACTURER OR SUPPLIER THEREOF (HEREIN
COLLECTIVELY CALLED "SELLER"), AS SET FORTH IN THE SCHEDULES. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS, ADAPTABILITY, AND IMPLIED WARRANTY OF QUIET
ENJOYMENT OR NON-INTERFERENCE OR SUITABILITY FOR ANY PARTICULAR PURPOSE, AND,
LESSEE LEASES, HIRES AND RENTS THE EQUIPMENT "AS IS." Lessee understands and
agrees that neither Seller, nor any agent of Seller, is an agent of Lessor or is
in any manner authorized to waive or alter any term or condition of this Lease.
Lessor shall not be liable for any loss or damage suffered by Lessee or by any
other person or entity, direct or indirect or consequential, including, but not
limited to, business interruption and injury to persons or property, resulting
from non-delivery or late delivery, installation, failure or faulty operation,
condition, suitability or use of the Equipment leased by Lessee hereunder, or
for any failure of any representations, warranties or covenants made by the
Seller. Any claims of Lessee shall not be made against Lessor but shall be made,
if at all, solely and exclusively against Seller, or any persons other than the
Lessor. Lessor hereby authorizes Lessee to enforce during the term of this
Lease, in its name, but at Lessee's sole effort and expense, all warranties,
agreements or representations, if any, which may have been made by Seller to
Lessor or to Lessee, and Lessor hereby assigns to Lessee solely for the limited
purpose of making and prosecuting any such claim, all rights which Lessor may
have against Seller for breach of warranty or other representation respecting
the Equipment.
5. CARE, TRANSFER AND USE OF EQUIPMENT. Lessee, at its own expense, shall
maintain the Equipment in good operating condition, repair and appearance in
accordance with Seller's specifications and in compliance with all applicable
laws and regulations and shall protect the Equipment from deterioration except
for reasonable wear and tear resulting only from proper use thereof. When
generally offered, Lessee shall, at its expense, keep a maintenance contract in
full force and effect, throughout the term of this Lease and any Schedule
hereto. The disrepair or inoperability of the Equipment regardless of the cause
thereof shall not relieve Lessee of the obligation to pay rental hereunder.
Lessee shall not make any modification, alteration or addition to the Equipment
(other than normal operating accessories or controls). Lessee will not, and will
not permit anyone other than the authorized field engineering representatives of
Seller or other maintenance organization reasonably acceptable to Lessor to
effect any inspection, adjustment, preventative or remedial maintenance or
repair to the Equipment. LESSEE MAY NOT (a)
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<PAGE>
RELOCATE OR OPERATE THE EQUIPMENT AT LOCATIONS OTHER THAN THE PREMISES OF LESSEE
SPECIFIED IN THE APPLICABLE SCHEDULE (THE "PREMISES"), EXCEPT WITH LESSOR'S
PRIOR WRITTEN CONSENT, WHICH SHALL NOT BE UNREASONABLY WITHHELD IF SUCH OTHER
LOCATION WITHIN THE CONTINENTAL UNITED STATES, OR (b) SELL, CONVEY, TRANSFER,
ENCUMBER, PART WITH POSSESSION OF, OR ASSIGN ANY ITEM OF EQUIPMENT OR ANY OF ITS
RIGHTS HEREUNDER, AND ANY SUCH PURPORTED TRANSACTION SHALL BE NULL AND VOID AND
OF NO FORCE OR EFFECT. In the event of a relocation of the Equipment or any item
thereof to which Lessor consents, all costs (including any additional property
taxes or other taxes and any additional expense of insurance coverage) resulting
from any such relocation, shall be promptly paid by Lessee upon presentation to
Lessee of evidence supporting such cost. Lessor shall have the right during
normal hours upon reasonable notice to Lessee, subject to applicable laws and
regulations, to enter Lessee's Premises in order to inspect, observe, affix
labels or other markings, or to exhibit the Equipment to prospective purchasers
or future lessees thereof, or to otherwise protect Lessor's interest therein.
6. NET LEASE. THIS LEASE AND ANY SCHEDULE HERETO IS A NET LEASE, AND ALL
PAYMENTS HEREUNDER ARE NET TO LESSOR. All taxes, assessments, licenses, and
other charges (including, without limitation personal property taxes an sales,
use and leasing taxes and penalties and interest on such taxes) imposed, levied
or assessed on the ownership, possession, rental or use of the Equipment after
delivery of the Equipment to Lessee and thereafter during the term of this Lease
and any schedule hereto (except for Lessor's federal or state net income taxes)
shall be paid by Lessee when due and before the same shall become delinquent,
whether such taxes are assessed or would ordinarily be assessed against Lessor
or Lessee. To the extent possible under applicable law, for personal property or
advalorem tax return purposes only, Lessee shall include the Equipment on such
returns as may be required, which returns shall be timely filed by it. In any
event, Lessee shall file all tax returns required for itself or Lessor and
Lessor hereby appoints Lessee as its attorney-in-fact for such purpose. In case
of failure by Lessee to so pay said taxes, assessments, licenses or other
charges, Lessor may pay all or any part of such items, in which event the amount
so paid by Lessor including any interest or penalties thereon and reasonable
attorneys' fees incurred by Lessor in pursuing its rights against Lessee or
defending against any claims or defenses asserted by or through Lessee shall be
immediately paid by Lessee to Lessor as additional rental hereunder. Lessee
shall promptly pay all costs, expenses and obligations of every kind and nature
incurred in connection with the use or operation of the Equipment which may
arise or become due during the term of this Lease and any Schedule hereto,
whether or not specifically mentioned herein. In case of failure by Lessee to
comply with any provision of this Lease and any Schedule hereto, Lessor shall
have the right, but not the obligation, to effect such compliance on behalf of
Lessee. In such event, all costs and expenses incurred by Lessor in effecting
such compliance shall be immediately paid by Lessee to Lessor as additional
rental hereunder.
7. INDEMNITY. Lessee shall and does hereby agree to indemnify, defend and hold
Lessor and its assigns harmless from and against any and all taxes described in
Section 6 above, liability, loss, costs, injury, damage, penalties, suits,
judgements, demands, claims, expenses and disbursements (including without
limitation, reasonable attorneys' fees incurred by Lessor in pursuing its rights
against Lessee or defending against any claims or defenses against any claims or
defenses asserted by or through Lessee) of any kind whatsoever, except
consequential damages, arising out of, on account of, or in connection with this
Lease and the Equipment leased hereunder, including, without limitation, its
manufacture, selection, purchase, delivery, rejection, installation, ownership,
possession, leasing, renting, operation, control, use, maintenance and the
return thereof. This indemnity shall survive the Minimum Lease Term or earlier
cancellation or termination of this Lease and any Schedule hereto.
8. INSURANCE. Commencing on the date that risk of loss or damage passes to
Lessor from the Seller and continuing until Lessee has re-delivered possession
of the Equipment to Lessor, Lessee shall, at its own expense, keep the Equipment
(including all additions thereto) insured against all risks of loss or damage
from every and any cause whatsoever in such amounts (but in no event less than
the greater of the replacement value thereof or the amount set forth in the
applicable Casualty Schedule, whichever is higher), with such deductibles and
exclusions as approved by Lessor and in such form as is satisfactory to Lessor.
All such insurance policies shall protect Lessor and Lessor's assignee(s) as
loss payees as their interests may appear. Lessee shall also, at its own
expense, carry public liability insurance, with Lessor and Lessor's assignee(s)
as an additional insured, in such amount with such companies and in such form as
is satisfactory to
4
<PAGE>
Lessor, with respect to injury to person or property resulting from or based in
any way upon or in any way connected with or relating to the installation, use
or alleged use, or operation of any or all of the Equipment, or its location or
condition. Not less than ten days prior to the Acceptance Date, Lessee shall
deliver to Lessor satisfactory evidence of such insurance and shall further
deliver evidence of renewal of each such policy not less than thirty (30) days
prior to expiration thereof. Each such policy shall contain an endorsement
providing that the insurer will give Lessor not less than thirty (30) days prior
written notice of the effective date of any alteration, change, cancellation, or
modification of such policy or the failure by Lessee to timely pay all required
premiums, costs or charges with respect thereto. Upon Lessor's request, Lessee
shall cause its insurance agent(s) to execute and deliver to Lessor Loss Payable
Clause Endorsement and Additional Insured Endorsement (bodily injury and
property damage liability insurance) forms provided to Lessee by Lessor. In case
of the failure to procure or maintain such insurance, Lessor shall have the
right, but not the obligation, to obtain such insurance and any premium paid by
Lessor shall be immediately due and payable by Lessee to Lessor as additional
rent hereunder. The maintenance of any policy or policies of insurance pursuant
to this Section shall not limit any obligation or liability of Lessee pursuant
to Sections 7 or 9 or any other provision of this Lease and any Schedule
thereto.
9. RISK OF LOSS. Until such time as the Equipment is returned and delivered to
and accepted by Lessor, pursuant to the terms of this Lease and any Schedule
hereto, Lessee hereby assumes and shall bear the entire risk of loss, damage,
theft and destruction of the Equipment, or any portion through, from any cause
whatsoever ("Equipment Loss"). Without limitation of the foregoing, no Equipment
Loss shall relieve Lessee in any way from its obligations hereunder. Lessee
shall promptly notify Lessor in writing of any Equipment Loss. In the event of
any such Equipment Loss, Lessee shall: (a) in the event Lessor determines such
Equipment to be repairable, promptly place, at Lessee's expense, the Equipment
in good repair, condition and working order in accordance with Seller's
specifications and to the satisfaction of Lessor; or (b) in the event of an
actual or constructive total loss of any item of Equipment, at Lessor's option:
(i) promptly replace, at Lessee's expense, the Equipment with like equipment of
the same or a later model with the same additions as the Equipment, and in good
repair, condition and working order in accordance with the Seller's
specifications and to the satisfaction of Lessor; or (ii) immediately pay to
Lessor the amount obtained by multiplying the Actual Equipment Cost as specified
in the applicable Schedule by the percentage contained in the applicable
Casualty Schedule for the date of such Equipment Loss plus, any unpaid rentals
or any amounts due hereunder or, if no Casualty Schedule has been made a part of
any applicable Schedule, an amount equal to the present value of the total
amount of unpaid rentals and all other amounts due and to become due under any
applicable Schedule during the term thereof as of the date of any payment,
discounted at a rate equal to discount rate of the Federal Reserve Bank of
Chicago as of the Commencement Date of the Lease with respect to each applicable
Schedule, plus an additional amount equal to the fair market value of the
Equipment immediately prior to the loss, theft, damage, or destruction, but in
no event shall the amount of such fair market value be less than twenty percent
(20%) of the actual cost of the Equipment. In the event Lessee is required to
repair or replace any such item of Equipment pursuant to Subsections (a) or
(b)(i) of the preceding sentence, the insurance proceeds received by Lessor, if
any, pursuant to Section 8, after the use of such funds to pay any unpaid
amounts then due hereunder, shall be paid to Lessee or, if applicable, to a
third party repairing or replacing the Equipment upon Lessee's furnishing proof
satisfactory to Lessor that such repair or replacement has been completed in a
satisfactory manner. In the event Lessor elects option (b)(ii), Lessee shall be
entitled to a credit against the payment required by said Subsection in an
amount equal to such insurance proceeds actually received by Lessor pursuant to
Section 8 on account of such Equipment, and, upon payment by Lessee to Lessor of
all of the sums required pursuant to Subsection (b)(ii), the applicable Schedule
shall terminate with respect to such item of Equipment and Lessee shall be
entitled to whatever interest Lessor may have in such item "as is, where is" and
"with all faults" in its then condition and location without warranties of any
type whatsoever, express or implied.
10. COVENANTS OF LESSEE. LESSEE AGREES THAT ITS OBLIGATIONS UNDER THIS LEASE AND
ANY SCHEDULE HERETO, INCLUDING WITHOUT LIMITATION, THE OBLIGATION TO PAY RENTAL,
ARE IRREVOCABLE AND ABSOLUTE, SHALL NOT ABATE FOR ANY REASON WHATSOEVER
(INCLUDING ANY CLAIMS AGAINST LESSOR), AND SHALL CONTINUE IN FULL FORCE AND
EFFECT REGARDLESS OF ANY INABILITY OF LESSEE TO USE THE EQUIPMENT OR ANY PART
THEREOF FOR ANY REASON WHATSOEVER INCLUDING, WITHOUT LIMITATION, WAR, ACT OF
GOD, STORMS, GOVERNMENTAL REGULATIONS, STRIKE OR OTHER LABOR TROUBLES, LOSS,
DAMAGE, DESTRUCTION, DISREPAIR, OBSOLESCENCE,
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FAILURE OF OR DELAY IN DELIVERY OF THE EQUIPMENT, OR FAILURE OF THE EQUIPMENT TO
PROPERLY OPERATE FOR ANY CAUSE. In the event of any alleged claim (including a
claim which would otherwise be in the nature of a set-off) against Lessor,
Lessee shall fully perform and pay its obligations hereunder (including all
rents, without set-off or defense of any kind) and its only exclusive recourse
against Lessor shall be by a separate action. Lessee agrees to furnish promptly
to Lessor the annual financial statements of Lessee (and of any guarantors of
Lessee's performance under this Lease and any Schedule hereto), prepared in
accordance with generally accepted accounting principles and certified by
independent certified public accountants, and such interim financial statements
of Lessee as Lessor may require during the entire term of this Lease and any
Schedule hereto. Lessee, if requested, shall provide at Lessee's expense an
opinion of its counsel acceptable to Lessor affirming the covenants,
representations and warranties of Lessee under this Lease and any Schedule
hereto.
11. REPRESENTATIONS AND WARRANTIES. In order to induce Lessor to enter into this
Lease and any Schedule hereto and to lease the Equipment to Lessee hereunder,
Lessee represents and warrants that: (a) FINANCIAL STATEMENTS. (i) applications,
financial statements, and reports which have been submitted by Lessee and any
Obligors (as hereinafter defined) to Lessor are, and all information hereafter
furnished by Lessee and Obligors to Lessor will be, true and correct in all
material respects as of the date submitted; (ii) as of the date hereof, the date
of any Schedule and any Acceptance Date, there has been no material adverse
change in any matter stated in such applications, financial statements and
reports; and, (iii) none of the foregoing omit or omitted to state any material
fact. (b) ORGANIZATION. Lessee is an organizational entity described on the
signature page hereof and is duly organized, validly existing and is duly
qualified to do business and is in good standing in each state in which the
Equipment will be located. (c) AUTHORITY. Lessee has full power, authority and
right to execute, deliver and perform this Lease and any Schedule hereto, and
the execution, delivery and performance hereof has been authorized by all
necessary action of Lessee. (d) ENFORCEABILITY. This Lease and any Schedule or
other document executed in connection therewith has been duly executed and
delivered by Lessee and any Obligor and constitutes a legal, valid and binding
obligation of Lessee and any Obligor enforceable in accordance with its terms.
(e) CONSENTS. The execution, delivery and performance of this Lease and any
Schedule hereto does not require any approval or consent of any stockholders,
partners or proprietors or of any trustee or holders of any indebtedness or
obligations of Lessee, and will not contravene any law, regulation, judgment or
decree applicable to Lessee, or the certificate of incorporation, partnership
agreement, by-laws or other governing documents of Lessee, or contravene the
provisions of, or constitute a default under, or result in the creation of any
lien upon any property of Lessee under any mortgage, instrument or to her
agreement to which Lessee is a party or by which Lessee or its assets may be
bound or affected. Except as disclosed, no authorization, approval, license,
filing or registration with any court or governmental agency or instrumentality
is necessary in connection with the execution, delivery, performance, validity
and enforceability of this Lease and any Schedule hereto. (f) TITLE. On each
Commencement Date, Lessor shall have good and marketable title to the items of
Equipment which is subject to this Lease and any Schedule hereto on such date,
free and clear of all liens, except the lien of Seller which will be released
upon receipt of payment. Lessee warrants that no party has a security interest
in the Equipment which will not be released on or before payment by Lessor to
Seller of the Equipment and that the Equipment is and shall at all times remain
personal property regardless of how it may be affixed to any real property. (g)
LITIGATION. There is no action, suit, investigation or proceeding by or before
any court, arbitrator, agency or governmental authority pending or threatened
against or affecting Lessee: (i) which involves the Equipment or the
transactions contemplated by this Lease and any Schedule hereto; or (ii) which,
if adversely determined, could have a material adverse effect on the financial
condition, business or operation of Lessee.
