<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------
KOSAN BIOSCIENCES INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 8731 94-3217016
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
3832 BAY CENTER PLACE
HAYWARD, CA 94545
(510) 732-8400
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
DANIEL V. SANTI, M.D., PH.D.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
KOSAN BIOSCIENCES INCORPORATED
3832 BAY CENTER PLACE
HAYWARD, CA 94545
(510) 732-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
BLAIR W. STEWART RICHARD R. PLUMRIDGE
ANGELA CORSILLES DARREN R. HENSLEY
JASON BRANDWENE PATRICIA A. ELIAS
WILSON SONSINI GOODRICH & ROSATI BROBECK, PHLEGER & HARRISON LLP
650 PAGE MILL ROAD 370 INTERLOCKEN BLVD., SUITE 500
PALO ALTO, CA 94304 BROOMFIELD, COLORADO 80021
(650) 493-9300 (303) 410-2000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this Form is a post-effective amendment filed pursuant to 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.............. shares(1) $ $80,000,000 $21,120
</TABLE>
(1) Includes shares which the Underwriters have the option to purchase to
cover over-allotments, if any.
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS Subject to completion dated March 31, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
- --------------------------------------------------------------------------------
Shares
[LOGO]
Common Stock
- ------------------------------------------------------------
This is our initial public offering of shares of common stock. No public market
currently exists for our common stock. We expect the public offering price to be
between $ and $ per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "KOSN."
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK UNDER "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>
Per
Share Total
<S> <C> <C>
- --------------------------------------------------------------------------------
Public offering price $ $
- --------------------------------------------------------------------------------
Underwriting discounts and commissions $ $
- --------------------------------------------------------------------------------
Proceeds, before expenses, to Kosan $ $
- --------------------------------------------------------------------------------
</TABLE>
The underwriters may also purchase up to shares of common stock from us at
the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. This option may be exercised to
cover over-allotments, if any. If the option is exercised in full, the total
underwriting discounts and commissions will be $ , and the total proceeds,
before expenses, to Kosan will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about ,
2000.
Warburg Dillon Read LLC
CIBC World Markets
Prudential Vector Healthcare
a unit of Prudential Securities
<PAGE>
ARTWORK
[DESCRIPTION OF ARTWORK]
[Front cover
"POLYKETIDE GENE MANIPULATIONS" The art shows 4 cells (arranged vertically or
diagonally), each containing a polyketide gene with modules of different color;
an arrow leads from one cell to the next indicating a conversion, and each cell
has an arrow to a polyketide structure, indicating the production of that
polyketide. Each conversion has an explanatory caption by its side. The
conversions indicated by color and size changes are heterologous expression,
gene manipulation and chemobiosynthesis.
Following is the text that will be presented with the artwork:
Polyketide Gene Manipulations
We have proprietary gene-manipulating technologies that enable the alteration
and production of polyketides, an important class of natural products that have
yielded many pharmaceuticals.
[The captions adjacent to the art are:]
HETEROLOGOUS OVER-EXPRESSION. We transfer polyketide genes from their host
organisms that produce only small amounts to our genetically modified hosts to
allow increased production of polyketides for commercialization.
GENE ALTERATION. We change the order of polyketide genes to make specific
changes in a polyketide and produce novel analogs.
CHEMOBIOSYNTHESIS. We disable an early part of a polyketide gene which allows us
to feed chemically prepared fragments into later parts of the polyketide and
incorporate them into the polyketide.]
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF
INVESTING IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS."
OUR BUSINESS
We are a biotechnology company that focuses on the genetic manipulation of
an important class of organic, natural molecules known as polyketides. We are
using our proprietary gene manipulating technologies to generate a pipeline of
potentially high-value pharmaceutical product candidates. Due to their natural
bioactivity and many built-in properties, polyketides have been a rich source of
pharmaceutical products for many uses, including antibiotics, anticancer drugs,
cholesterol-lowering drugs, immunosuppressants and other therapeutics, as well
as animal health and agricultural products. Currently, natural or semi-synthetic
polyketide pharmaceuticals represent over 20 products industry-wide, with sales
exceeding $10 billion per year.