12. EVENTS OF DEFAULT. An event of default ("Event of Default") shall occur
hereunder if Lessee or any Obligor ("Obligor" shall include any guarantor or
surety of any obligations of Lessee to Lessor under this Lease and any Schedule
hereto); (i) fails to pay any installment of rent or other payment required
hereunder when due; or (ii) attempts to or does remove from the Premises (except
a relocation with Lessor's consent as provided in Section 5), sell, transfer,
encumber, part with possession of, or sublet any item of the Equipment; or (iii)
shall suffer or have suffered, in the reasonable judgment of Lessor, a material
adverse change in its financial condition since the date of the last financial
statements submitted to Lessor, and as a result thereof Lessor deems itself to
be insecure, or any of the statements or other documents or information
submitted at any time heretofore or hereafter by Lessee or Obligor to
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Lessor has misstated or shall misstate or has failed or shall fail to state a
material fact; or (iv) breaches or shall have breached any representation or
warranty made or given by Lessee or Obligor in this Lease or in any other
document furnished to Lessor in connection herewith, or any such representation
or warranty shall be untrue or, by reason of failure to state a material fact or
otherwise, shall be misleading; or (v) fails to perform or observe any other
covenant, condition or agreement to be performed or observed by it hereunder,
and such failure or breach shall continue unremedied for a period of ten days
after the earlier of (a) the date on which Lessee obtains, or should have
obtained knowledge of such failure or breach, or (b) the date on which notice
thereof shall be given by Lessor to Lessee; or (iv) shall become insolvent or
bankrupt or make an assignment for the benefit of creditors or consent to the
appointment of a trustee or receiver, or a trustee or receiver shall be
appointed for a substantial part of its property without its consent, or
bankruptcy or reorganization or insolvency proceeding shall be instituted by or
against Lessee or Obligor; or (vii) conveys, sells, transfers or assigns
substantially all of Lessee's or Obligor's assets or ceases doing business as a
going concern, or, if a corporation, ceases to be in good standing or files a
statement of intent to dissolve, or abandons any or all of the Equipment; or
(viii) shall be in breach of or default under any lease or other agreement at
any time executed with Lessor or any other lessor or with any lender to Lessee
or Obligor.
13. REMEDIES. Upon the occurrence of an Event of Default (the "Default Date")
set forth in Section 12 and at any time thereafter, Lessor may, in its sole and
absolute discretion, do any one or more of the following: (a) upon notice to
Lessee cancel all or any portion of this Lease and some or all Schedules
executed pursuant thereto; (b) enter Lessee's Premises and without removal of
the Equipment, render the Equipment unusable or, require Lessee to assemble the
Equipment and make it available to Lessor at a place designated by Lessor,
and/or dispose of the Equipment by sale or otherwise (all of which
determinations may be made by Lessor in its sole and absolute discretion)
without any duty to account for such action or inaction or for any proceeds or
profits with respect thereto; (c) declare immediately due and payable all sums
due and to become due hereunder for the full term of the Lease (including any
renewal or purchase obligations which Lessee has contracted to pay); (d) with or
without canceling this Lease, recover from Lessee damages, in an amount equal to
the sum of: (i) all unpaid rent and other amounts that became due and payable
on, or prior to, the Default Date, (ii) the present value of all future rentals
and other amounts describe dint he Lease and not included in (i) above
discounted to the Default Date at a rate equal to the discount rate of the
Federal Reserve Bank of Chicago as of the Commencement Date of the Lease with
respect to each Schedule (which discount rate, Lessee agrees is a commercially
reasonable rate which takes into account the facts and circumstances at the time
such Schedule commenced), (iii) all commercially reasonable costs and expenses
incurred by Lessor in enforcing Lessor's rights under this Lease or defending
against any claims or defenses asserted by or through Lessee, including but not
limited to, costs of repossession, recovery, storage, repair, sale, re-lease and
reasonable attorneys' fees, (iv) the estimated residual value of the Equipment
as of the expiration of the Lease, (v) any indemnity amount payable to Lessor;
and (vi) interest on all of the foregoing from the Default Date until the date
payment is received by Lessor at 2 1/2% in excess of the Prime Rate (or its
equivalent) per annum in effect on the date of such payment at the First
National Bank of Chicago) or the highest rate permitted by law, whichever is
less; (e) exercise any other rights or remedy which may be available to it under
the Uniform Commercial Code or any other applicable law. Lessor reserves the
right, in its sole and absolute discretion, to release or sell any or all of the
Equipment at a public auction or in a private sale, at such time, on such terms
and with such notice as Lessor shall in its sole and absolute discretion deem
reasonable. In such event, without any duty on Lessor's part to effect any such
re-lease or sale of the Equipment, Lessor will credit the present value of any
proceeds from such sale or re-lease actually received and retainable by it (net
of any and all costs or expenses) discounted from the date of Lessor's receipt
thereof to the Default Date at 2 1/2% in excess of the Prime Rate (or its
equivalent) per annum in effect on the date of such payment at the First
National Bank of Chicago, or the highest rate permitted by law, whichever is
less to the amounts due to Lessor from Lessee under the provisions of (c), (d)
and/or (e) above. A cancellation of this Lease shall occur only upon notice by
Lessor and only as to such items of Equipment as Lessor specifically elects to
cancel and this Lease shall continue in full force and effect as to the
remaining items of Equipment, if any. If this Lease and/or any Schedule is
deemed at any time to be one intended as security, Lessee agrees that the
Equipment shall secure, in addition to the indebtedness set forth herein, any
other indebtedness at any time owing by Lessee to Lessor. No remedy referred to
in this Section is intended to be exclusive, but shall be cumulative and in
addition to any other remedy referred to above or otherwise
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available to Lessor at law or in equity. NO express or implied waiver by Lessor
of any default shall constitute a waiver of any other default by Lessee or a
waiver of any of Lessor's rights.
14. ASSIGNMENT BY LESSOR. LESSOR MAY (WITH OR WITHOUT NOTICE TO LESSEE) SELL,
TRANSFER, ASSIGN OR GRANT A SECURITY INTEREST IN ALL OR ANY PART OF ITS INTEREST
IN THIS LEASE, ANY SCHEDULE, ANY ITEMS OF EQUIPMENT OR ANY AMOUNT PAYABLE
HEREUNDER. In such an event, Lessee shall, upon receipt of notice, acknowledge
any such sale, transfer, assignment or grant of a security interest and shall
pay its obligations hereunder or amounts equal thereto to the respective
transferee, assignee or secured party in the manner specified in any
instructions received from Lessor. Notwithstanding any such sale, transfer,
assignment or grant of a security interest by Lessor and so long as no event of
default shall have occurred hereunder, neither Lessor nor any transferee,
assignee or secured party shall interfere with Lessee's right of use or quiet
enjoyment of the Equipment. In the event of such sale, transfer, assignment or
grant of a security interest in all or any part of this Lease and any Schedule
hereto, or in the Equipment or in sums payable hereunder, as aforesaid, Lessee
agrees to execute such documents as may be reasonably necessary to evidence,
secure and complete such sale, transfer, assignment or grant of a security
interest and to perfect the transferee's, assignee's or secured party's interest
therein, and Lessee further agrees that the rights of any transferee, assignee
or secured party shall not be subject to any defense, set-off or counterclaim
that Lessee may have against Lessor or any other party, including the Seller,
which defenses, set-offs and counterclaims shall be asserted only against such
party, and that any such transferee, assignee or secured party shall have all of
Lessor's rights hereunder, but shall assume none of Lessor's obligations
hereunder. Lessee agrees that Lessor may assign or transfer this Lease or
Lessor's interest in the Equipment even if said assignment or transfer could be
deemed to materially affect the interests of Lessee. Nothing in the preceding
sentence shall affect or impair the provisions of Section 4, Section 10 or any
other provisions of this Lease.
15. AMENDMENTS. This Lease and any Schedule hereto contain the entire agreement
between the parties with respect to the Equipment, this Lease and any Schedule
hereto and there is no agreement or understanding, oral or written, which is not
set forth herein. This Lease and any Schedule hereto may not be altered,
modified, terminated or discharged except by a writing signed by the party
against whom such alteration, modification, termination or discharge is sought.
Lessee's Initials _______
16. LAW. This Lease and any Schedule hereto shall be binding only when accepted
by Lessor at its corporate headquarters in Illinois and shall in all respects be
governed and construed, and the rights and the liabilities of the parties hereto
determined, except for local filing requirements, in accordance with the laws of
the State of Illinois. LESSEE WAIVES TRIAL BY JURY AND SUBMITS TO THE
JURISDICTION OF THE FEDERAL DISTRICT COURTS OF COMPETENT JURISDICTION OR ANY
STATE COURT WITHIN THE STATE OF NEW JERSEY AND WAIVES ANY RIGHT TO ASSERT THAT
ANY ACTION INSTITUTED BY LESSOR IN ANY SUCH COURT IS IN THE IMPROPER VENUE OR
SHOULD BE TRANSFERRED TO A MORE CONVENIENT FORUM.
17. INVALIDITY. In the event that any provision of this Lease and any Schedule
hereto shall be unenforceable in whole or in part, such provisions shall be
limited to the extent necessary to render the same valid, or shall be exercised
from this Lease or any Schedule hereto, as circumstances may require, and this
Lease and the applicable Schedule shall be construed as if said provision had
been incorporated herein as so limited, or as if said provision had not been
included herein, as the case may be without invalidating any of the remaining
provisions hereof.
18. SECURITY INTEREST. As security for the full and prompt payment and
performance of all present and future liabilities and obligations of Lessee or
Lessor under this Agreement and the Lease, Lessee grants to Lessor a security
interest in all Lessee's rights and interest in the Equipment and all proceeds
and products thereof.
19. MISCELLANEOUS. All notices and demands relating hereto shall be in writing
and mailed by certified mail, return receipt requested, to Lessor or Lessee at
their respective addresses above or shown in the Schedule, or at any other
address designated by notice served in accordance herewith. Notice shall become
effective when deposited in the United States mail, with proper postage prepaid,
addressed to the party intended to be served at the address designated herein.
All obligations of Lessee shall survive the termination or expiration of this
Lease and any Schedule hereto. Should Lessor permit use by Lessee
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<PAGE>
of any Equipment beyond the Minimum Lease Term, or, if applicable, any exercised
extension or renewal term, the lease obligations of Lessee shall continue and
such permissive use shall not be construed as a renewal of the term thereof, or
as a waiver of any right or continuation of any obligation of Lessor hereunder,
and Lessor may take possession of any such Equipment at any time upon demand. If
more than once Lessee is named in this Lease, the liability of each shall be
joint and several. Lessee shall, upon request of Lessor from time to time,
perform all acts and execute and deliver to Lessor all documents which Lessor
deems reasonably necessary to implement this Lease and any Schedule hereto,
including, without limitation, certificates addressed to such persons as Lessor
may direct stating that this Lease and the Schedule hereto is in full force and
effect, that there are no amendments or modifications thereto, that Lessor is
not in default hereof or breach hereunder, setting forth the date to which
rentals due hereunder have been paid, and stating such other matters as Lessor
may request, This Lease and any Schedule hereto shall be binding upon the
parties and their successors, legal representatives and assigns. Lessee's
successors and assigns shall include, without limitation, a receiver,
debtor-in-possession, or trustee of or for Lessee. If any person, firm,
corporation or other entity shall guarantee this Lease and the performance by
Lessee of its obligations hereunder, all of the terms and provisions hereof
shall be duly applicable to such Obligor. Lessee shall, at its expense and upon
Lessor's demand, promptly execute, acknowledge, deliver, file, register and
record any and all further documents and take any and all other action
reasonably requested by Lessor from time to time, for the purpose of fully
effectuating the intent and purposes of each Lease Schedule, and to protect the
interests of Lessor, its successors and assigns. Lessor may file a copy f this
Lease Agreement in lieu of a financing statement.
20. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee hereby
waives any and all rights and remedies conferred upon a Lessee by Article 2A of
this Uniform Commercial Code as adopted in any jurisdiction, including but not
limited to Lessee's rights to: (i) cancel this Lease; (ii) repudiate this Lease;
(iii) reject the Equipment; (iv) revoke acceptance of the Equipment; (v) recover
damages from Lessor for any breaches of warranty or for any other reason; (vi)
claim a security interest in the Equipment in Lessee's possession or control for
any reason (vii) deduct all or any party of any claimed damages resulting from
Lessor's default, if any, under this Lease; (viii) accept partial delivery of
the Equipment (ix) "cover" by making any purchase or lease of or contract to
purchase or lease Equipment in substitution for those due from Lessor; (x)
recover any general, special, incidental, or consequential damages for any
reason whatsoever; and (xi) specific performance, replevin, detinue,
sequestration, claim, and delivery of the like for ant Equipment identified to
this Lease. To the extent permitted by applicable law, Lessee also hereby waives
any rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell, lease or otherwise use any Equipment in mitigation of Lessor's
damages as set forth in Paragraph 13 or which may otherwise limit or modify any
of Lessor's rights or remedies under Paragraph 13 or which may otherwise limit
or modify any of Lessor's rights or remedies under Paragraph 13 or which may
otherwise limit or modify any of Lessor's rights or remedies under Paragraph 13.
Any action by Lessee against Lessor for any default by Lessor under this Lease,
including breach of warranty or indemnity, shall be commenced within one (1)
year after any such cause of action accrues.
21. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original. Each Schedule shall be executed in three
(3) serially numbered counterparts each of which shall be deemed an original but
only counterpart number 1 shall constitute "chattel paper" or "collateral"
within the meaning of the Uniform Commercial Code in any jurisdiction.
22. ADDENDUM. ("X" if applicable) [____] See Addendum (s) attached hereto and
made a part hereof.
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THE PERSON EXECUTING THIS LEASE FOR AND ON BEHALF OF LESSEE WARRANTS AND
REPRESENTS, WHICH WARRANTY AND REPRESENTATION SHALL SURVIVE THE EXPIRATION OR
TERMINATION OF THIS LEASE, THAT THIS LEASE AND THE EXECUTION HEREOF HAS BEEN
DULY AND VALIDLY AUTHORIZED BY LESSEE, CONSTITUTES A VALID AND BINDING
OBLIGATION OF LESSEE AND THAT HE HAS AUTHORITY TO MAKE SUCH EXECUTION FOR AND ON
BEHALF OF LESSEE.
IN WITNESS WHEREOF, this Lease has been executed by Lessee this 28th day of
April, 1999.
ACCEPTED AT CHICAGO, ILLINOIS
Newcourt Financial USA Inc.
Genaissance Pharmaceuticals, Inc.
(Lessee) (a Delaware Corporation) (Lessor)
By: Kevin Rakin By: John A. Avallis
Title: Chief Financial Officer Title: VP Operations
<PAGE>
CORPORATE RESOLUTION AND INCUMBENCY CERTIFICATE
The undersigned certifies to Newcourt Financial USA Inc. that the following
resolutions were duly adopted by the Board of Directors of Genaissance
Pharmaceuticals, Inc., a corporation existing under the laws of Delaware, at
a meeting duly held on April 15, 1999 at which meeting a quorum was present
and acting throughout, that the same have not been modified or rescinded and
are not in conflict with any provision of the certificate of incorporation,
by-laws or any agreement of said corporation:
"RESOLVED, that this Corporation is authorized and empowered to borrow
and/or obtain credit from, and/or enter into other financial equipment,
the borrowing of funds, the granting of security interests in property
of every description belonging to this Corporation, and the sale of
property now or hereafter owned by this Corporation and the lease back
of any such property), all such transactions to be on such terms and
conditions as may be mutually agreed from time to time between this
Corporation and Newcourt, and each and any officer of this Corporation
is authorized, in the name and on behalf of this Corporation, to
execute and deliver to Newcourt such leases, promissory notes, chattel
mortgages, security agreements, financing statements, bills of sale
and/or other agreements, instruments and documents in connection with
such transactions, containing such terms and conditions as may be
approved by the officer executing such document, such officer's
execution thereof to be deemed conclusive evidence of such approval and
of such officer's authority to do so; and it is further
RESOLVED, that each and any officer of this Corporation is authorized,
in the name and on behalf of this Corporation, to execute and deliver
to Newcourt such other agreements, instruments and documents and take
such other actions as such officer may deem necessary or advisable to
effectuate and perform the transactions contemplated by the foregoing
resolution, and the Secretary or any Assistant Secretary of this
Corporation is authorized to certify a copy of these resolutions to
Newcourt."
The undersigned further certifies that the persons designated below as officers
of the Corporation have been duly elected to and now hold the offices of this
Corporation set opposite their respective names, and that the following are the
authentic, official signatures of the said respective officers and of the named
signatories who are not corporate officers, to wit:
President Gualberto Ruano /s/ Gualberto Ruano
------------------------ ------------------------
Printed Name Signature
Vice President Kevin Rakin /s/ Kevin Rakin
------------------------ ------------------------
Printed Name Signature
<PAGE>
Treasurer Kevin Rakin /s/ Kevin Rakin
------------------------ ------------------------
Printed Name Signature
Secretary Kevin Rakin /s/ Kevin Rakin
------------------------ ------------------------
Printed Name Signature
Signed and sealed this 28th day of April, 1999.
(Please affix) /s/ Kevin Rakin
(CORPORATE SEAL HERE) ------------------------
X Secretary
By: /s/ Gualberto Ruano
--------------------
Title: President
Schedules to be filed by amendment
<PAGE>
Exhibit 10.18
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of August
24, 1998 (the "Effective Date"), by and between GENAISSANCE PHARMACEUTICALS,
INC. (the "Corporation"), a Delaware corporation with its principal office at 5
Science Park, New Haven, Connecticut, 06511, and GUALBERTO RUANO ("Executive"),
an individual who resides at 88 Lawrence Street, New Haven, Connecticut 06511.
WHEREAS, the Corporation and Executive desire to continue their
employment relationship on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The Corporation hereby continues the employment of
Executive in the capacity of President and Chief Executive Officer, and, until
the Corporation appoints a permanent Scientific Director, as Interim Scientific
Director, of the Corporation (collectively, the "CEO") during the term of this
Agreement, and Executive hereby accepts such continued employment, on the terms
and conditions hereinafter set forth. Executive represents that his employment
by the Corporation pursuant to this Agreement does not violate any agreement,
covenant or obligation to which he is a party or by which he is bound.
2. DUTIES. During the term of this Agreement, Executive shall perform
all duties, consistent with his position as CEO, assigned or delegated to him by
the Board of Directors of the Corporation (the "Board") and normally associated
with the position of CEO, and he shall devote his full business time and best
efforts to the advancement of the interests and business of the Corporation. The
Corporation will use its best efforts to cause Executive to continue to be
elected a member of the Board throughout the Employment Term. Executive will
have complete operating and administrative responsibility and authority over the
Corporation subject to reasonable policies established by the Board. The
Corporation shall provide and maintain an office located in New Haven,
Connecticut, from where Executive may perform his duties.
3. TERM. The term of Executive's employment under this Agreement
shall begin on the Effective Date, and shall expire at the close of business on
August 31, 2003, unless extended pursuant to the next sentence hereof or unless
earlier terminated as provided in this Agreement (the "Initial Term"). The term
of Executive's employment under this Agreement shall be automatically extended
for additional one-year terms (each, an "Extended Term") upon the expiration of
the Initial Term or any Extended Term unless either the Corporation or the
Executive delivers to the other, at least 120 days prior to the expiration of
the Initial Term or the then current Extended Term, as the case may be, a
written notice (a "Non-Extension Notice") specifying that the term of the
Executive's employment will not be extended at the end of the Initial Term or
such Extended Term, as the case may be. The period from the Effective Date until
August 31, 2003, or, in the event that the Executive's employment hereunder is
earlier
<PAGE>
terminated or extended as provided in this Agreement, such shorter or longer
period, as the case may be, is hereinafter called the "Employment Term". If the
Executive continues in the full-time employ of the Corporation after the end of
the Employment Term (it being expressly understood and agreed that the
Corporation does not now, nor hereafter shall have, any obligation to continue
the Executive in its employ, whether or not on a full-time basis, after the
Employment Term ends), then the Executive's continued employment by the
Corporation shall, notwithstanding anything to the contrary expressed or implied
herein, be terminable by the Corporation at will.
4. COMPENSATION. As compensation for the services to be rendered by
Executive to the Corporation pursuant to this Agreement, the Corporation shall
pay Executive and provide Executive with the following compensation and benefits
which Executive agrees to accept in full satisfaction for his services:
a. BASE SALARY. The Corporation shall pay Executive a Base
Salary, payable in equal installments at such payment intervals as are
the usual custom of the Corporation, but not less often than monthly,
at an annual rate of $225,000, less such deductions or amounts to be
withheld as shall be required by applicable law (the "Base Salary").
The Base Salary shall be reviewed annually by the Board in the third
quarter of each fiscal year of the Corporation (commencing with the
fiscal year ending December 31, 1999) and shall be increased (effective
as of September 1 in such fiscal year) by such amount, if any, as the
Board, in its sole discretion, shall determine. Neither the Corporation
nor the Board may reduce the Base Salary as so increased.
b. BONUSES. During the Employment Term, the Corporation shall
pay Executive the following bonuses:
(i) Upon the Effective Date, the Corporation shall pay
Executive a cash retention bonus of $150,000 (the "Retention
Bonus") in recognition of Executive's outstanding contributions to
the Corporation to date and his willingness in the past to accept
compensation at a level below that of the prevailing market. The
Retention Bonus shall be paid in addition to the Base Salary and
the other bonuses for which provision is hereinafter made.
(ii) During the month of January in each year,
commencing January, 1999, the Corporation shall pay Executive a
cash bonus (an "Incentive Bonus") equal to such amount as shall be
determined by the Board in its sole discretion based upon
Executive's achievements in meeting the financial and performance
goals of the Corporation for its most recent fiscal year. Each
Incentive Bonus shall be paid in addition to the Base Salary and
the Retention Bonus.
c. BENEFITS.
(i) Executive shall be entitled to participate, to the
extent he is eligible, in all group insurance programs, health,
medical, dental, and disability plans, and other employee benefit
plans which the Corporation may hereafter in
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its sole and absolute discretion make available generally to its
employees (other than any incentive compensation or equity
ownership plan), but the Corporation shall not be required to
establish or maintain any such program or plan.
(ii) Executive shall be entitled to four (4) weeks paid
vacation during each calendar year. Such vacation may be taken at
such time or times as is reasonably consistent with the
Corporation's vacation policies and the performance by Executive
of his duties and responsibilities hereunder. Up to two weeks of
unused vacation time in any year may be carried over and used in
the subsequent year.
(iii) Executive shall be entitled to participate in the
Corporation's 1993 Stock Option Plan (the "Plan") and the
Corporation shall use its best efforts to cause the Board or the
applicable committee of the Board to grant Executive an option,
having a ten-year term, to purchase 100,000 shares of the
Corporation's common stock at an exercise price per share equal to
$1.25 (the "Option"). The Option shall vest ratably over a
36-month period during the Employment Term, with accelerated
vesting in the event of Executive's death or permanent disability
or the termination of this Agreement for other than For Cause or
its breach by Executive or his exercise of his rights under
Section 11(g). The Option shall be set forth in a separate
agreement embodying the grant of the Option which shall be
otherwise in the form stipulated in the Plan..
(iv) The Corporation shall purchase and throughout the
Employment Term pay the premiums for a $1,000,000 policy of term
life insurance insuring the life of Executive (subject to his
meeting the suitability requirements of the insurer). Executive
shall be the owner of such policy and entitled to all of the
rights of ownership including designation of the beneficiary
thereof.
(v) Throughout the Employment Term, the Corporation, at
its expense, shall furnish an automobile to Executive (owned or
leased by the Corporation) commensurate with his position as CEO
and shall reimburse Executive for reasonable maintenance,
operating and insurance expenses incurred in the use of such
automobile in connection with business activities conducted on
behalf of the Corporation.
(vi) Subject to reasonable guidelines adopted by the
Board, throughout the Employment Term, the Corporation shall pay
(A) the costs of dues for membership in professional organizations
whose activities are reasonably related to the business of the
Corporation, and (B) the initiation fee and monthly dues for
Executive's membership in one private club that offers luncheon
and dinner eating facilities.
(vii) The Corporation, at its expense, shall provide
Executive with a policy of long-term disability insurance with
reasonable limits and continue to provide to Executive all other
fringe benefits that are presently being provided to
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<PAGE>
Executive or such comparable or additional fringe benefits of the
same general type and quality as the Corporation may provide in
the future to its executive employees.
d. SEVERANCE BENEFIT. If the Employment Term expires as a result
of the Corporation delivering a Non-Extension Notice to Executive, then
upon the expiration of the Employment Term, the Corporation shall be
obligated to pay Executive the applicable amounts specified in Section
12(a) unless such Notice is delivered by the Corporation within twelve
(12) months following a change in Control (as hereinafter defined), in
which event the Corporation shall be obligated to pay Executive the
applicable amounts specified in Section 12(b).
5. BUSINESS EXPENSES. The Corporation shall pay, or reimburse
Executive for, the reasonable and necessary business expenses of Executive
incurred in the performance of his duties hereunder, subject to reasonable
documentation thereof and the reasonable rules and regulations of the
Corporation relating thereto.
6. INVENTIONS AND IMPROVEMENTS. Executive acknowledges, covenants and
agrees that the Corporation shall be the sole owner of all the fruits and
proceeds of Executive's services hereunder, including but not limited to all
writings, inventions, discoveries, designs, systems, processes or other
improvements relating to the business or products of the Corporation, whether or
not patentable, registerable, or copyrightable, which Executive may, alone or
with others, conceive, create, develop, produce or make during the Employment
Term or as a result of his employment with the Corporation (collectively, the
"Invention"), free and clear of any claims by Executive of any kind or character
whatsoever other than Executive's rights to compensation hereunder. Executive
agrees that he shall disclose each of the Inventions promptly and completely to
the Corporation, and shall, at the request of the Board, execute such
assignments, certificates or other instruments as the Board from time to time
deems necessary or desirable to evidence, establish, maintain, perfect, protect,
enforce or defend the Corporation's right, title and interest in or to any or
all of the Inventions.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
a. Executive acknowledges that, in and as a result of his
employment by the Corporation, he will be making use of, acquiring
and/or adding to the Corporation's Confidential Information (as
hereinafter defined). As a material inducement to the Corporation to
enter into this Agreement and to pay Executive the compensation and
benefits set forth in this Agreement, Executive covenants and agrees
that he shall not, at any time during or following the term of this
Agreement, directly or indirectly divulge or disclose for any purposes
whatsoever, any Confidential Information that has been obtained by, or
disclosed to, him as a result of his employment with the Corporation.
For purposes of this Agreement, "Confidential Information" means,
collectively, all confidential matters and materials of the
Corporation, including without limitation, the Corporation's
proprietary information, inventions, trade secrets, knowledge, data,
know-how, intellectual property, systems, procedures, manuals, pricing
policies, operational
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<PAGE>
methods and information relating to the Corporation's products,
processes, formulae, business plans, marketing plans and strategies,
pricing strategies, customer lists, or other subject matters pertaining
to the business and/or financial affairs of the Corporation.
"Confidential Information" shall not include any information that is in
the public domain during the period of Executive's service to the
Corporation other than as a result of disclosure by Executive in
violation of this Agreement.
b. If Executive is required by a court of competent jurisdiction
or other tribunal (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigation demand or
similar process) to disclose any Confidential Information, Executive
may disclose such Information to such tribunal without liability
hereunder, PROVIDED, THAT Executive first provides the Corporation with
notice of any such requirement(s) as promptly as practicable, but in
any case with sufficient timeliness to enable the Corporation to seek
an appropriate protective order and/or waive its compliance with the
relevant provisions of this Agreement.
8. COVENANTS AGAINST COMPETITION.
a. In view of the unique value to the Corporation of the
services of Executive and because of the Confidential Information to be
obtained by or disclosed to Executive, as herein above set forth, and
as a material inducement to the Corporation to enter into this
Agreement and to pay to Executive the compensation and benefits set
forth in this Agreement, Executive covenants and agrees that during
Executive's employment and for a period of one year after he ceases to
be employed by the Corporation for any reason, he will not, except as
otherwise authorized by this Agreement, compete in the field of
pharmacogenomics with the Corporation or any affiliate of the
Corporation, solicit the Corporation's customers or the customers of
any of its affiliates in the field of pharmacogenomics, or directly or
indirectly solicit for employment any of the Corporation's employees.
b. For the purposes of this Agreement:
(i) The term "compete" means engaging in the same or
any similar business as the Corporation or any of its affiliates
in any manner whatsoever, including without limitation as a
proprietor, partner, investor, shareholder, member, director,
officer, employee, consultant, independent contractor or
otherwise, within any geographic area in which the Corporation's
products are offered or distributed;
(ii) The term "affiliate," when used in reference to any
Person (as hereinafter defined), means any other Person that
directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the
first such Person; and
(iii) The term "customers" means all Persons to whom the
Corporation or any of its affiliates has provided any product or
service, whether or not for
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compensation, within a period of two (2) years prior to the time
Executive ceases to be employed by the Corporation.
c. None of the provisions of this Section 8 shall prohibit
Executive from investing in securities listed on a national securities
exchange or actively traded over-the-counter so long as such
investments are not greater than five percent (5%) of the outstanding
securities of any issuer of the same class or issue.
9. REASONABLENESS OF RESTRICTIONS.
a. Executive has carefully read and considered the provisions of
Section 7 and Section 8, and, having done so, agrees that:
(i) The restrictions set forth in Section 7 and Section
8, including but not limited to the time period, scope and
geographical area of restriction, are fair and reasonable and are
reasonably required for the protection of the good will and other
legitimate business interests of the Corporation and its
affiliates, officers, directors, shareholders, and other
employees;
(ii) Executive has received adequate consideration for
such obligations; and
(iii) Such obligations do not prevent Executive from
earning a livelihood.
b. If, notwithstanding the foregoing, any of the provisions of
Section 7 or Section 8 shall be held to be invalid or unenforceable,
the remaining provisions thereof shall nevertheless continue to be
valid and enforceable as though the invalid and unenforceable parts had
not been included therein. If any provision of Section 7 or Section 8
relating to the time period and/or the areas of restriction and/or
related aspects shall be declared by a court of competent jurisdiction
to exceed the maximum restrictiveness such court deems reasonable and
enforceable, the time period and/or areas of restriction and/or related
aspects deemed reasonable and enforceable by the court shall become and
thereafter be the maximum restriction in such regard, and the
restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
10. REMEDIES FOR BREACH OF EXECUTIVE'S COVENANTS OF NON-DISCLOSURE AND
NON-COMPETITION. Executive recognizes and agrees that the Corporation's remedy
at law for any breach of Section 7 or Section 8 would be inadequate, and he
agrees that, for breach of such provisions, the Corporation shall, in addition
to such other remedies as may be available to it at law or in equity or as
provided in this Agreement, be entitled to injunctive relief and to enforce its
rights by an action for specific performance.
11. TERMINATION.
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a. In the event that Executive dies during the Employment Term,
this Agreement shall terminate upon his death, upon which event
Executive's legal representatives shall be entitled to receive, and the
Corporation shall pay or cause to be paid to Executive's legal
representatives, any Base Salary and other compensation or benefits
accrued but as yet unpaid on the date of Executive's death.
b. If during the Employment Term, Executive is prevented from
performing the duties or fulfilling responsibilities of his employment
under this Agreement by reason of any incapacity or disability for a
continuous period of six (6) months, as determined by an independent
qualified physician selected by the Corporation and reasonably
acceptable to Executive (or his representative), then the Corporation
may, upon thirty (30) days prior written notice to Executive, terminate
Executive's employment hereunder, but Executive shall continue to be
eligible to receive any benefits to which he may be entitled under the
terms of any long-term disability plan or insurance policy maintained
by the Corporation for its employees. In the event of such incapacity
or disability, the Corporation shall continue to pay full compensation
to Executive in accordance with the terms of this Agreement until the
date of such termination.
c. The Corporation may, upon written notice to Executive,
terminate Executive's employment hereunder For Cause; provided that the
Corporation shall first provide the Executive with an opportunity to
discuss any proposed termination with the Board. For purposes of this
Agreement, the term "For Cause" shall mean:
(i) A willful and material breach by Executive of his
duties hereunder which Executive fails to cure within thirty (30)
days after receipt of written notice;
(ii) Executive's conviction of any felony, or of a
lesser crime having its predicate element fraud, dishonesty or
misappropriation of property of Corporation;
(iii) Executive's engaging in bad faith or gross
negligence in the performance of his duties under this Agreement
as determined in good faith by the Board;
(iv) Executive's engaging in chronic alcoholism, drug
addiction or substance abuse which has interfered with the
performance of his duties under this Agreement; and/or
(v) Executive's perpetration of any act or omission
which submits the Corporation to criminal liability, unless such
act or omission was directly approved by resolution of the Board.
In the event of termination For Cause of Executive's employment,
Executive's right to receive compensation and other benefits hereunder (other
than any Base Salary accrued but as yet unpaid on the effective date of such
termination) shall terminate on the
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effective date of such termination, and Executive shall not be entitled to any
severance payments or benefits pursuant to Section 12.
d. The Corporation may, at any time, for reason other than For
Cause, elect, by majority vote of the Board, to terminate Executive's
employment upon thirty (30) days written notice to Executive. In the
event of such termination for reason other than For Cause, the
Corporation shall be obligated to pay Executive the applicable amounts
specified in Section 12(a); provided that if a Change of Control (as
hereinafter defined) has occurred within the preceding 12 months, then
the Corporation shall be obligated to pay the amounts specified in
Section 12(b) rather than the amounts specified in Section 12(a).
e. Executive may, at his option, upon thirty (30) days written
notice to the Corporation, terminate his employment hereunder, if: the
Corporation, without Executive's express written consent, demotes him
to a position and/or assigns him duties inconsistent with the position
and/or duties described in Sections 1 or 2. Upon any termination by
Executive under this Section 11(e), the Corporation shall be obligated
to pay Executive the applicable amounts specified in Section 12(a);
provided that if a Change of Control (as hereinafter defined) has
occurred within the preceding 12 months, then the Corporation shall be
obligated to pay the amounts specified in Section 12(b) rather than the
amounts specified in Section 12(a).
f. Executive may, at his option, upon thirty (30) days written
notice to the Corporation, terminate his employment hereunder for Good
Reason (as hereinafter defined) following a Change of Control of the
Corporation. Upon any termination by Executive under this Section
11(f), the Corporation shall be obligated to pay Executive the amounts
specified in Section 12(b).
g. Executive may, at his option, upon six (6) months prior
written notice to the Corporation, terminate his employment hereunder.