We are the leader in the alteration of polyketides through gene
manipulations. Polyketides are structurally complex molecules that are not easy
to make or modify by chemical means. Using our technologies, we can make and
modify polyketides in ways chemists cannot. Our approach mimics, accelerates and
expands the evolutionary process that gave rise to this important class of
molecules. We use our technologies to:
- create novel, improved versions of currently marketed high-value
pharmaceuticals;
- modify an existing polyketide used in one therapeutic area to create a
novel polyketide to be used in another;
- transfer polyketide genes from their natural hosts to our optimized hosts
to enable large-scale production of the polyketides; and
- expand significantly the potential repertoire of natural product libraries
to provide a source for the discovery of new product candidates.
OUR STRATEGY
Our goal is to translate our technologies into a pipeline of high-value drug
candidates, and to advance our candidates into clinical trials. Our technology
platform has five components: polyketide gene alteration, chemo-biosynthesis,
heterologous over-expression, combinatorial biosynthesis and screening
libraries. Together, our technologies allow us to modify, create and produce
novel polyketides and polyketide libraries. We aim to:
- maximize the value and minimize the risk associated with new drug
development by focusing on analogs of polyketides with known utility,
safety and market potential;
- establish collaborative relationships with large pharmaceutical companies
to develop our most complex projects through clinical trials and into the
market, as well as to prepare and screen our polyketide libraries; and
- expand and enhance our enabling technology platform to maintain our
leadership position and amplify our capabilities.
OUR PRODUCT DEVELOPMENT OPPORTUNITIES
We have six primary programs for the discovery and development of novel
polyketides for bacterial infections, gastrointestinal motility disorders, mucus
hypersecretion, cancer, immunosuppression and nerve regeneration. These programs
were selected because they represent opportunities where our technologies could
improve upon existing products or fill unmet needs, and because they address
very large markets. In infectious disease, we rapidly identified several
polyketide antibiotic lead product candidates that are effective against
organisms resistant to existing related products. We have developed these
candidates in collaboration with The R.W. Johnson Pharmaceutical Research
Institute, a Johnson & Johnson company.
2
<PAGE>
THIS OFFERING
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES:
- THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF OUR PREFERRED STOCK
INTO 4,073,573 SHARES OF COMMON STOCK, INCLUDING 804,196 SHARES OF
SERIES C ISSUED IN MARCH 2000, UPON THE CLOSING OF THIS OFFERING;
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE UP TO
SHARES; AND
- OUR REINCORPORATION IN DELAWARE PRIOR TO THE CLOSING OF THIS OFFERING.
<TABLE>
<S> <C>
Common stock offered by us................ shares
Common stock to be outstanding after this
offering................................ shares(1)
Proposed Nasdaq National Market symbol.... KOSN
Use of proceeds........................... We intend to use the net proceeds from this offering for
advancing our product candidates through preclinical and
later-stage development, discovering new product
candidates, expanding our technology platform, including
through in-licensing opportunities or acquisition of
complementary technologies, capital expenditures,
working capital, general corporate purposes and possible
future acquisitions. See "Use of Proceeds."
</TABLE>
- ------------------------
(1) The number of shares of common stock to be outstanding after this offering
excludes:
- 1,700,000 shares of common stock reserved for issuance under our 1996
Stock Option Plan, including 800,000 shares authorized following
December 31, 1999, of which 455,900 shares are subject to outstanding
options at December 31, 1999 with a weighted average exercise price of
$0.87 per share;
- 100,000 shares of common stock reserved for issuance under our 2000
Employee Stock Purchase Plan approved in March 2000; and
- 100,000 shares of common stock reserved for issuance under our 2000
Non-Employee Director Stock Option Plan approved in March 2000.
Our principal executive offices are located at 3832 Bay Center Place,
Hayward, California, 94545. Our phone number is (510) 732-8400. Our website is
http://www.kosan.com. We do not intend for the information found on our website
to be incorporated into or be a part of this prospectus.
3
<PAGE>
SUMMARY FINANCIAL DATA
The following tables summarize our financial data, and should be read
together with our financial statements and the related notes, the "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus. The pro forma
information contained in the statement of operations data gives effect to the
automatic conversion of all convertible preferred stock upon the completion of
this offering. The pro forma balance sheet data reflects the sale of 804,196
shares of preferred stock on March 30, 2000 at a price of $31.00 per share, less
expenses, and the automatic conversion of all outstanding shares of preferred
stock into common stock on a one-to-one basis upon the closing of the offering.