In the event of a voluntary termination of his employment by the
Executive pursuant to this Section 11(g), Executive's rights to receive
compensation and other benefits (other than any Base Salary accrued but
as yet unpaid on the effective date of such termination) shall
terminate on the effective date of such termination, and Executive
shall not be entitled to any severance payments or benefits pursuant to
Section 12.
h. For purposes of this Agreement, the term "Good Reason" means,
during the twelve (12) month period following a Change of Control,
without Executive's express written consent, the occurrence of any of
the following circumstances:
(i) the assignment to Executive of any duties
inconsistent (except in the nature of a promotion) with the
position in the Corporation that he held immediately prior to the
Change of Control or substantial adverse alteration in the nature
or status of his position or
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responsibilities or the conditions of his employment from those in
effect immediately prior to the Change of Control;
(ii) a reduction by the Corporation in Executive's
annual Base Salary as in effect on the date hereof, as the same
may be increased from time to time; or
(iii) the failure by the Corporation to continue in
effect any material compensation or benefit plan in which
Executive participates immediately prior to the Change of Control
unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or
the failure by the Corporation to continue Executive's
participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of his participation
relative to other participants, than existed immediately prior to
the Change of Control.
i. For purposes of this Agreement, a "Change of Control" shall
be deemed to have occurred if:
(i) Any Person or any two or more Persons acting as a
group (but excluding the Corporation and any subsidiary of the
Corporation and any employee benefit plan sponsored or maintained
by the Corporation or any such subsidiary), and all affiliates of
such Person or Persons, who shall directly or indirectly acquire
beneficial ownership of securities of the Corporation in one or
more transactions, or series of transactions, such that, following
such transaction or transactions, such Person or Persons or group
and their affiliates beneficially own securities of the
Corporation representing (A) prior to the occurrence of an Initial
Public Offering (as hereinafter defined), fifty percent (50%) or
more of the combined voting power of the Corporation's then
outstanding securities, and (b) at any time thereafter,
thirty-five percent (35%) or more of the combined voting power of
the Corporation's then outstanding securities. For the purposes of
this clause, a subsidiary of the Corporation shall mean a
corporation all of whose securities having voting power are
beneficially owned by the Corporation;
(ii) Any Person or Persons acquires or agrees to acquire
all or substantially all of the assets of the corporation through
a purchase of assets but excluding any such acquisition by a
corporation all of whose securities having voting power are
beneficially owned by the Corporation;
(iii) As a result of a contested election, the
individuals who were directors of the Corporation immediately
before the election ceased to constitute a majority of the Board;
or
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(iv) The Corporation enters into any agreement pursuant
to which it is not the surviving constituent corporation in any
merger or other business combination.
j. For purposes of this Agreement, the term "Person" means any
individual, corporation, association, partnership, limited partnership,
limited liability company, limited liability partnership, organization,
business, joint venture, sole proprietorship, governmental agency,
entity or subdivision or other entity of any kind or nature.
k. (i) Subject to paragraph (m) of this Section 11, upon a
voluntary termination by Executive of his employment pursuant to
Section 11(e) or Section 11(f), or upon termination of such employment
by the Corporation pursuant to Section 11(d) or upon the expiration of
the Employment Term as a result of the Corporation's delivering a
Non-Extension Notice to Executive, Executive shall have the right to
require the Corporation to repurchase all of the shares of capital
stock of the Corporation owned by him at the date of any such
termination or expiration (the "Shares") at their Fair Market Value as
of the date upon which the Executive exercises such right. The
Executive shall have a period of one (1) year after the date of such
termination or expiration to exercise such right which shall be
exercisable by delivering a written notice of exercise to the principal
office of the Corporation, to the attention of the Board. The purchase
of the Shares shall take place at the principal office of the
Corporation at 10:00 a.m., local time, on a date no later than the
later of (i) thirty (30) days after determination of the Fair Market
Value of the Shares in accordance with the provisions of this
Agreement, or (ii) sixty (60) days after the Corporation's receipt of
such notice. At the closing, Executive shall transfer the Shares to the
Corporation, and the Corporation shall pay the Fair Market Value
thereof by certified or bank cashier's check(s) or by wire transfer of
funds; PROVIDED, THAT the Corporation may, if prohibited from making
such payment in cash by any applicable law, pay the Fair Market Value
in a combination of cash in an amount of no less than half of such Fair
Market Value (to the extent permitted by such law) and the remainder by
means of an unsecured promissory note of the Corporation bearing
interest at the Prime Rate, payable in equal monthly installments of
interest and principal over three (3) years, in a principal amount
equal to the Fair Market Value less the amount of the cash payment. Any
such note shall contain commercially reasonable provisions. Executive
shall execute and deliver such instruments of transfer as the
Corporation may reasonably request in order to effect such transfer.
(ii) As used herein, the term "Fair Market Value" means
the fair market value agreed upon by the Corporation and Executive
or determined by an appraiser selected jointly by the Corporation
and Executive but at the Corporation's expense. If the Corporation
and Executive cannot agree on such Value or such an appraiser
within 30 days after the occurrence of the event requiring such
determination, then the Corporation shall appoint one appraiser,
at its expense, and Executive shall appoint one appraiser, at his
expense, both of whom shall be experienced in the appraisal of
companies engaged in businesses similar to the business then
conducted by the Corporation. If either the Corporation or
Executive fail to appoint such an appraiser within 15 days after
the lapse
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of such 30-day period, then the appraiser appointed by the party
who does appoint an appraiser shall make the appraisal of the Fair
Market Value and such appraisal shall govern. If two appraisers
are appointed, then the average of the appraisals rendered by such
appraisers shall be considered the Fair Market Value; provided
that if the higher appraisal reflects a value that is greater than
120% of the lower appraisal, then the two appraisers shall jointly
appoint a third appraiser (experienced in the appraisal of similar
businesses), or if they fail to do so, the manager of the
principal office of the American Arbitration Association in
Hartford County in the State of Connecticut shall make such
appointment. The Corporation shall pay of the expenses of such
third arbitrator. The average of the two appraisals closest in
value among the three appraisals rendered by such appraisers shall
be considered the Fair Market Value. Each appraisal report shall
be rendered in writing and shall be signed by the appraiser
rendering such report. The Corporation and Executive shall use
reasonable efforts to cause each appraiser to render its or his
appraisal report within 30 days after the date of appointment.
(iii) As used herein, "Prime Rate" means the prime rate
of interest from time to time published in the "Money Rates"
column of the Wall Street Journal, Eastern edition.
l. In the event of termination or expiration of Executive's
employment other than for death, Executive shall resign from all
positions held in the Corporation, including without limitation any
position as a director, officer, agent, trustee or consultant of the
Corporation or any affiliate of the Corporation.
m. Notwithstanding the foregoing, paragraph (k) of this Section
11 shall have no further force or effect upon the consummation of a
firm commitment underwritten public offering of shares of common stock
of the Corporation registered under the Securities Act of 1933, as
amended (an "Initial Public Offering").
12. SEVERANCE PAYMENTS.
a. Subject to Section 13, if the Corporation terminates
Executive's employment pursuant to Section 11(d), and the Board vote
with respect to such termination does not occur within twelve (12)
months following a Change of Control, or if Executive terminates his
employment pursuant to Section 11(e), and such termination does not
occur within twelve (12) months following a Change of Control, or if
the Employment Term expires as a result of the Corporation's delivering
a Non-Extension Notice to Executive and such Notice is not delivered
within twelve (12) months following a Change of Control, the parties
recognize and agree that actual damages due Executive would be
difficult if not impossible to ascertain and agree that, in lieu of any
other rights to which Executive may be entitled, the Corporation shall
pay Executive, as severance pay or as liquidated damages, or both,
Executive's Base Salary, as in effect at the time of such termination
or expiration for a period of twelve (12) calendar months following the
date of such termination or expiration, such payments to be made in the
same manner in which such salary payments were made to Executive
immediately prior to the date of such termination or expiration.
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b. Subject to Section 13, if the Corporation terminates
Executive's employment pursuant to Section 11(d), and the Board vote
with respect to such termination occurs within the twelve (12) months
following a Change of Control, or if Executive terminates his
employment pursuant to Section 11(e) and such termination occurs within
twelve (12) months following a Change of Control, or if the Employment
Term expires as a result of the Corporation's delivering a
Non-Extension Notice to Executive within twelve (12) months following a
Change of Control, or if Executive terminates his employment for Good
Reason following a Change of Control pursuant to Section 11(f), the
parties recognize and agree that actual damages to Executive would be
difficult if not impossible to ascertain and agree that, in lieu of any
other rights to which Executive may be entitled, the Corporation shall
pay Executive, as severance pay or as liquidated damages, or both, upon
the effective date of such termination or expiration a lump sum equal
to three hundred percent (300%) of Executive's annual Base Salary as in
effect at the time of such termination or expiration. Such payment
shall be made within thirty (30) days after such termination or
expiration date.
c. Except as set forth in this Section 12 or as otherwise
required by law, Executive shall not be entitled to any severance
payments or employee benefits under this Agreement after termination or
expiration of Executive's employment, except that if Executive is
entitled to severance payments under Section 12(a) or Section 12(b), or
if Executive's employment is terminated as a result of incapacity or
disability, during the eighteen (18) month period (or such longer
period which does not exceed twenty-four (24) months as may be provided
by applicable law) following any termination or expiration of
Executive's employment hereunder, the Corporation shall reimburse
Executive for out-of-pocket health insurance expenses for himself and
his spouse or children, if any, incurred by Executive pursuant to COBRA
(Consolidated Omnibus Budget Reconciliation Act of 1986). If Executive
elects not to maintain health insurance pursuant to COBRA, the
Corporation is under no obligation to reimburse Executive for his
otherwise elected coverage. Executive shall give the Corporation prompt
notice of his re-employment.
13. MAXIMUM SEVERANCE PAYMENTS.
a. Anything else contained in this Agreement to the contrary
notwithstanding, if any payment or benefit received or to be received
by Executive (whether payable pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Corporation, its
successors, any other Person whose actions result in a Change of
Control or any Tax Affiliate (as hereinafter defined) (collectively,
with the payments and benefits pursuant to this Agreement if deemed to
be paid pursuant to a Change of Control, the "Total Payments")) is
determined by Tax Advisor (as hereinafter defined) (i) to be an "excess
parachute payment" (in whole or in part) for purposes of Section 280G
of the Code (as hereinafter defined) and (ii) not to be deductible (in
whole or in part) by the Corporation, a Tax Affiliate or other Person
making such payment or providing such benefit as a result of Section
280G of the Code, then payments and benefits received or to be received
by Executive pursuant to Section 12 shall be reduced
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<PAGE>
(but to not less than zero) until the Total Payments are fully
deductible notwithstanding Section 280G of the Code. For purposes of
the limitation set forth in this Section 13, (a) no portion of the
Total Payments the receipt of which Executive, in the determination of
Tax Advisor, shall have effectively waived prior to the date which is
fifteen (15) days following termination or expiration of his employment
and prior to the earlier of (1) the date of constructive receipt
thereof and (2) the date of payment thereof shall be taken into
account; and (b) any reduction in the payments and benefits received or
to be received by Executive pursuant to Section 12 shall be made first
to cash payments due to Executive in the inverse order of the dates on
which they would be payable to Executive and then to other benefits due
to Executive in the inverse order of the dates on which they would be
received by Executive, except to the extent that such payments and
benefits, in the determination of Tax Advisor, are reasonable
compensation within the meaning of Section 280G of the Code. The
determination of Tax Advisor as to the deductibility of the Total
Payments shall be completed not later than forty-five (45) days
following Executive's termination of employment, and such termination
shall be communicated in writing to the Corporation, with a copy to
Executive, within such forty-five (45) day period. The determination of
Tax Advisor as to the deductibility of the Total Payments shall be
deemed to be conclusive and binding on the Corporation and Executive
and shall not be subject to the arbitration provisions of Section 24.
The Corporation shall pay the fees and other costs of Tax Advisor in
connection with its performance of its duties hereunder.
b. For purposes of this Agreement:
(i) The term "Code" means the Internal Revenue Code of
1986, as amended;
(ii) The term "Tax Advisor" means the Corporation's
independent auditors; and
(iii) The term "Tax Affiliate" means any corporation
affiliated (or which, as a result of the completion of the
transactions causing a Change of Control, will become affiliated)
with the Corporation within the meaning of Section 1504 of the
Code.
14. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision or
of any other provision of this Agreement by that party or any other party.
15. GOVERNING LAW. This Agreement shall in all respects be subject to,
and governed by, the laws of the State of Connecticut.
16. SEVERABILITY. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or enforceability of
any other provision and
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this Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
17. NOTICE. Any and all notices required or permitted herein shall be
in writing and shall be deemed to have been duly given (a) when delivered if
delivered personally, (b) on the fifth day following the date of deposit in the
United States mail if sent first class, postage prepaid, by registered or
certified mail, or (c) one day after delivery to a nationally recognized
overnight courier service. The parties' respective addresses for such notices
shall be those set forth following their respective signatures below, or such
other address or addresses as either party may hereafter designate in writing to
the other.
18. ASSIGNMENT. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns, heirs, executors, and legal and personal
representatives, except that the rights and benefits of Executive under this
Agreement may not be assigned without the prior written consent of the
Corporation. Without limiting the generality of the foregoing, this Agreement
shall be binding upon and inure to the benefit of any corporation with which or
into which the Corporation or its successors may be merged or which may succeed
to its assets or business.
19. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing and signed by the Corporation and Executive.
20. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding by and between Executive and the Corporation with respect to the
employment of Executive and supersedes all existing agreements between the
Corporation and Executive with respect to such employment. No representations,
promises, agreements, or understandings, written or oral, relating to the
employment of Executive by the Corporation not contained herein shall be of any
force or effect. Without limiting the generality of the foregoing, that certain
Employment Agreement, dated as of February, 1997, between the Corporation and
Executive (as heretofore amended) is hereby terminated and shall be of no
further force or effect.
21. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those masculine
in form and vice versa, and plural terms shall be substituted for singular and
singular for plural in any place in which the context so requires.
22. COUNTERPARTS; HEADINGS; SECTIONS. This Agreement may be executed
in multiple counterparts, each of which shall be considered to have the force
and effect of any original but all of which taken together shall constitute but
one and the same instrument. The various headings in this Agreement are inserted
for convenience only and are not part of the Agreement. All references to
"Sections" and "paragraphs" in this Agreement refer to the various corresponding
sections and paragraphs of this Agreement.
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<PAGE>
23. SURVIVAL. The covenants and agreements contained in Sections 6
through 12 shall survive any termination or expiration of this Agreement and the
termination of Executive's employment hereunder.
24. ARBITRATION. Executive and the Corporation will submit any
disputes arising under this Agreement to an arbitration panel conducting a
binding arbitration in Hartford, Connecticut, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in effect on the date
of such arbitration (the "Rules"), and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof; PROVIDED, HOWEVER, that nothing herein shall impair the Corporation's
right to seek equitable relief for breach or threatened breach of Section 7 or
Section 8. The award of the arbitrators shall be final and shall be the sole and
exclusive remedy between the parties regarding any claims, counterclaims, issue
or accounting presented to the arbitration panel. The parties hereto further
agree that the arbitration panel shall consist of one (1) person mutually
acceptable to the Corporation and Executive, PROVIDED that if the parties cannot
agree on an arbitrator within fifteen (15) days of filing a notice of
arbitration, the arbitration panel shall consist of three (3) persons, one
selected by the Corporation, one selected by Executive (or his representative)
and one selected by the arbitrators so selected by the parties hereto, or if the
parties hereto cannot agree, selected by the manager of the principal office of
the American Arbitration Association in Hartford County in the State of
Connecticut. All fees and expenses of the arbitration, including a transcript if
either party requests, shall be borne equally by the parties. If Executive
prevails as to any material issue presented in the arbitration, the entire cost
of such proceedings (including, without limitation, Executive's reasonable
attorney's fees) shall be borne by the Corporation. If Executive does not
prevail as to any material issue, each party will pay for the fees and expenses
of its own attorneys, experts, witnesses, and preparation and presentation of
proofs and post-hearing briefs (unless the party prevails on a claim for which
attorney's fees are recoverable under the Rules). Any action to enforce or
vacate the arbitrator's award shall be governed by the federal Arbitration Act,
if applicable, and otherwise by applicable state law. If either the Corporation
or Executive pursues any claim, dispute or controversy against the other in a
proceeding other than the arbitration provided for herein, the responding party
shall be entitled to dismissal or injunctive relief regarding such action and
recovery of all costs, losses and attorney's fees related to such action.
THE NEXT PAGE IS THE SIGNATURE PAGE
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IN WITNESS WHEREOF, the Corporation and Executive have duly executed
this Agreement as of the day and year first above written.
CORPORATION:
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ Kevin Rakin
-------------------------------
Name: Kevin Rakin
Its Executive Vice President
Address for Notice Purposes:
5 Science Park
Suite 2103
New Haven, CT 06511
EXECUTIVE:
/s/ GUALBERTO RUANO
----------------------------------
GUALBERTO RUANO
Address for Notice Purposes:
88 Lawrence Street
New Haven, CT 06511
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Exhibit 10.19
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of August
24, 1998 (the "Effective Date"), by and between GENAISSANCE PHARMACEUTICALS,
INC. (the "Corporation"), a Delaware corporation with its principal office at 5
Science Park, New Haven, Connecticut, 06511, and KEVIN RAKIN ("Executive"), an
individual who resides at 19 Linwold Drive, West Hartford, Connecticut, 06107.