The pro forma as adjusted balance sheet data reflects the automatic conversion
of our preferred stock into common stock on a one-to-one basis and the sale of
shares of our common stock at an assumed price to the public of $ per
share, after deducting the underwriting discounts, commissions and estimated
offering expenses payable by us, resulting in net proceeds of approximately
$ .
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
STATEMENT OF OPERATIONS DATA: 1997 1998 1999
- ----------------------------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Total revenue............................................... $ 287 $ 1,236 $ 5,346
Total operating expenses.................................... 2,379 5,021 10,400
Operating loss.............................................. (2,092) (3,785) (5,054)
Net loss.................................................... $(1,994) $(3,267) $(4,401)
======= ======= =======
Historical net income (loss) per share, basic and diluted... $ (1.46) $ (2.30) $ (2.93)
======= ======= =======
Historical weighted average shares outstanding.............. 1,365 1,423 1,503
Pro forma net loss per share................................ $ (0.92)
=======
Pro forma weighted average shares outstanding............... 4,772
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
BALANCE SHEET DATA: ACTUAL PRO FORMA AS ADJUSTED
- ------------------- -------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 2,022 $26,622
Working capital............................................. 750 25,350
Long-term investments....................................... 8,442 8,442
Total assets................................................ 14,157 38,757
Capital lease and debt obligations, less current portion.... 1,591 1,591
Accumulated deficit......................................... (11,593) (11,593)
Stockholders' equity........................................ 10,471 35,071
</TABLE>
4
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF NET LOSSES. WE ARE IN AN EARLY STAGE OF DEVELOPMENT AND WE
MAY NEVER SELL PRODUCTS OR BECOME PROFITABLE.
We commenced operations in 1996 and are still in an early stage of
development. We have not commercialized any products and we have incurred
significant losses to date. As of December 31, 1999, we had an accumulated
deficit of approximately $11.6 million. If we are ever to obtain revenue from
the sales of our products, we must successfully develop, test, obtain regulatory
approval for, manufacture, market and sell our products. To date, our revenues
have been solely from collaborations and government grants. Our expenses have
consisted principally of costs incurred in research and development and from
general and administrative costs associated with our operations. We have
incurred net losses since our inception, including a net loss of approximately
$4.4 million for the year ended December 31, 1999. We expect our expenses to
increase and to continue to incur operating losses for at least the next several
years as we continue our research and development efforts for our product
candidates. The amount of time necessary to successfully commercialize any of
our product candidates is long and uncertain and successful commercialization
may not occur at all. As a result, we may never become profitable.
WE MAY NOT BE SUCCESSFUL IN THE DEVELOPMENT AND COMMERCIALIZATION OF PRODUCTS.
Our technologies are new and our product candidates are in the early stage
of development. We may not develop products that prove to be safe and effective,
meet applicable regulatory standards, are capable of being manufactured at
reasonable costs, or can be marketed successfully. Successful products will
require significant development and investment, including testing, to
demonstrate their safety and efficacy prior to their commercialization. We have
not proven our ability to develop and commercialize products. We must conduct a
substantial amount of additional research and development before any regulatory
authority will approve any of our products. Our research and development and
clinical trials may not indicate that our products are safe and effective, in
which case regulatory authorities are likely not to approve them. In addition,
even if our research and development efforts are successfully completed, our
products may not perform in the manner we anticipate, and may not be accepted
for use by the public.
IF OUR DEVELOPMENT COLLABORATIONS WITH OTHER PARTIES FAIL, THE DEVELOPMENT AND
COMMERCIALIZATION OF OUR PRODUCTS WILL BE DELAYED OR STOPPED.
Because we do not currently possess the resources necessary to develop and
commercialize potential products that may result from our technologies, or the
resources to complete any approval processes which may be required for these
products, we must enter into collaborative arrangements to develop and
commercialize our product candidates. We have entered into a collaborative
agreement with The R.W. Johnson Pharmaceutical Research Institute and
Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson companies, to fund a
research and development program. This agreement expires on December 28, 2000
unless it is extended. If it is not extended or renewed, or if we do not enter
into new collaborative agreements, then our revenues will be reduced, and our
product candidates may not be developed or commercialized.
We have limited or no control over the resources that any collaborator may
devote to our product candidates. Our present or future collaborators may not
perform their obligations as expected. These collaborators may breach or
terminate their agreements with us or otherwise fail to conduct their
collaborative activities successfully and in a timely manner. Further, our
collaborators may elect not to
5
<PAGE>
develop product candidates arising out of our collaborative arrangements, fail
to comply with government regulations or fail to devote sufficient resources to
the development, manufacture, market, or sale of these products. If any of these
events occur, then we may not be able to develop our technologies or
commercialize our products.
We may pursue opportunities in fields that could conflict or compete with
those of our collaborators. Moreover, disagreements with our collaborators could
develop over rights to our intellectual property. Any conflict or competition
with our collaborators could reduce our ability to obtain future collaboration
agreements and negatively impact our relationship with existing collaborators,
which could reduce our future revenues, and our product candidates may not be
developed or commercialized.
OUR POTENTIAL PRODUCTS ARE IN AN EARLY STAGE OF DEVELOPMENT AND SUBSTANTIAL
ADDITIONAL EFFORT WILL BE NECESSARY FOR DEVELOPMENT AND COMMERCIALIZATION.
All of our product candidates are in an early stage of development and will
require the commitment of substantial resources to move them towards
commercialization. All of the potential proprietary products that we are
currently developing will require extensive preclinical and clinical testing
before we can submit any application for regulatory approval. Before obtaining
regulatory approvals for the commercial sale of any of our products, we must
demonstrate through preclinical testing and clinical trials that our product
candidates are safe and effective in humans. We have not commenced clinical
testing of any of our potential products, nor have we submitted any application
to test any potential products in humans. Conducting clinical trials is a
lengthy, expensive and uncertain process. Completion of clinical trials may take
several years or more. The length of time generally varies substantially
according to the type, complexity, novelty and intended use of the product
candidate. Our clinical trials, when commenced, may be suspended at any time if
we or the U.S. Food and Drug Administration, or FDA, believe the patients
participating in our studies are exposed to unacceptable health risks. We may
encounter problems in our studies which will cause us or the FDA to delay or
suspend the studies. Our commencement and rate of completion of clinical trials
may be delayed by many factors, including:
- ineffectiveness of the study compound, or perceptions by physicians that
the compound is not effective for a particular indication;
- inability to manufacture sufficient quantities of compounds for use in
clinical trials;
- failure of the FDA to approve our clinical trial protocols;
- slower than expected rate of patient recruitment;
- unforeseen safety issues; or
- government or regulatory delays.
If any future clinical trials are not successful, our business, financial
condition and results of operations will be harmed.
OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN
REGULATORY PROCESS. IF OUR POTENTIAL PRODUCTS ARE NOT APPROVED, THEN WE WILL NOT
BE ABLE TO COMMERCIALIZE THESE PRODUCTS.
The FDA must approve any therapeutic product before it can be marketed in
the U.S. Before we can file a new drug application or biologics license
application with the FDA, the product candidate must undergo extensive testing,
including animal and human clinical trials, which can take many years and
require substantial expenditures. Data obtained from such testing are
susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. In addition, changes in regulatory policy for product
approval during the period of product development and regulatory agency review
of each submitted new drug application or biologics license application may
cause delays or rejections. The regulatory process is expensive and time
consuming.
6
<PAGE>
Because our product candidates involve the application of new technologies
and may be based upon new therapeutic approaches, they may be subject to more
rigorous review by government regulatory authorities, and government regulatory
authorities may grant regulatory approvals more slowly for our products than for
products using more conventional technologies. We have not conducted any
clinical trials for any potential products nor have we submitted any
applications with the FDA or any other regulatory authority to test any
potential products in humans or to market any product candidate. Neither we nor
any of our collaborators may be able to conduct clinical testing or obtain the
necessary approvals from the FDA or other regulatory authorities to market our
products. The regulatory agencies of foreign governments must also approve any
therapeutic products we may develop before the products can be sold in those
countries.
Even after investing significant time and resources, we may not obtain
regulatory approval for our products. If we do not receive regulatory approval,
we cannot sell the product. Even if we receive regulatory approval, this
approval may place limitations on the indicated uses for which we can market a
product. Further, once regulatory approval is obtained, a marketed product and
its manufacturer are subject to continual review, and discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
the product, manufacturer and manufacturing facility, including withdrawal of
the product from the market. In certain countries, regulatory agencies also set
or approve prices.