WHEREAS, the Corporation and Executive desire to continue their
employment relationship on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The Corporation hereby continues the employment of
Executive in the capacity of Executive Vice President, Chief Financial Officer,
and Treasurer (collectively, the "CFO") of the Corporation during the term of
this Agreement, and Executive hereby accepts such continued employment, on the
terms and conditions hereinafter set forth. Executive represents that his
employment by the Corporation pursuant to this Agreement does not violate any
agreement, covenant or obligation to which he is a party or by which he is
bound.
2. DUTIES. During the term of this Agreement, Executive shall perform
all duties, consistent with his position as CFO, assigned or delegated to him by
the Board of Directors of the Corporation (the "Board"), and normally associated
with the position of CFO, and he shall devote substantially all of his full
business time and best efforts to the advancement of the interests and business
of the Corporation; provided that Executive may pursue passive investments and
interests which in the aggregate do not result in the diversion of a material
amount of Executive's business time. The Corporation will use its best efforts
to cause Executive to continue to be elected a member of the Board. The
Corporation shall provide and maintain an office located in New Haven,
Connecticut, from where Executive may perform his duties.
3. TERM. The term of Executive's employment under this Agreement
shall begin on the Effective Date, and shall expire at the close of business on
August 31, 2003, unless extended pursuant to the next sentence hereof or unless
earlier terminated as provided in this Agreement (the "Initial Term"). The term
of Executive's employment under this Agreement shall be automatically extended
for additional one-year terms (each, an "Extended Term") upon the expiration of
the Initial Term or any Extended Term unless either the Corporation or the
Executive delivers to the other, at least 120 days prior to the expiration of
the Initial Term or the then current Extended Term, as the case may be, a
written notice (a "Non-Extension Notice") specifying that the term of the
Executive's employment will not be extended at the end of the Initial Term or
such Extended Term, as the case may be. The period from the Effective Date
<PAGE>
until August 31, 2003, or, in the event that the Executive's employment
hereunder is earlier terminated or extended as provided in this Agreement,
such shorter or longer period, as the case may be, is hereinafter called the
"Employment Term". If the Executive continues in the full-time employ of the
Corporation after the end of the Employment Term (it being expressly
understood and agreed that the Corporation does not now, nor hereafter shall
have, any obligation to continue the Executive in its employ, whether or not
on a full-time basis, after the Employment Term ends), then the Executive's
continued employment by the Corporation shall, notwithstanding anything to
the contrary expressed or implied herein, be terminable by the Corporation at
will.
4. COMPENSATION. As compensation for the services to be rendered by
Executive to the Corporation pursuant to this Agreement, the Corporation shall
pay Executive and provide Executive with the following compensation and benefits
which Executive agrees to accept in full satisfaction for his services:
a. BASE SALARY. The Corporation shall pay Executive a Base
Salary, payable in equal installments at such payment intervals as are
the usual custom of the Corporation, but not less often than monthly,
at an annual rate of $205,000, less such deductions or amounts to be
withheld as shall be required by applicable law (the "Base Salary").
The Base Salary shall be reviewed annually by the Board in the third
quarter of each fiscal year of the Corporation (commencing with the
fiscal year ending December 31, 1999) and shall be increased (effective
as of September 1 in such fiscal year) by such amount, if any, as the
Board, in its sole discretion, shall determine. Neither the Corporation
nor the Board may reduce the Base Salary as so increased.
b. BONUSES. During the Employment Term, the Corporation shall
pay Executive the following bonuses:
(i) Upon the Effective Date, the Corporation shall pay
Executive a cash retention bonus of $150,000 (the "Retention
Bonus") in recognition of Executive's outstanding contributions to
the Corporation to date and his willingness in the past to accept
compensation at a level below that of the prevailing market. The
Retention Bonus shall be paid in addition to the Base Salary and
the other bonuses for which provision is hereinafter made.
(ii) During the month of January in each year,
commencing January, 1999, the Corporation shall pay Executive a
cash bonus (an "Incentive Bonus") equal to such amount as shall be
determined by the Board in its sole discretion based upon
Executive's achievements in meeting the financial and performance
goals of the Corporation for its most recent fiscal year. Each
Incentive Bonus shall be paid in addition to the Base Salary and
the Retention Bonus.
c. BENEFITS.
(i) Executive shall be entitled to participate, to the
extent he is eligible, in all group insurance programs, health,
medical, dental, and disability
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plans, and other employee benefit plans which the Corporation may
hereafter in its sole and absolute discretion make available
generally to its employees (other than any incentive compensation
or equity ownership plan), but the Corporation shall not be
required to establish or maintain any such program or plan.
(ii) Executive shall be entitled to four (4) weeks paid
vacation during each calendar year. Such vacation may be taken at
such time or times as is reasonably consistent with the
Corporation's vacation policies and the performance by Executive
of his duties and responsibilities hereunder. Up to two weeks of
unused vacation time in any year may be carried over and used in
the subsequent year.
(iii) Executive shall be entitled to participate in the
Corporation's 1993 Stock Option Plan (the "Plan") and the
Corporation shall use its best efforts to cause the Board or the
applicable committee of the Board to grant Executive an option,
having a ten-year term, to purchase 100,000 shares of the
Corporation's common stock at an exercise price per share equal to
$1.25 (the "Option"). The Option shall vest ratably over a
36-month period during the Employment Term, with accelerated
vesting in the event of Executive's death or permanent disability
or the termination of this Agreement for other than For Cause or
its breach by Executive or his exercise of his rights under
Section 11(g). The Option shall be set forth in a separate
agreement embodying the grant of the Option which shall be
otherwise in the form stipulated in the Plan..
(iv) The Corporation shall purchase and throughout the
Employment Term pay the premiums for a $1,000,000 policy of term
life insurance insuring the life of Executive (subject to his
meeting the suitability requirements of the insurer). Executive
shall be the owner of such policy and entitled to all of the
rights of ownership including designation of the beneficiary
thereof.
(v) Throughout the Employment Term, the Corporation, at
its expense, shall furnish an automobile to Executive (owned or
leased by the Corporation) commensurate with his position as CEO
and shall reimburse Executive for reasonable maintenance,
operating and insurance expenses incurred in the use of such
automobile in connection with business activities conducted on
behalf of the Corporation.
(vi) Subject to reasonable guidelines adopted by the
Board, throughout the Employment Term, the Corporation shall pay
(A) the costs of dues for membership in professional organizations
whose activities are reasonably related to the business of the
Corporation, and (B) the initiation fee and monthly dues for
Executive's membership in one private club that offers luncheon
and dinner eating facilities.
(vii) The Corporation, at its expense, shall provide
Executive with a policy of long-term disability insurance with
reasonable limits and continue to
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provide to Executive all other fringe benefits that are presently
being provided to Executive or such comparable or additional
fringe benefits of the same general type and quality as the
Corporation may provide in the future to its executive employees.
d. SEVERANCE BENEFIT. If the Employment Term expires as a result
of the Corporation delivering a Non-Extension Notice to Executive, then
upon the expiration of the Employment Term, the Corporation shall be
obligated to pay Executive the applicable amounts specified in Section
12(a) unless such Notice is delivered by the Corporation within twelve
(12) months following a change in Control (as hereinafter defined), in
which event the Corporation shall be obligated to pay Executive the
applicable amounts specified in Section 12(b).
5. BUSINESS EXPENSES. The Corporation shall pay, or reimburse
Executive for, the reasonable and necessary business expenses of Executive
incurred in the performance of his duties hereunder, subject to reasonable
documentation thereof and the reasonable rules and regulations of the
Corporation relating thereto.
6. INVENTIONS AND IMPROVEMENTS. Executive acknowledges, covenants and
agrees that the Corporation shall be the sole owner of all the fruits and
proceeds of Executive's services hereunder, including but not limited to all
writings, inventions, discoveries, designs, systems, processes or other
improvements relating to the business or products of the Corporation, whether or
not patentable, registerable, or copyrightable, which Executive may, alone or
with others, conceive, create, develop, produce or make during the Employment
Term or as a result of his employment with the Corporation (collectively, the
"Invention"), free and clear of any claims by Executive of any kind or character
whatsoever other than Executive's rights to compensation hereunder. Executive
agrees that he shall disclose each of the Inventions promptly and completely to
the Corporation, and shall, at the request of the Board, execute such
assignments, certificates or other instruments as the Board from time to time
deems necessary or desirable to evidence, establish, maintain, perfect, protect,
enforce or defend the Corporation's right, title and interest in or to any or
all of the Inventions.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
a. Executive acknowledges that, in and as a result of his
employment by the Corporation, he will be making use of, acquiring
and/or adding to the Corporation's Confidential Information (as
hereinafter defined). As a material inducement to the Corporation to
enter into this Agreement and to pay Executive the compensation and
benefits set forth in this Agreement, Executive covenants and agrees
that he shall not, at any time during or following the term of this
Agreement, directly or indirectly divulge or disclose for any purposes
whatsoever, any Confidential Information that has been obtained by, or
disclosed to, him as a result of his employment with the Corporation.
For purposes of this Agreement, "Confidential Information" means,
collectively, all confidential matters and materials of the
Corporation, including without limitation, the Corporation's
proprietary information, inventions, trade secrets, knowledge, data,
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know-how, intellectual property, systems, procedures, manuals, pricing
policies, operational methods and information relating to the
Corporation's products, processes, formulae, business plans, marketing
plans and strategies, pricing strategies, customer lists, or other
subject matters pertaining to the business and/or financial affairs of
the Corporation. "Confidential Information" shall not include any
information that is in the public domain during the period of
Executive's service to the Corporation other than as a result of
disclosure by Executive in violation of this Agreement.
b. If Executive is required by a court of competent jurisdiction
or other tribunal (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigation demand or
similar process) to disclose any Confidential Information, Executive
may disclose such Information to such tribunal without liability
hereunder, PROVIDED, THAT Executive first provides the Corporation with
notice of any such requirement(s) as promptly as practicable, but in
any case with sufficient timeliness to enable the Corporation to seek
an appropriate protective order and/or waive its compliance with the
relevant provisions of this Agreement.
8. COVENANTS AGAINST COMPETITION.
a. In view of the unique value to the Corporation of the
services of Executive and because of the Confidential Information to be
obtained by or disclosed to Executive, as herein above set forth, and
as a material inducement to the Corporation to enter into this
Agreement and to pay to Executive the compensation and benefits set
forth in this Agreement, Executive covenants and agrees that during
Executive's employment and for a period of one year after he ceases to
be employed by the Corporation for any reason, he will not, except as
otherwise authorized by this Agreement, compete in the field of
pharmacogenomics with the Corporation or any affiliate of the
Corporation, solicit the Corporation's customers or the customers of
any of its affiliates in the field of pharmacogenomics, or directly or
indirectly solicit for employment any of the Corporation's employees.
b. For the purposes of this Agreement:
(i) The term "compete" means engaging in the same or
any similar business as the Corporation or any of its affiliates
in any manner whatsoever, including without limitation as a
proprietor, partner, investor, shareholder, member, director,
officer, employee, consultant, independent contractor or
otherwise, within any geographic area in which the Corporation's
products are offered or distributed;
(ii) The term "affiliate," when used in reference to any
Person (as hereinafter defined), means any other Person that
directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the
first such Person; and
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(iii) The term "customers" means all Persons to whom the
Corporation or any of its affiliates has provided any product or
service, whether or not for compensation, within a period of two
(2) years prior to the time Executive ceases to be employed by the
Corporation.
c. None of the provisions of this Section 8 shall prohibit
Executive from investing in securities listed on a national securities
exchange or actively traded over-the-counter so long as such
investments are not greater than five percent (5%) of the outstanding
securities of any issuer of the same class or issue.
9. REASONABLENESS OF RESTRICTIONS.
a. Executive has carefully read and considered the provisions of
Section 7 and Section 8, and, having done so, agrees that:
(i) The restrictions set forth in Section 7 and Section
8, including but not limited to the time period, scope and
geographical area of restriction, are fair and reasonable and are
reasonably required for the protection of the good will and other
legitimate business interests of the Corporation and its
affiliates, officers, directors, shareholders, and other
employees;
(ii) Executive has received adequate consideration for
such obligations; and
(iii) Such obligations do not prevent Executive from
earning a livelihood.
b. If, notwithstanding the foregoing, any of the provisions of
Section 7 or Section 8 shall be held to be invalid or unenforceable,
the remaining provisions thereof shall nevertheless continue to be
valid and enforceable as though the invalid and unenforceable parts had
not been included therein. If any provision of Section 7 or Section 8
relating to the time period and/or the areas of restriction and/or
related aspects shall be declared by a court of competent jurisdiction
to exceed the maximum restrictiveness such court deems reasonable and
enforceable, the time period and/or areas of restriction and/or related
aspects deemed reasonable and enforceable by the court shall become and
thereafter be the maximum restriction in such regard, and the
restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
10. REMEDIES FOR BREACH OF EXECUTIVE'S COVENANTS OF NON-DISCLOSURE AND
NON-COMPETITION. Executive recognizes and agrees that the Corporation's remedy
at law for any breach of Section 7 or Section 8 would be inadequate, and he
agrees that, for breach of such provisions, the Corporation shall, in addition
to such other remedies as may be available to it at law or in equity or as
provided in this Agreement, be entitled to injunctive relief and to enforce its
rights by an action for specific performance.
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11. TERMINATION.
a. In the event that Executive dies during the Employment Term,
this Agreement shall terminate upon his death, upon which event
Executive's legal representatives shall be entitled to receive, and the
Corporation shall pay or cause to be paid to Executive's legal
representatives, any Base Salary and other compensation or benefits
accrued but as yet unpaid on the date of Executive's death.
b. If during the Employment Term, Executive is prevented from
performing the duties or fulfilling responsibilities of his employment
under this Agreement by reason of any incapacity or disability for a
continuous period of six (6) months, as determined by an independent
qualified physician selected by the Corporation and reasonably
acceptable to Executive (or his representative), then the Corporation
may, upon thirty (30) days prior written notice to Executive, terminate
Executive's employment hereunder, but Executive shall continue to be
eligible to receive any benefits to which he may be entitled under the
terms of any long-term disability plan or insurance policy maintained
by the Corporation for its employees. In the event of such incapacity
or disability, the Corporation shall continue to pay full compensation
to Executive in accordance with the terms of this Agreement until the
date of such termination.
c. The Corporation may, upon written notice to Executive,
terminate Executive's employment hereunder For Cause; provided that the
Corporation shall first provide the Executive with an opportunity to
discuss any proposed termination with the Board. For purposes of this
Agreement, the term "For Cause" shall mean:
(i) A willful and material breach by Executive of his
duties hereunder which Executive fails to cure within thirty (30)
days after receipt of written notice;
(ii) Executive's conviction of any felony, or of a
lesser crime having its predicate element fraud, dishonesty or
misappropriation of property of Corporation;
(iii) Executive's engaging in bad faith or gross
negligence in the performance of his duties under this Agreement
as determined in good faith by the Board;
(iv) Executive's engaging in chronic alcoholism, drug
addiction or substance abuse which has interfered with the
performance of his duties under this Agreement; and/or
(v) Executive's perpetration of any act or omission
which submits the Corporation to criminal liability, unless such
act or omission was directly approved by resolution of the Board.
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In the event of termination For Cause of Executive's employment,
Executive's right to receive compensation and other benefits hereunder (other
than any Base Salary accrued but as yet unpaid on the effective date of such
termination) shall terminate on the effective date of such termination, and
Executive shall not be entitled to any severance payments or benefits pursuant
to Section 12.
d. The Corporation may, at any time, for reason other than For
Cause, elect, by majority vote of the Board, to terminate Executive's
employment upon thirty (30) days written notice to Executive. In the
event of such termination for reason other than For Cause, the
Corporation shall be obligated to pay Executive the applicable amounts
specified in Section 12(a); provided that if a Change of Control (as
hereinafter defined) has occurred within the preceding 12 months, then
the Corporation shall be obligated to pay the amounts specified in
Section 12(b) rather than the amounts specified in Section 12(a).
e. Executive may, at his option, upon thirty (30) days written
notice to the Corporation, terminate his employment hereunder, if: the
Corporation, without Executive's express written consent, demotes him
to a position and/or assigns him duties inconsistent with the position
and/or duties described in Sections 1 or 2. Upon any termination by
Executive under this Section 11(e), the Corporation shall be obligated
to pay Executive the applicable amounts specified in Section 12(a);
provided that if a Change of Control (as hereinafter defined) has
occurred within the preceding 12 months, then the Corporation shall be
obligated to pay the amounts specified in Section 12(b) rather than the
amounts specified in Section 12(a).
f. Executive may, at his option, upon thirty (30) days written
notice to the Corporation, terminate his employment hereunder for Good
Reason (as hereinafter defined) following a Change of Control of the
Corporation. Upon any termination by Executive under this Section
11(f), the Corporation shall be obligated to pay Executive the amounts
specified in Section 12(b).
g. Executive may, at his option, upon six (6) months prior
written notice to the Corporation, terminate his employment hereunder.