EVEN IF PRODUCT CANDIDATES EMERGE SUCCESSFULLY FROM CLINICAL TRIALS, WE MAY NOT
BE ABLE TO SUCCESSFULLY MANUFACTURE, MARKET AND SELL THEM.
None of our product candidates has been developed sufficiently or been
approved for clinical trials. If successful product candidates emerge from
clinical trials, we will either commercialize products resulting from our
proprietary programs directly or through licensing to other companies. We have
no experience in manufacturing and marketing, and we currently do not have the
resources or capability to manufacture, market and sell our products on a
commercial scale. For us to commercialize products directly, we would need to
develop or obtain through outsourcing arrangements the capability to
manufacture, market, and sell products. We currently do not have any agreements
for the manufacture, marketing, or sale of any of our products and we may not be
able to enter into such agreements on commercially reasonable terms or at all.
If we are unable to successfully commercialize products resulting from our
proprietary research efforts, then we will continue to incur losses.
ANY INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES COULD HARM OUR
COMPETITIVE POSITION.
Our success will depend in part on our ability to obtain patents and
maintain adequate protection of other intellectual property for our technologies
and products in the United States and other countries. If we do not adequately
protect our intellectual property, competitors may be able to use our
technologies and erode or negate our competitive advantage. The laws of some
foreign countries do not protect our proprietary rights to the same extent as
the laws of the United States, and we may encounter significant problems in
protecting our proprietary rights in these foreign countries.
The patent positions of biotechnology companies, including our patent
position, involve complex legal and factual questions and, therefore, validity
and enforceability cannot be predicted with certainty. Patents may be
challenged, deemed unenforceable, invalidated or circumvented. We will be able
to protect our proprietary rights from unauthorized use by third parties only to
the extent that our proprietary technologies are covered by valid and
enforceable patents or are effectively maintained as trade secrets. We will
apply for patents covering both our technologies and product candidates as we
deem appropriate. However, we may fail to apply for patents on important
technologies or products in a timely fashion or at all, and in any event, the
applications we do file may be challenged and may not result in issued patents.
Our existing patents and any future patents we obtain may not be sufficiently
broad to prevent others from practicing our technologies or from developing
competing products. Furthermore, others may independently develop similar or
alternative technologies or design around
7
<PAGE>
our patented technologies. In addition, others may challenge or invalidate our
patents, or our patents may fail to provide us with any competitive advantages.
If the use or validity of any of our patents is ever challenged, resulting in
litigation or administrative proceedings, we would incur substantial costs and
the diversion of management in defending the patent. In addition, we generally
do not control the patent prosecution of technology that we license from others.
Accordingly, we are unable to exercise the same degree of control over this
intellectual property as we would over technology we own.
We rely upon trade secret protection for our confidential and proprietary
information. We have taken measures to protect our proprietary information.
These measures may not provide adequate protection for our trade secrets or
other proprietary information. We seek to protect our proprietary information by
entering into confidentiality agreements with employees, collaborators, and
consultants. Nevertheless, employees, collaborators, or consultants may still
disclose our proprietary information, and we may not be able to meaningfully
protect our trade secrets. In addition, others may independently develop
substantially equivalent proprietary information or techniques or otherwise gain
access to our trade secrets.
LITIGATION OR OTHER PROCEEDINGS OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY
INFRINGEMENT WOULD REQUIRE US TO SPEND TIME AND MONEY AND COULD PREVENT US FROM
COMMERCIALIZING PRODUCTS.
Our commercial success depends in part on not infringing the patents and
proprietary rights of third parties and not breaching any licenses that we have
entered into with regard to our technologies and products. Others have filed
patent applications and issued patents, and in the future are likely to continue
to file patent applications and issue patents, claiming genes or gene fragments
which we may wish to use with our technologies and products that are similar to
products developed with the use of our technologies. If we wish to use the
claimed technology in issued and unexpired patents, then we may need to obtain a
license from the third party, enter into litigation, or incur the risk of
litigation.
The biotechnology industry is characterized by extensive litigation
regarding patents and other intellectual property rights. We cannot be sure that
other parties have not been issued relevant patents that could affect our
ability to obtain patents or to operate as we would like to. We are aware of
patents and published patent applications that, if valid, and if we are
unsuccessful in circumventing or acquiring the rights to these patents, may
block our ability to commercialize products. Third parties may sue us in the
future to challenge our patent rights or claim infringement of their patents. An
adverse determination in litigation to which we may become a party could subject
us to significant liabilities to third parties, require us to license disputed
rights from third parties or require us to cease using the disputed technology.
We are aware of a significant number of patents and patent applications
relating to aspects of our technologies and families of compounds filed by, and
issued to, third parties. If any of our competitors have filed patent
applications or have been granted patents claiming inventions also claimed by
us, we may have to participate in an interference proceeding declared by the
relevant patent regulatory agency to determine priority of invention and, thus,
the right to a patent for these inventions in the U.S. Such a proceeding could
result in substantial cost to us even if the outcome is favorable. Even if
successful on priority grounds, an interference may result in loss of claims
based on patentability grounds raised in the interference. Although patent and
intellectual property disputes in the biotechnology area are often settled
through licensing or similar arrangements, costs associated with these
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot be certain that the necessary licenses would be available
to us on satisfactory terms, if at all.
Third parties may obtain future patents and claim that the use of our
technologies infringes these patents or that we are employing their proprietary
technology without authorization. We could incur substantial costs and diversion
of management and technical personnel in defending ourselves against any of
these claims or enforcing our patents against others. Furthermore, parties
making claims against
8
<PAGE>
us may be able to obtain injunctive or other equitable relief which could
effectively block our ability to further develop, commercialize, and sell
products, and could result in the award of substantial damages against us. In
the event of a successful claim of infringement against us, we may be required
to:
- pay damages;
- stop using our products or methods;
- develop non-infringing products or methods; and
- obtain one or more licenses from third parties.
We may not be able to obtain these licenses at a reasonable cost, if at all.
In that event, we could encounter substantial delays in product introductions
while we attempt to develop alternative methods or products, which we may not be
able to accomplish. Litigation or failure to obtain licenses could prevent us
from commercializing available products.
MANY POTENTIAL COMPETITORS WHO HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO
MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OURS OBSOLETE.
The biotechnology industry is characterized by rapid technological change,
and the area of gene and product research is a rapidly evolving field. Our
future success will depend on our ability to maintain a competitive position
with respect to technological advances. Rapid technological development by
others may result in our products and technologies becoming obsolete.
We face, and will continue to face, intense competition from organizations
such as large biotechnology and pharmaceutical companies, as well as academic
and research institutions and government agencies, that are pursuing competing
technologies for modifying DNA. These organizations may develop technologies
that are superior alternatives to our technologies. Further, our competitors in
the polyketide gene engineering field may be more effective at implementing
their technologies to develop commercial products. Some of these competitors
have entered into collaborations with leading companies within our target
markets to produce polyketides for commercial purposes.
Any products that we develop through our technologies will compete in
multiple, highly competitive markets. Many of the organizations competing with
us in the markets for such products have greater capital resources, research and
development and marketing staffs, facilities and capabilities, and greater
experience in modifying DNA, obtaining regulatory approvals, and product
manufacturing and marketing. Accordingly, our competitors may be able to develop
technologies and products more easily, which would render our technologies and
products and those of our collaborators obsolete and noncompetitive.
IF THE PUBLIC DOES NOT ACCEPT GENETICALLY ENGINEERED PRODUCTS, WE WILL HAVE LESS
DEMAND FOR OUR PRODUCTS.
The commercial success of our potential products will depend in part on
public acceptance of the use of genetically engineered products including drugs,
plants, and plant products. Our product candidates are derived from genetically
engineered cells and may not gain public acceptance. Negative public reaction to
genetically modified organisms and products could result in greater governmental
regulation of genetic research and resulting products, including stricter
labeling requirements, and could cause a decrease in the demand for our
products.
The subject of genetically modified organisms has received negative
publicity in the United States, Europe, and many other countries throughout the
world. The adverse publicity could lead to greater regulation and trade
restrictions on imports of genetically altered products. As a result of such
adverse
9
<PAGE>
publicity, genetic research and resulting products could be subject to greater
domestic regulation and could cause a decrease in the demand for our products.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS, WE MAY NOT BE ABLE TO SUPPORT OUR
OPERATIONS.