In the event of a voluntary termination of his employment by the
Executive pursuant to this Section 11(g), Executive's rights to receive
compensation and other benefits (other than any Base Salary accrued but
as yet unpaid on the effective date of such termination) shall
terminate on the effective date of such termination, and Executive
shall not be entitled to any severance payments or benefits pursuant to
Section 12.
h. For purposes of this Agreement, the term "Good Reason" means,
during the twelve (12) month period following a Change of Control,
without Executive's express written consent, the occurrence of any of
the following circumstances:
(i) the assignment to Executive of any duties
inconsistent (except in the nature of a promotion) with the
position in the Corporation that he held immediately prior to the
Change of Control or substantial
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adverse alteration in the nature or status of his position or
responsibilities or the conditions of his employment from those in
effect immediately prior to the Change of Control;
(ii) a reduction by the Corporation in Executive's
annual Base Salary as in effect on the date hereof, as the same
may be increased from time to time; or
(iii) the failure by the Corporation to continue in
effect any material compensation or benefit plan in which
Executive participates immediately prior to the Change of Control
unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or
the failure by the Corporation to continue Executive's
participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the
amount of benefits provided and the level of his participation
relative to other participants, than existed immediately prior to
the Change of Control.
i. For purposes of this Agreement, a "Change of Control" shall
be deemed to have occurred if:
(i) Any Person or any two or more Persons acting as a
group (but excluding the Corporation and any subsidiary of the
Corporation and any employee benefit plan sponsored or maintained
by the Corporation or any such subsidiary), and all affiliates of
such Person or Persons, who shall directly or indirectly acquire
beneficial ownership of securities of the Corporation in one or
more transactions, or series of transactions, such that, following
such transaction or transactions, such Person or Persons or group
and their affiliates beneficially own securities of the
Corporation representing (A) prior to the occurrence of an Initial
Public Offering (as hereinafter defined), fifty percent (50%) or
more of the combined voting power of the Corporation's then
outstanding securities, and (b) at any time thereafter,
thirty-five percent (35%) or more of the combined voting power of
the Corporation's then outstanding securities. For the purposes of
this clause, a subsidiary of the Corporation shall mean a
corporation all of whose securities having voting power are
beneficially owned by the Corporation;
(ii) Any Person or Persons acquires or agrees to acquire
all or substantially all of the assets of the corporation through
a purchase of assets but excluding any such acquisition by a
corporation all of whose securities having voting power are
beneficially owned by the Corporation;
(iii) As a result of a contested election, the
individuals who were directors of the Corporation immediately
before the election ceased to constitute a majority of the Board;
or
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(iv) The Corporation enters into any agreement pursuant
to which it is not the surviving constituent corporation in any
merger or other business combination.
j. For purposes of this Agreement, the term "Person" means any
individual, corporation, association, partnership, limited partnership,
limited liability company, limited liability partnership, organization,
business, joint venture, sole proprietorship, governmental agency,
entity or subdivision or other entity of any kind or nature.
k. (i) Subject to paragraph (m) of this Section 11, upon a
voluntary termination by Executive of his employment pursuant to
Section 11(e) or Section 11(f), or upon termination of such employment
by the Corporation pursuant to Section 11(d) or upon the expiration of
the Employment Term as a result of the Corporation's delivering a
Non-Extension Notice to Executive, Executive shall have the right to
require the Corporation to repurchase all of the shares of capital
stock of the Corporation owned by him at the date of any such
termination or expiration (the "Shares") at their Fair Market Value as
of the date upon which the Executive exercises such right. The
Executive shall have a period of one (1) year after the date of such
termination or expiration to exercise such right which shall be
exercisable by delivering a written notice of exercise to the principal
office of the Corporation, to the attention of the Board. The purchase
of the Shares shall take place at the principal office of the
Corporation at 10:00 a.m., local time, on a date no later than the
later of (i) thirty (30) days after determination of the Fair Market
Value of the Shares in accordance with the provisions of this
Agreement, or (ii) sixty (60) days after the Corporation's receipt of
such notice. At the closing, Executive shall transfer the Shares to the
Corporation, and the Corporation shall pay the Fair Market Value
thereof by certified or bank cashier's check(s) or by wire transfer of
funds; PROVIDED, THAT the Corporation may, if prohibited from making
such payment in cash by any applicable law, pay the Fair Market Value
in a combination of cash in an amount of no less than half of such Fair
Market Value (to the extent permitted by such law) and the remainder by
means of an unsecured promissory note of the Corporation bearing
interest at the Prime Rate, payable in equal monthly installments of
interest and principal over three (3) years, in a principal amount
equal to the Fair Market Value less the amount of the cash payment. Any
such note shall contain commercially reasonable provisions. Executive
shall execute and deliver such instruments of transfer as the
Corporation may reasonably request in order to effect such transfer.
(ii) As used herein, the term "Fair Market Value" means
the fair market value agreed upon by the Corporation and Executive
or determined by an appraiser selected jointly by the Corporation
and Executive but at the Corporation's expense. If the Corporation
and Executive cannot agree on such Value or such an appraiser
within 30 days after the occurrence of the event requiring such
determination, then the Corporation shall appoint one appraiser,
at its expense, and Executive shall appoint one appraiser, at his
expense, both of whom shall be experienced in the appraisal of
companies engaged in businesses similar to the business then
conducted by the Corporation. If either the Corporation or
Executive fail to appoint such an appraiser within 15 days after
the lapse
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of such 30-day period, then the appraiser appointed by the party
who does appoint an appraiser shall make the appraisal of the Fair
Market Value and such appraisal shall govern. If two appraisers
are appointed, then the average of the appraisals rendered by such
appraisers shall be considered the Fair Market Value; provided
that if the higher appraisal reflects a value that is greater than
120% of the lower appraisal, then the two appraisers shall jointly
appoint a third appraiser (experienced in the appraisal of similar
businesses), or if they fail to do so, the manager of the
principal office of the American Arbitration Association in
Hartford County in the State of Connecticut shall make such
appointment. The Corporation shall pay of the expenses of such
third arbitrator. The average of the two appraisals closest in
value among the three appraisals rendered by such appraisers shall
be considered the Fair Market Value. Each appraisal report shall
be rendered in writing and shall be signed by the appraiser
rendering such report. The Corporation and Executive shall use
reasonable efforts to cause each appraiser to render its or his
appraisal report within 30 days after the date of appointment.
(iii) As used herein, "Prime Rate" means the prime rate
of interest from time to time published in the "Money Rates"
column of the Wall Street Journal, Eastern edition.
l. In the event of termination or expiration of Executive's
employment other than for death, Executive shall resign from all
positions held in the Corporation, including without limitation any
position as a director, officer, agent, trustee or consultant of the
Corporation or any affiliate of the Corporation.
m. Notwithstanding the foregoing, paragraph (k) of this Section
11 shall have no further force or effect upon the consummation of a
firm commitment underwritten public offering of shares of common stock
of the Corporation registered under the Securities Act of 1933, as
amended (an "Initial Public Offering").
12. SEVERANCE PAYMENTS.
a. Subject to Section 13, if the Corporation terminates
Executive's employment pursuant to Section 11(d), and the Board vote
with respect to such termination does not occur within twelve (12)
months following a Change of Control, or if Executive terminates his
employment pursuant to Section 11(e), and such termination does not
occur within twelve (12) months following a Change of Control, or if
the Employment Term expires as a result of the Corporation's delivering
a Non-Extension Notice to Executive and such Notice is not delivered
within twelve (12) months following a Change of Control, the parties
recognize and agree that actual damages due Executive would be
difficult if not impossible to ascertain and agree that, in lieu of any
other rights to which Executive may be entitled, the Corporation shall
pay Executive, as severance pay or as liquidated damages, or both,
Executive's Base Salary, as in effect at the time of such termination
or expiration for a period of twelve (12) calendar months following the
date of such termination or expiration, such payments to be made in the
same manner in which such salary payments were made to Executive
immediately prior to the date of such termination or expiration.
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b. Subject to Section 13, if the Corporation terminates
Executive's employment pursuant to Section 11(d), and the Board vote
with respect to such termination occurs within the twelve (12) months
following a Change of Control, or if Executive terminates his
employment pursuant to Section 11(e) and such termination occurs within
twelve (12) months following a Change of Control, or if the Employment
Term expires as a result of the Corporation's delivering a
Non-Extension Notice to Executive within twelve (12) months following a
Change of Control, or if Executive terminates his employment for Good
Reason following a Change of Control pursuant to Section 11(f), the
parties recognize and agree that actual damages to Executive would be
difficult if not impossible to ascertain and agree that, in lieu of any
other rights to which Executive may be entitled, the Corporation shall
pay Executive, as severance pay or as liquidated damages, or both, upon
the effective date of such termination or expiration a lump sum equal
to three hundred percent (300%) of Executive's annual Base Salary as in
effect at the time of such termination or expiration. Such payment
shall be made within thirty (30) days after such termination or
expiration date.
c. Except as set forth in this Section 12 or as otherwise
required by law, Executive shall not be entitled to any severance
payments or employee benefits under this Agreement after termination or
expiration of Executive's employment, except that if Executive is
entitled to severance payments under Section 12(a) or Section 12(b), or
if Executive's employment is terminated as a result of incapacity or
disability, during the eighteen (18) month period (or such longer
period which does not exceed twenty-four (24) months as may be provided
by applicable law) following any termination or expiration of
Executive's employment hereunder, the Corporation shall reimburse
Executive for out-of-pocket health insurance expenses for himself and
his spouse or children, if any, incurred by Executive pursuant to COBRA
(Consolidated Omnibus Budget Reconciliation Act of 1986). If Executive
elects not to maintain health insurance pursuant to COBRA, the
Corporation is under no obligation to reimburse Executive for his
otherwise elected coverage. Executive shall give the Corporation prompt
notice of his re-employment.
13. MAXIMUM SEVERANCE PAYMENTS.
a. Anything else contained in this Agreement to the contrary
notwithstanding, if any payment or benefit received or to be received
by Executive (whether payable pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Corporation, its
successors, any other Person whose actions result in a Change of
Control or any Tax Affiliate (as hereinafter defined) (collectively,
with the payments and benefits pursuant to this Agreement if deemed to
be paid pursuant to a Change of Control, the "Total Payments")) is
determined by Tax Advisor (as hereinafter defined) (i) to be an "excess
parachute payment" (in whole or in part) for purposes of Section 280G
of the Code (as hereinafter defined) and (ii) not to be deductible (in
whole or in part) by the Corporation, a Tax Affiliate or other Person
making such payment or providing such benefit as a result of Section
280G of the Code, then payments and benefits received or to be received
by Executive pursuant to Section 12 shall be reduced
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(but to not less than zero) until the Total Payments are fully
deductible notwithstanding Section 280G of the Code. For purposes of
the limitation set forth in this Section 13, (a) no portion of the
Total Payments the receipt of which Executive, in the determination of
Tax Advisor, shall have effectively waived prior to the date which is
fifteen (15) days following termination or expiration of his employment
and prior to the earlier of (1) the date of constructive receipt
thereof and (2) the date of payment thereof shall be taken into
account; and (b) any reduction in the payments and benefits received or
to be received by Executive pursuant to Section 12 shall be made first
to cash payments due to Executive in the inverse order of the dates on
which they would be payable to Executive and then to other benefits due
to Executive in the inverse order of the dates on which they would be
received by Executive, except to the extent that such payments and
benefits, in the determination of Tax Advisor, are reasonable
compensation within the meaning of Section 280G of the Code. The
determination of Tax Advisor as to the deductibility of the Total
Payments shall be completed not later than forty-five (45) days
following Executive's termination of employment, and such termination
shall be communicated in writing to the Corporation, with a copy to
Executive, within such forty-five (45) day period. The determination of
Tax Advisor as to the deductibility of the Total Payments shall be
deemed to be conclusive and binding on the Corporation and Executive
and shall not be subject to the arbitration provisions of Section 24.
The Corporation shall pay the fees and other costs of Tax Advisor in
connection with its performance of its duties hereunder.
b. For purposes of this Agreement:
(i) The term "Code" means the Internal Revenue Code of
1986, as amended;
(ii) The term "Tax Advisor" means the Corporation's
independent auditors; and
(iii) The term "Tax Affiliate" means any corporation
affiliated (or which, as a result of the completion of the
transactions causing a Change of Control, will become affiliated)
with the Corporation within the meaning of Section 1504 of the
Code.
14. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision or
of any other provision of this Agreement by that party or any other party.
15. GOVERNING LAW. This Agreement shall in all respects be subject to,
and governed by, the laws of the State of Connecticut.
16. SEVERABILITY. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or enforceability of
any other provision and
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this Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
17. NOTICE. Any and all notices required or permitted herein shall be
in writing and shall be deemed to have been duly given (a) when delivered if
delivered personally, (b) on the fifth day following the date of deposit in the
United States mail if sent first class, postage prepaid, by registered or
certified mail, or (c) one day after delivery to a nationally recognized
overnight courier service. The parties' respective addresses for such notices
shall be those set forth following their respective signatures below, or such
other address or addresses as either party may hereafter designate in writing to
the other.
18. ASSIGNMENT. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns, heirs, executors, and legal and personal
representatives, except that the rights and benefits of Executive under this
Agreement may not be assigned without the prior written consent of the
Corporation. Without limiting the generality of the foregoing, this Agreement
shall be binding upon and inure to the benefit of any corporation with which or
into which the Corporation or its successors may be merged or which may succeed
to its assets or business.
19. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing and signed by the Corporation and Executive.
20. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding by and between Executive and the Corporation with respect to the
employment of Executive and supersedes all existing agreements between the
Corporation and Executive with respect to such employment. No representations,
promises, agreements, or understandings, written or oral, relating to the
employment of Executive by the Corporation not contained herein shall be of any
force or effect. Without limiting the generality of the foregoing, that certain
Employment Agreement, dated as of February, 1997, between the Corporation and
Executive (as heretofore amended) is hereby terminated and shall be of no
further force or effect.
21. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those masculine
in form and vice versa, and plural terms shall be substituted for singular and
singular for plural in any place in which the context so requires.
22. COUNTERPARTS; HEADINGS; SECTIONS. This Agreement may be executed
in multiple counterparts, each of which shall be considered to have the force
and effect of any original but all of which taken together shall constitute but
one and the same instrument. The various headings in this Agreement are inserted
for convenience only and are not part of the Agreement. All references to
"Sections" and "paragraphs" in this Agreement refer to the various corresponding
sections and paragraphs of this Agreement.
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<PAGE>
23. SURVIVAL. The covenants and agreements contained in Sections 6
through 12 shall survive any termination or expiration of this Agreement and the
termination of Executive's employment hereunder.
24. ARBITRATION. Executive and the Corporation will submit any
disputes arising under this Agreement to an arbitration panel conducting a
binding arbitration in Hartford, Connecticut, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in effect on the date
of such arbitration (the "Rules"), and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof; PROVIDED, HOWEVER, that nothing herein shall impair the Corporation's
right to seek equitable relief for breach or threatened breach of Section 7 or
Section 8. The award of the arbitrators shall be final and shall be the sole and
exclusive remedy between the parties regarding any claims, counterclaims, issue
or accounting presented to the arbitration panel. The parties hereto further
agree that the arbitration panel shall consist of one (1) person mutually
acceptable to the Corporation and Executive, PROVIDED that if the parties cannot
agree on an arbitrator within fifteen (15) days of filing a notice of
arbitration, the arbitration panel shall consist of three (3) persons, one
selected by the Corporation, one selected by Executive (or his representative)
and one selected by the arbitrators so selected by the parties hereto, or if the
parties hereto cannot agree, selected by the manager of the principal office of
the American Arbitration Association in Hartford County in the State of
Connecticut. All fees and expenses of the arbitration, including a transcript if
either party requests, shall be borne equally by the parties. If Executive
prevails as to any material issue presented in the arbitration, the entire cost
of such proceedings (including, without limitation, Executive's reasonable
attorney's fees) shall be borne by the Corporation. If Executive does not
prevail as to any material issue, each party will pay for the fees and expenses
of its own attorneys, experts, witnesses, and preparation and presentation of
proofs and post-hearing briefs (unless the party prevails on a claim for which
attorney's fees are recoverable under the Rules). Any action to enforce or
vacate the arbitrator's award shall be governed by the federal Arbitration Act,
if applicable, and otherwise by applicable state law. If either the Corporation
or Executive pursues any claim, dispute or controversy against the other in a
proceeding other than the arbitration provided for herein, the responding party
shall be entitled to dismissal or injunctive relief regarding such action and
recovery of all costs, losses and attorney's fees related to such action.
THE NEXT PAGE IS THE SIGNATURE PAGE
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<PAGE>
IN WITNESS WHEREOF, the Corporation and Executive have duly executed
this Agreement as of the day and year first above written.