Based on our current plans, we believe our cash, cash equivalents and
investments, together with the net proceeds of this offering, will be sufficient
to fund our operating expenses and capital requirements through at least the
next 24 months. However, the actual amount of funds that we will need during or
after the next 24 months will be determined by many factors, including those
discussed in this section. If additional funds are required and we are unable to
obtain them on terms favorable to us, we may be required to delay, scale back or
eliminate some or all of our research and development programs or to license
third parties to develop or market products or technologies that we would
otherwise seek to develop or market ourselves. If we raise additional funds by
selling additional shares of our capital stock, the ownership interest of our
stockholders will be diluted.
WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH, WHICH COULD INCREASE OUR
LOSSES.
We have experienced a period of rapid and substantial growth that has
placed, and if this growth continues will further place, a strain on our human
and capital resources. If we are unable to manage this growth effectively, then
our losses could increase. The number of our employees increased from 21 on
December 31, 1997 to 55 on March 30, 2000. Our ability to manage our operations
and growth effectively requires us to continue to expend funds to improve our
operational, financial, and management controls, reporting systems and
procedures and to attract and retain sufficient numbers of talented employees.
If we are unable to successfully implement improvements to our management
information and control systems in an efficient or timely manner, or if we
encounter deficiencies in existing systems and controls, then management may
receive inadequate information to manage our day-to-day operations.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, THEN WE MAY BE UNABLE TO DISCOVER AND DEVELOP OUR PRODUCTS.
We are highly dependent on the principal members of our management and
scientific staff, such as our two co-founders, the loss of whose services would
adversely impact the achievement of our objectives. Although we maintain and are
the beneficiary of $1.0 million key-man life insurance policies for the lives of
each of our two co-founders, Dr. Daniel Santi, our Chief Executive Officer, and
Dr. Chaitan Khosla, a director, we do not believe the proceeds would be adequate
to compensate us for their loss. We do not currently have sufficient executive
management personnel to execute our business plan fully. In addition, recruiting
and retaining qualified scientific personnel to perform future research and
development work will be critical to our success. Although we believe we will be
successful in attracting and retaining qualified personnel, competition may be
intense for experienced scientists. Failure to attract and retain skilled
personnel would prevent us from pursuing collaborations and developing our
products and core technologies to the extent otherwise possible.
Our planned activities will require additional expertise in specific
industries and areas applicable to the products developed through our
technologies. These activities will require the addition of new personnel,
including management, and the development of additional expertise by existing
management personnel. The inability to acquire or develop this expertise could
impair the growth, if any, of our business.
10
<PAGE>
IF WE ENGAGE IN ANY ACQUISITION, WE MAY INCUR A VARIETY OF COSTS, AND WE MAY
NEVER REALIZE THE ANTICIPATED BENEFITS OF THE ACQUISITION.
If appropriate opportunities become available, we may attempt to acquire
businesses, technologies, services, or products that we believe are a strategic
fit with our business. We currently have no commitments or agreements with
respect to any material acquisitions. If we do undertake any transaction of this
sort, the process of integrating an acquired business, technology, service, or
product may result in unforeseen operating difficulties and expenditures and may
absorb significant management attention that would otherwise be available for
ongoing development of our business. Moreover, we may fail to realize the
anticipated benefits of any acquisition. Future acquisitions could reduce your
ownership in us and could cause us to incur debt, expose us to future
liabilities and result in amortization expenses related to goodwill and other
intangible assets.
In addition, recent proposed changes in the Financial Accounting Standards
Board rules for merger accounting may affect the cost of making acquisitions or
of being acquired. For example, if these proposed changes become effective, then
we would likely have to record goodwill or other intangible assets that we would
amortize to earnings if we merge with another company. Such amortization would
adversely impact our future operating results. Further, accounting rule changes
that reduce the availability of write-offs of the value of in-process research
and development in connection with an acquisition could result in the
capitalization and amortization of these amounts which would negatively impact
results of operations in future periods.
IF WE FACE CLAIMS IN CLINICAL TRIALS OF A DRUG CANDIDATE, THESE CLAIMS WILL
DIVERT OUR MANAGEMENT'S TIME AND WE WILL INCUR LITIGATION COSTS.