CORPORATION:
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ Gualberto Ruano
-------------------------------
Name: Gualberto Ruano
Its President
Address for Notice Purposes:
5 Science Park
Suite 2103
New Haven, CT 06511
EXECUTIVE:
/s/ Kevin Rakin
----------------------------------
KEVIN RAKIN
Address for Notice Purposes:
19 Linwold Drive
West Hartford, CT 06107
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<PAGE>
Exhibit 10.20
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of April
15, 1999 (the "Effective Date"), by and between GENAISSANCE PHARMACEUTICALS,
INC. (the "Corporation"), a Delaware corporation with its principal office at 5
Science Park, New Haven, Connecticut, 06511, and GERALD F. VOVIS, PH.D.
("Executive"), an individual who resides at 98 Prendiville Way, Marlborough,
Massachusetts, 01752-1740.
WHEREAS, the Corporation desires to employ Executive, and Executive
desires to accept employment with the Corporation, subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. Executive shall be employed as an officer in the
capacity of Senior Vice President, Genomics ("SVP") of the Corporation during
the term of this Agreement, and Executive hereby accepts such employment, on the
terms and conditions hereinafter set forth. Executive represents that his
employment by the Corporation pursuant to this Agreement does not violate any
agreement, covenant or obligation to which he is a party or by which he is
bound.
2. DUTIES. During the term of this Agreement, Executive shall perform
all duties, consistent with his position as SVP in order to advance the
Corporation's genomics technology and related business efforts, assigned or
delegated to him by the Chief Executive Officer of the Corporation or his
delegate (the "CEO"), and normally associated with the position of SVP,
including, without limitation, managing the Corporation's genomics team,
addressing strategic and tactical business decisions of the Corporation with
other senior managers, and acting as liaison with the Corporation's Scientific
Advisory Board. He shall devote all of his full business time and best efforts
to the advancement of the interests and business of the Corporation except that
he shall be permitted from time to time to fulfill his responsibilities as a
member of the Scientific Advisory Board of Westminster College in New
Willmington, PA, so long as such responsibilities do not interfere with his
performance of his duties to the Corporation.
3. TERM. The term of Executive's employment under this Agreement
shall begin on the Effective Date, and shall expire at the close of business on
April 15, 2003, unless earlier terminated as provided in this Agreement (the
"Initial Term"). Upon expiration of the Initial Term, and each subsequent term
or extension thereof, this Agreement shall automatically be extended for an
additional term of one (1) year, unless Executive or the Corporation shall have
notified the other of his or its election to terminate this Agreement not later
than one hundred eighty (180) days prior to the end of such subsequent term or
extension thereof (the "Initial Term", together with any extensions, until
termination in accordance herewith, shall be referred
<PAGE>
to herein as the "Employment Term"). If the Executive continues in the full-time
employ of the Corporation after the end of the Employment Term (it being
expressly understood and agreed that the Corporation does not now, nor hereafter
shall have, any obligation to continue the Executive in its employ, whether or
not on a full-time basis, after the Employment Term ends), then the Executive's
continued employment by the Corporation shall, notwithstanding anything to the
contrary expressed or implied herein, be terminable by the Corporation at will.
4. COMPENSATION. As compensation for the services to be rendered by
Executive to the Corporation pursuant to this Agreement, the Corporation shall
pay Executive and provide Executive with the following compensation and benefits
which Executive agrees to accept in full satisfaction for his services:
a. BASE SALARY. The Corporation shall pay Executive a base
salary, payable in equal installments at such payment intervals as are
the usual custom of the Corporation, but not less often than monthly,
at an annual rate of $185,000, less such deductions or amounts to be
withheld as shall be required by applicable law (the "Base Salary").
The Base Salary shall be reviewed annually by the CEO and shall be
increased (but not decreased), if at all, (effective as of each
successive anniversary of the Effective Date) by such amount, if any,
as the CEO, in his sole discretion, shall determine.
b. BONUSES. Beginning in the year 2000, during the first quarter
of each of the Corporation's fiscal years during the Employment Term,
the Corporation shall pay Executive a bonus (an "Incentive Bonus")
equal to such amount as shall be determined by the CEO in his sole
discretion based upon Executive's achievements in meeting his
performance goals and those of the Corporation for its most recently
ended fiscal year. For the fiscal year ending December 31, 1999, such
goals shall be established by June 1, 1999. Thereafter, such goals
shall be established in the first quarter of each fiscal year after the
commencement of the Employment Term. Each Incentive Bonus may be
payable in cash and/or stock options as determined by the CEO.
c. BENEFITS.
(i) Executive shall be entitled to participate, to the
extent he is eligible, in all group insurance programs, health,
medical, dental, and disability plans, and other employee benefit
plans (including, without limitation, the Corporation's 401(k)
plan) which the Corporation may hereafter in its sole and absolute
discretion make available generally to its senior management
(other than any incentive compensation or equity ownership plan,
for which he shall be eligible at the discretion of the CEO), but
the Corporation shall not be required to establish or maintain any
such program or plan.
(ii) Executive shall be entitled to three (3) weeks paid
vacation during each calendar year. Such vacation may be taken at
such time or times as is reasonably consistent with the
Corporation's vacation policies and the performance by Executive
of his duties and responsibilities hereunder.
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<PAGE>
(iii) Executive shall be entitled to participate in the
Corporation's 1993 Stock Option Plan (the "Plan") and the
Corporation shall use its best efforts to cause the board of
directors of the Corporation (the "Board") or the applicable
committee of the Board to grant Executive an option pursuant to
the terms of the Plan, having a ten-year term, to purchase 100,000
shares of the Corporation's common stock at an exercise price per
share equal to $3.00 (the "Option"), which Option shall be subject
to the provisions set forth in a separate agreement embodying the
grant of the Option and shall be in the form attached hereto as
Exhibit A. In addition to the foregoing, Executive shall be
entitled to participate in any program authorized by the Board
which grants additional stock options by the Corporation to the
founders of the Corporation, Gualberto Ruano, M.D., Ph.D. and
Kevin L. Rakin (the "Founders"), under the following
circumstances: (A) such program is established in connection with
any equity financing of the Corporation that occurs after the
commencement of the Employment Term and prior to an initial
registered public offering of the Corporation's stock, and (B)
such equity financing results in a dilution of the existing stock
options held by the Founders or Executive. In addition, Executive
shall be eligible to participate in the Plan with respect to his
future performance as a senior executive of the Corporation.
(iv) The Corporation shall, during the Employment Term,
pay the premiums or a portion thereof (as specified hereafter) for
a $1,000,000 policy of term life insurance insuring the life of
Executive (subject to his meeting the insurability requirements of
the insurer). The Corporation shall pay the premiums for such
insurance policy up to the cost charged by the insurer to insure a
healthy 56 year old male non-smoker. Executive shall be the owner
of such policy and entitled to all of the rights of ownership
including designation of the beneficiary thereof.
(v) Subject to reasonable guidelines adopted by the
Board, throughout the Employment Term, the Corporation shall pay
the costs of dues for membership in at least one professional
organization whose activities are related to the business of the
Corporation.
(vi) The Corporation shall provide Executive with a
policy of long-term disability insurance with reasonable
coverages, which shall include the payment of benefits equal to at
least 60% of Executive's Base Salary during the disability
coverage period, and the Corporation shall pay the premiums or a
portion thereof (as specified hereafter) for such disability
insurance policy up to the cost charged by the insurer to insure a
healthy 56 year old male non-smoker.
(vii) The Corporation, at its expense, shall pay or
reimburse Executive for all reasonable moving expenses
attributable to the relocation of the Executive from Marlborough,
Massachusetts to Connecticut. At or about the commencement of the
Employment Term, the Corporation, at its expense, shall
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provide Executive with a furnished apartment or executive suite in
the New Haven area until the Executive and his family relocate.
d. SEVERANCE BENEFIT. If the Employment Term expires as a result
of either (i) the Executive terminating his employment pursuant to
Section 9(f) hereof, or (ii) the Corporation terminating Executive's
employment pursuant to Section 9(d) hereof, then upon the expiration of
the Employment Term, the Corporation shall be obligated to pay
Executive the applicable amounts specified in Section 10.
5. BUSINESS EXPENSES. The Corporation shall pay or reimburse
Executive for the reasonable and necessary business expenses of Executive
incurred in the performance of his duties hereunder, subject to reasonable
documentation thereof and the reasonable rules and regulations of the
Corporation relating thereto.
6. COVENANTS AGAINST COMPETITION.
a. In view of the unique value to the Corporation of the
services of Executive, and as a material inducement to the Corporation
to enter into this Agreement and to pay to Executive the compensation
and benefits set forth in this Agreement, Executive covenants and
agrees that during Executive's employment and for a period of six (6)
months after he ceases to be employed by the Corporation if his
employment ends prior to the expiration of the Employment Term, he will
not, except as otherwise authorized by this Agreement, compete in the
field of pharmacogenomics with the Corporation or any affiliate of the
Corporation, solicit the Corporation's customers or the customers of
any of its affiliates in the field of pharmacogenomics, or directly or
indirectly solicit for employment any of the Corporation's employees.
b. For the purposes of this Agreement:
(i) The term "compete" means engaging in the same or
any similar business as the Corporation or any of its affiliates
in any manner whatsoever, including without limitation as a
proprietor, partner, investor, shareholder, member, director,
officer, employee, consultant, independent contractor or
otherwise, within any geographic area in which the Corporation's
products are offered or distributed;
(ii) The term "affiliate", when used in reference to any
Person (as hereinafter defined), means any other Person that
directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the
first such Person; and
(iii) The term "customers" means all Persons to whom the
Corporation or any of its affiliates has provided any product or
service, whether or not for compensation, within a period of two
(2) years prior to the time Executive ceases to be employed by the
Corporation.
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<PAGE>
(iv) The term "Person" means any natural person,
corporation, limited liability company, partnership of any type,
proprietorship, other business organization, trust, union,
association or governmental body.
c. None of the provisions of this Section 6 shall prohibit
Executive from investing in securities listed on a national securities
exchange or actively traded over-the-counter so long as such
investments are not greater than five percent (5%) of the outstanding
securities of any issuer of the same class or issue.
7. REASONABLENESS OF RESTRICTIONS.
a. Executive has carefully read and considered the provisions of
Section 6, and, having done so, agrees that:
(i) The restrictions set forth in Section 6, including
but not limited to the time period, scope and geographical area of
restriction, are fair and reasonable and are reasonably required
for the protection of the good will and other legitimate business
interests of the Corporation and its affiliates, officers,
directors, shareholders, and other employees;
(ii) Executive has received, or is entitled to receive
pursuant to the provisions of this Agreement, adequate
consideration for such obligations; and
(iii) Such obligations do not prevent Executive from
earning a livelihood.
b. If, notwithstanding the foregoing, any of the provisions of
Section 6 shall be held to be invalid or unenforceable, the remaining
provisions thereof shall nevertheless continue to be valid and
enforceable as though the invalid and unenforceable parts had not been
included therein. If any provision of Section 6 relating to the time
period and/or the areas of restriction and/or related aspects shall be
declared by a court of competent jurisdiction to exceed the maximum
restrictiveness such court deems reasonable and enforceable, the time
period and/or areas of restriction and/or related aspects deemed
reasonable and enforceable by the court shall become and thereafter be
the maximum restriction in such regard, and the restriction shall
remain enforceable to the fullest extent deemed reasonable by such
court.
8. REMEDIES FOR BREACH OF EXECUTIVE'S COVENANT OF NON-COMPETITION.
Executive recognizes and agrees that the Corporation would suffer irreparable
harm due to any breach of Section 6 and that the Corporation's remedy at law for
any such breach would be inadequate, and he agrees that, for breach of such
provisions, the Corporation shall, in addition to such other remedies as may be
available to it at law or in equity or as provided in this Agreement, be
entitled to injunctive relief and to enforce its rights by an action for
specific performance.
9. TERMINATION.
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a. In the event that Executive dies during the Employment Term,
this Agreement shall terminate upon his death, upon which event
Executive's legal representatives shall be entitled to receive, and the
Corporation shall pay or cause to be paid to Executive's legal
representatives, any Base Salary and other compensation or benefits
accrued but as yet unpaid on the date of Executive's death.
b. If during the Employment Term, Executive is prevented from
performing the duties or fulfilling responsibilities of his employment
under this Agreement by reason of any incapacity or disability for a
continuous period of six (6) months, as determined by an independent
qualified physician selected by the Corporation and reasonably
acceptable to Executive (or his representative), then the Corporation
may, upon thirty (30) days prior written notice to Executive, terminate
Executive's employment hereunder, but Executive shall continue to be
eligible to receive any benefits to which he may be entitled under the
terms of any disability plan or insurance policy maintained by the
Corporation for its employees generally or for Executive specifically.
In the event of such incapacity or disability, the Corporation shall
continue to pay full compensation to Executive in accordance with the
terms of this Agreement until the date of such termination, less any
amounts received by the Executive under any disability plan maintained
by the Corporation.
c. The Corporation may, upon written notice to Executive,
terminate Executive's employment hereunder For Cause. For purposes of
this Agreement, the term "For Cause" shall mean:
(i) A willful and material breach by Executive of his
duties hereunder;
(ii) Executive's conviction of any felony, or of a
lesser crime having as its predicate element fraud, dishonesty or
misappropriation of property of the Corporation;
(iii) Executive's engaging in bad faith or gross
negligence in the performance of his duties under this Agreement
as determined in good faith by the Board;
(iv) Executive's engaging in chronic alcoholism, drug
addiction or substance abuse which has interfered with the
performance of his duties under this Agreement; and/or
(v) Executive's perpetration of any act or omission
which submits the Corporation to criminal liability.
In the event of termination For Cause of Executive's employment,
Executive's right to receive compensation and other benefits hereunder (other
than any Base Salary accrued but as yet unpaid on the effective date of such
termination) shall terminate on the effective date of such termination, and
Executive shall not be entitled to any severance payments or benefits pursuant
to Section 10.
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d. The Corporation may, at any time, for reason other than For
Cause, terminate Executive's employment upon at least thirty (30) days
written notice to Executive. In the event of such termination for
reason other than For Cause, the Corporation shall be obligated to pay
Executive the severance payments specified in Section 10.
e. Executive may, at his option, upon ninety (90) days prior
written notice to the Corporation, terminate his employment hereunder.
In the event of a voluntary termination of his employment by the
Executive pursuant to this Section 9(e), Executive's rights to receive
compensation and other benefits (other than any Base Salary accrued but
as yet unpaid on the effective date of such termination) shall
terminate on the effective date of such termination, and Executive
shall not be entitled to any severance payments pursuant to Section 10.
f. Executive may, at his option, upon at least fifteen (15) days
written notice to the Corporation, terminate his employment hereunder,
if the Corporation, without Executive's express written consent, (i)
removes him as an officer of the Corporation, (ii) demotes him from
SVP, (iii) assigns him duties materially inconsistent with the position
and/or duties described in Sections 1 or 2, (iv) diminishes his
responsibilities described in Sections 1 or 2, (v) fails to grant the
options referred to in Section 4(c)(iii) prior to August 15, 1999, (vi)
breaches any material obligations to Executive under this Agreement, or
(vii) hereafter fails to afford the Executive anti-dilution protection
in respect of Corporation stock and/or options held by the Executive
from time to time proportionate to that afforded to each of the
Founders in respect of Corporation stock and/or options held by them,
respectively, from time to time, in connection with any equity
financing effected prior to the initial registered public offering of
the Corporation's stock. Upon any termination by Executive under this
Section 9(f) the Corporation shall be obligated to pay Executive the
severance payments specified in Section 10.
g. In the event of termination or expiration of Executive's
employment other than for death, Executive shall resign from all
positions held in the Corporation, including without limitation any
position as a director, officer, agent, trustee or consultant of the
Corporation or any affiliate of the Corporation.
10. SEVERANCE PAYMENTS. If the Corporation terminates Executive's
employment pursuant to Section 9(d) or if Executive terminates his employment
pursuant to Section 9(f), the parties recognize and agree that actual damages
due Executive would be difficult if not impossible to ascertain and agree that,
in lieu of any other rights to which Executive may be entitled (but not in lieu
of any rights or remedies that Executive may have in respect of tortious conduct
on the part of the Corporation or in respect of any violation by the Corporation
of any employment practice, employment discrimination, age discrimination or
civil rights law or regulation applicable to the Executive), the Corporation
shall pay Executive, as severance pay or as liquidated damages, or both,
Executive's Base Salary, as in effect at the time of such termination or
expiration for a period of six (6) calendar months following the date of such
termination or expiration, such payments to be made in the same manner in which
such salary
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<PAGE>
payments were made to Executive immediately prior to the date of such
termination or expiration.
11. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision or
of any other provision of this Agreement by that party or any other party.
12. GOVERNING LAW. This Agreement shall in all respects be subject to,
and governed by, the laws of the State of Connecticut.
13. SEVERABILITY. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
14. NOTICE. Any and all notices required or permitted herein shall be
in writing and shall be deemed to have been duly given (a) when delivered if
delivered personally, (b) on the fifth day following the date of deposit in the
United States mail if sent first class, postage prepaid, by registered or
certified mail, or (c) one day after delivery to a nationally recognized
overnight courier service. The parties' respective addresses for such notices
shall be those set forth following their respective signatures below, or such
other address or addresses as either party may hereafter designate in writing to
the other.
15. ASSIGNMENT. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns, heirs, executors, and legal and personal
representatives, except that the rights and benefits of Executive under this
Agreement may not be assigned without the prior written consent of the
Corporation. Without limiting the generality of the foregoing, this Agreement
shall be binding upon and inure to the benefit of any corporation with which or
into which the Corporation or its successors may be merged or which may succeed
to its assets or business.
16. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing and signed by the Corporation and Executive.
17. ENTIRE AGREEMENT. This Agreement and the agreements concerning
stock option grants and confidentiality and non-disclosure executed in
connection herewith contain the entire agreement and understanding by and
between Executive and the Corporation with respect to the employment of
Executive and supersede all existing agreements between the Corporation and
Executive with respect to such employment. No representations, promises,
agreements, or understandings, written or oral, relating to the employment of
Executive by the Corporation not contained herein shall be of any force or
effect.
18. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those masculine
in form and vice versa, and
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<PAGE>
plural terms shall be substituted for singular and singular for plural in any
place in which the context so requires.
19. COUNTERPARTS; HEADINGS; SECTIONS. This Agreement may be executed
in multiple counterparts, each of which shall be considered to have the force
and effect of any original but all of which taken together shall constitute but
one and the same instrument. The various headings in this Agreement are inserted
for convenience only and are not part of the Agreement. All references to
"Sections" and "paragraphs" in this Agreement refer to the various corresponding
sections and paragraphs of this Agreement.
20. SURVIVAL. The covenants and agreements contained in Sections 6
through 10 shall survive any termination or expiration of this Agreement and the
termination of Executive's employment hereunder.
21. ARBITRATION. Executive and the Corporation will submit any
disputes arising under this Agreement to an arbitration panel, consisting of one
or more natural persons (as set forth below) each of whom has experience
arbitrating employment disputes involving executives, conducting a binding
arbitration in Hartford, Connecticut, administered by the AAA (as defined
hereafter) and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") in effect on the date of such
arbitration (the "Rules"), and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof; PROVIDED, HOWEVER, that nothing herein shall impair the Corporation's
right to seek equitable relief from a court of competent jurisdiction for breach
or threatened breach of Section 7 or Section 8. The award of the arbitrators
shall be final and shall be the sole and exclusive remedy between the parties
regarding any claims, counterclaims, issue or accounting presented to the
arbitration panel. The parties hereto further agree that the arbitration panel
shall consist of one (1) person mutually acceptable to the Corporation and
Executive, PROVIDED, THAT, if the parties cannot agree on an arbitrator within
fifteen (15) days of filing a notice of arbitration, the arbitration panel shall
consist of three (3) persons, one selected by the Corporation, one selected by
Executive (or his representative) and one selected by the arbitrators so
selected by the parties hereto, or if the parties hereto cannot agree, selected
by the manager of the principal office of the American Arbitration Association
in Hartford County in the State of Connecticut. All fees and expenses of the
arbitration charged by the AAA, including a transcript if either party requests,
shall be borne equally by the parties. If Executive prevails as to any material
issue presented in the arbitration, the entire cost of such proceedings
(including, without limitation, Executive's reasonable attorney's fees but
excluding the fees and expenses charged by the AAA) shall be borne by the
Corporation. If Executive does not prevail as to any material issue, each party
will pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Corporation or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
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THE NEXT PAGE IS THE SIGNATURE PAGE
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<PAGE>
IN WITNESS WHEREOF, the Corporation and Executive have duly executed
this Agreement as of the day and year first above written.
CORPORATION:
GENAISSANCE PHARMACEUTICALS, INC.
By: /s/ Kevin Rakin
----------------------------------
Name: Kevin Rakin
Its Executive Vice President
and Chief Financial Officer
Address for Notice Purposes:
5 Science Park
Suite 2103
New Haven, CT 06511
EXECUTIVE:
/s/ Gerald F. Vovis
-------------------------------
GERALD F. VOVIS
Address for Notice Purposes:
98 Prendiville Way
Marlborough, MA 01752-1740
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<PAGE>
Exhibit 10.21
CONFIDENTIALITY & NONCOMPETITION AGREEMENT
CONFIDENTIALITY & NONCOMPETITION AGREEMENT (this "Agreement"), made and
entered into as of November 16, 1999 (the "Effective Date"), by and between
GENAISSANCE PHARMACEUTICALS, INC. (the "Corporation"), a Delaware corporation
with its principal office at 5 Science Park, New Haven, Connecticut, 06511, and
RICHARD JUDSON ("Executive"), an individual who resides at 42 Barker Hill Drive,
Guilford, CT 06437.
WHEREAS, the Corporation and Executive desire to continue their
employment relationship on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The Corporation hereby promotes Executive to Vice
President, Informatics of the Corporation, and Executive hereby accepts such
position. Executive acknowledges that this Agreement is not a contract of
employment between Executive and the Corporation and that Executive is an
employee at will of the Corporation.
2. COMPENSATION. As compensation for the services to be rendered by
Executive to the Corporation as Vice President, Informatics, the Corporation
shall pay Executive and provide Executive with the following compensation and
enhanced benefits which Executive agrees to accept in full satisfaction for his
services:
a. BASE SALARY. The Corporation shall pay Executive a Base
Salary, payable in equal installments at such payment intervals as are
the usual custom of the Corporation, but not less often than monthly,
at an annual rate of $125,000, less such deductions or amounts to be
withheld as shall be required by applicable law (the "Base Salary").
b. BONUSES. Hereafter, during the Executive's employment with
the Corporation, the Corporation may pay Executive bonuses according to
the Corporation's existing policies and at the discretion of the
Corporation's President who shall review Executive's achievements in
meeting the financial and performance goals of the Corporation for its
most recent fiscal year. Each bonus, if any, shall be paid in addition
to the Base Salary.
c. ENHANCED BENEFITS. Executive shall be entitled to participate
in the Corporation's Stock Option Plan (the "Plan") and the Corporation
shall grant Executive an option to purchase a total of 50,000 shares of
the Corporation's common stock at an exercise price per share equal to
$3.00 (the "Option"). The Option shall vest ratably over a 4 year
period beginning on the date of grant of the Option. The Option shall
be set forth
<PAGE>
in a separate agreement embodying the grant of the Option which shall
be otherwise in the form stipulated in the Plan.
3. INVENTIONS AND IMPROVEMENTS. Executive acknowledges, covenants and
agrees that the Corporation shall be the sole owner of all the fruits and
proceeds of Executive's services to the Corporation, including but not limited
to all writings, inventions, discoveries, designs, systems, processes, software
or other improvements relating to the business or products of the Corporation,
whether or not patentable, registerable, or copyrightable, which Executive may,
alone or with others, conceive, create, develop, produce or make during or as a
result of his employment with the Corporation (collectively, the "Invention"),
free and clear of any claims by Executive of any kind or character whatsoever
other than Executive's rights to compensation hereunder. Executive agrees that
he shall disclose each of the Inventions promptly and completely to the
Corporation, and shall, at the request of the President of the Corporation,
execute such assignments, certificates or other instruments as the President of
the Corporation, from time to time deems necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend the Corporation's
right, title and interest in or to any or all of the Inventions.
4. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
a. Executive acknowledges that, in and as a result of his
employment by the Corporation, he will be making use of, acquiring
and/or adding to the Corporation's Confidential Information (as
hereinafter defined). As a material inducement to the Corporation to
promote Executive to Vice President, Informatics and to pay Executive
the compensation and benefits set forth in this Agreement, Executive
covenants and agrees that he shall not, at any time during or following
the term of his employment with the Corporation, directly or indirectly
divulge or disclose for any purposes whatsoever, any Confidential
Information that has been obtained by, or disclosed to, him as a result
of his employment with the Corporation. For purposes of this Agreement,
"Confidential Information" means, collectively, all confidential
matters and materials of the Corporation, including without limitation,
the Corporation's proprietary information, inventions, trade secrets,
knowledge, data, know-how, intellectual property, systems, procedures,
manuals, pricing policies, operational methods and information relating
to the Corporation's products, processes, formulae, business plans,
marketing plans and strategies, pricing strategies, customer lists, or
other subject matters pertaining to the business and/or financial
affairs of the Corporation. "Confidential Information" shall not
include any information that is in the public domain during the period
of Executive's service to the Corporation other than as a result of
disclosure by Executive in violation of this Agreement or any other
agreement related to Executive's employment with the Corporation.
b. If Executive is required by a court of competent jurisdiction
or other tribunal (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigation demand or
similar process) to disclose any Confidential Information, Executive
may disclose such Information to such tribunal without liability
hereunder, PROVIDED, THAT Executive first provides the Corporation with
notice of any such
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requirement(s) as promptly as practicable, but in any case with
sufficient timeliness to enable the Corporation to seek an appropriate
protective order and/or waive its compliance with the relevant
provisions of this Agreement.
5. COVENANTS AGAINST COMPETITION.
a. In view of the unique value to the Corporation of the
services of Executive and because of the Confidential Information to be
obtained by or disclosed to Executive, as herein above set forth, and
as a material inducement to the Corporation to enter into this
Agreement and to pay to Executive the compensation and benefits set
forth in this Agreement, Executive covenants and agrees that during
Executive's employment and for a period of one year after he ceases to
be employed by the Corporation for any reason (unless the termination
of the Executive's employment by the Corporation is without cause), he
will not, except as otherwise authorized by this Agreement, compete in
the field of pharmacogenomics with the Corporation or any affiliate of
the Corporation, solicit the Corporation's customers or the customers
of any of its affiliates in the field of pharmacogenomics, or directly
or indirectly solicit for employment any of the Corporation's
employees.
b. For the purposes of this Agreement:
(i) The term "compete" means engaging in the same or
any similar business as the Corporation or any of its affiliates
in any manner whatsoever, including without limitation as a
proprietor, partner, investor, shareholder, member, director,
officer, employee, consultant, independent contractor or
otherwise, within any geographic area in which the Corporation's
products are offered or distributed;
(ii) The term "affiliate," when used in reference to any
Person (as hereinafter defined), means any other Person that
directly or indirectly through one or more intermediaries
controls, is controlled by, or is under common control with the
first such Person; and
(iii) The term "customers" means all Persons to whom the
Corporation or any of its affiliates has provided any product or
service, whether or not for compensation, within a period of two
(2) years prior to the time Executive ceases to be employed by the
Corporation.
(iv) The term "cause" means material misconduct by the
Executive or substantially inadequate performance of his duties of
employment.
c. None of the provisions of this Section 5 shall prohibit
Executive from investing in securities listed on a national securities
exchange or actively traded over-the-counter so long as such
investments are not greater than five percent (5%) of the outstanding
securities of any issuer of the same class or issue.
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<PAGE>
6. REASONABLENESS OF RESTRICTIONS.
a. Executive has carefully read and considered the provisions of
Section 4 and Section 5, and, having done so, agrees that:
(i) The restrictions set forth in Section 4 and Section
5, including but not limited to the time period, scope and
geographical area of restriction, are fair and reasonable and are
reasonably required for the protection of the good will and other
legitimate business interests of the Corporation and its
affiliates, officers, directors, shareholders, and other
employees;
(ii) Executive has received adequate consideration for
such obligations; and
(iii) Such obligations do not prevent Executive from
earning a livelihood.
b. If, notwithstanding the foregoing, any of the provisions of
Section 4 or Section 5 shall be held to be invalid or unenforceable,
the remaining provisions thereof shall nevertheless continue to be
valid and enforceable as though the invalid and unenforceable parts had
not been included therein. If any provision of Section 4 or Section 5
relating to the time period and/or the areas of restriction and/or
related aspects shall be declared by a court of competent jurisdiction
to exceed the maximum restrictiveness such court deems reasonable and
enforceable, the time period and/or areas of restriction and/or related
aspects deemed reasonable and enforceable by the court shall become and
thereafter be the maximum restriction in such regard, and the
restriction shall remain enforceable to the fullest extent deemed
reasonable by such court.
7. REMEDIES FOR BREACH OF EXECUTIVE'S COVENANTS OF NON-DISCLOSURE AND
NON-COMPETITION. Executive recognizes and agrees that the Corporation's remedy
at law for any breach of Section 4 or Section 5 would be inadequate as such a
breach would cause irreparable harm to the Corporation, and he agrees that, for
breach of such provisions, the Corporation shall, in addition to such other
remedies as may be available to it at law or in equity, be entitled to
injunctive relief and to enforce its rights by an action for specific
performance.
8. WAIVER. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision or
of any other provision of this Agreement by that party or any other party.
9. GOVERNING LAW. This Agreement shall in all respects be subject to,
and governed by, the laws of the State of Connecticut.
10. SEVERABILITY. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or enforceability of
any other provision and
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<PAGE>
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
11. NOTICE. Any and all notices required or permitted herein shall be
in writing and shall be deemed to have been duly given (a) when delivered if
delivered personally, (b) on the fifth day following the date of deposit in the
United States mail if sent first class, postage prepaid, by certified mail, or
(c) one day after delivery to a nationally recognized overnight courier service.
The parties' respective addresses for such notices shall be those set forth
following their respective signatures below, or such other address or addresses
as either party may hereafter designate in writing to the other.
12. ASSIGNMENT. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns, heirs, executors, and legal and personal
representatives, except that the rights and benefits of Executive under this
Agreement may not be assigned without the prior written consent of the
Corporation. Without limiting the generality of the foregoing, this Agreement
shall be binding upon and inure to the benefit of any corporation with which or
into which the Corporation or its successors may be merged or which may succeed
to its assets or business.
13. AMENDMENTS. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing and signed by the Corporation and Executive.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding by and between Executive and the Corporation with respect to the
subject matter hereof and supersedes all existing agreements between the
Corporation and Executive with respect to such subject matter. No
representations, promises, agreements, or understandings, written or oral,
relating to the employment of Executive by the Corporation not contained herein
shall be of any force or effect.
15. REFERENCES TO GENDER AND NUMBER TERMS. In construing this
Agreement, feminine or number pronouns shall be substituted for those masculine
in form and vice versa, and plural terms shall be substituted for singular and
singular for plural in any place in which the context so requires.
16. COUNTERPARTS; HEADINGS; SECTIONS. This Agreement may be executed
in multiple counterparts, each of which shall be considered to have the force
and effect of any original but all of which taken together shall constitute but
one and the same instrument. The various headings in this Agreement are inserted
for convenience only and are not part of the Agreement. All references to
"Sections" and "paragraphs" in this Agreement refer to the various corresponding
sections and paragraphs of this Agreement.
17. SURVIVAL. The covenants and agreements contained in Sections 3
through 7 shall survive any termination of Executive's employment with the
Corporation.
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<PAGE>
18. ARBITRATION. Executive and the Corporation will submit any
disputes arising under this Agreement to an arbitration panel conducting a
binding arbitration in Hartford, Connecticut, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association in effect on the date
of such arbitration (the "Rules"), and judgment upon the award rendered by the
arbitrator or arbitrators may be entered in any court having jurisdiction
thereof; PROVIDED, HOWEVER, that nothing herein shall impair the Corporation's
right to seek equitable relief for breach or threatened breach of Section 4 or
Section 5. The award of the arbitrators shall be final and shall be the sole and
exclusive remedy between the parties regarding any claims, counterclaims, issue
or accounting presented to the arbitration panel. The parties hereto further
agree that the arbitration panel shall consist of one (1) person mutually
acceptable to the Corporation and Executive, PROVIDED that if the parties cannot
agree on an arbitrator within fifteen (15) days of filing a notice of
arbitration, the arbitration panel shall consist of three (3) persons, one
selected by the Corporation, one selected by Executive (or his representative)
and one selected by the arbitrators so selected by the parties hereto, or if the
parties hereto cannot agree, selected by the manager of the principal office of
the American Arbitration Association in Hartford County in the State of
Connecticut. All fees and expenses of the arbitration, including a transcript if
either party requests, shall be borne equally by the parties. Each party will
pay for the fees and expenses of its own attorneys, experts, witnesses, and
preparation and presentation of proofs and post-hearing briefs (unless the party
prevails on a claim for which attorney's fees are recoverable under the Rules).
Any action to enforce or vacate the arbitrator's award shall be governed by the
federal Arbitration Act, if applicable, and otherwise by applicable state law.
If either the Corporation or Executive pursues any claim, dispute or controversy
against the other in a proceeding other than the arbitration provided for
herein, the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorney's fees
related to such action.
THE NEXT PAGE IS THE SIGNATURE PAGE
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<PAGE>
IN WITNESS WHEREOF, the Corporation and Executive have duly executed
this Agreement as of the day and year first above written.
CORPORATION:
GENAISSANCE PHARMACEUTICALS, INC.
By:
------------------------------
Name:
Its
Address for Notice Purposes:
5 Science Park
Suite 2103
New Haven, CT 06511
EXECUTIVE:
----------------------------------
RICHARD JUDSON
Address for Notice Purposes:
42 Barker Hill Road
Guilford, CT 06437
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<PAGE>
ARTHUR ANDERSEN
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Genaissance Pharmaceuticals, Inc:
As independent public accountants, we hereby consent to the use of our report
dated March 10, 2000 (and to all references to our Firm) included in or made
a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
April 20, 2000
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