We face an inherent business risk of clinical trial liability claims in the
event that the use or misuse of our potential products results in personal
injury or death. We may experience clinical trial liability claims if our drug
candidates are misused or cause harm before regulatory authorities approve them
for marketing. We currently do not maintain clinical trial liability insurance
coverage. Even if we do obtain an insurance policy, it may not be sufficient to
cover claims that may be made against us. Clinical trial liability insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, if at all. Any claims against us, regardless of their merit,
could materially and adversely affect our financial condition, because
litigation related to these claims would strain our financial resources in
addition to consuming the time and attention of our management. If we are sued
for any injuries caused by our products, our liability could exceed our total
assets.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE, OR DISPOSAL OF
THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development processes involve the controlled use of
hazardous materials, including hazardous chemicals and radioactive and
biological materials. Some of these materials may be novel, including bacteria
with novel properties and bacteria that produce biologically active compounds.
Our operations also produce hazardous waste products. We cannot eliminate the
risk of accidental contamination or discharge and any resultant injury from
these materials. Federal, state, and local laws and regulations govern the use,
manufacture, storage, handling, and disposal of these materials. We believe that
our current operations comply in all material respects with these laws and
regulations. We could be subject to civil damages in the event of an improper or
unauthorized release of, or exposure of individuals to, hazardous materials. In
addition, claimants may sue us for injury or contamination that results from our
use or the use by third parties of these materials, and our liability may exceed
our total assets. Compliance with environmental laws and regulations may be
expensive, and current or future environmental regulations may impair our
research, development, or commercialization efforts.
11
<PAGE>
In addition, certain of our collaborators are working with these types of
hazardous materials in connection with our collaborations. To our knowledge, the
work is performed in accordance with applicable safety regulations. In the event
of a lawsuit or investigation, we could be held responsible for any injury
caused to persons or property by exposure to, or release of, these hazardous
materials. Further, under certain circumstances, we have agreed to indemnify our
collaborators against all damages and other liabilities arising out of
development activities or products produced in connection with these
collaborations.
WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE CHARTER DOCUMENTS THAT MY
RESULT IN OUTCOMES WITH WHICH YOU DO NOT AGREE.
Our board of directors will have the authority to issue up to 10,000,000
shares of undesignated preferred stock and to determine the rights, preferences,
privileges and restrictions of those shares without further vote or action by
our stockholders. The rights of the holders of any preferred stock that may be
issued in the future may adversely affect the rights of the holders of common
stock. The issuance of preferred stock could make it more difficult for third
parties to acquire a majority of our outstanding voting stock.
Our certificate of incorporation will provide for staggered terms for the
members of the board of directors and and prevent our stockholders from acting
by written consent. These provisions and other provisions of our by-laws and of
Delaware law applicable to us could delay or make more difficult a merger,
tender offer or proxy contest involving us.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE.
The trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
- announcements of technological developments in research by us or our
competitors;
- delay or failure in initiating, conducting, completing or analyzing
clinical trials or unsatisfactory design or results of these trials;
- achievement of regulatory approvals;
- new products or services introduced or announced by us or our competitors;
- changes in financial estimates by securities analysts;
- announcements or departures of key personnel; and
- sales of our common stock.
In addition, the stock market in general, and the Nasdaq National Market and
the market for biotechnology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against that company. If this type of litigation was
instituted against us, we would be faced with substantial costs and management's
attention and resources would be diverted, which could in turn seriously harm
our business, financial condition and results of operations.
12
<PAGE>
WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CREATING INVESTOR LOSSES.
Our quarterly operating results have fluctuated in the past and are likely
to do so in the future. These fluctuations could cause our stock price to
fluctuate significantly or decline. Some of the factors which could cause our
operating results to fluctuate include:
- expiration of research contracts with collaborators or government research
grants, which may not be renewed or replaced;
- the success rate of our discovery efforts leading to milestones and
royalties;
- the timing and willingness of collaborators to commercialize our products
that would result in royalties; and
- general and industry specific economic conditions, which may affect our
collaborators research and development expenditures.
A large portion of our expenses are relatively fixed, including expenses for
facilities, equipment, and personnel. Accordingly, if revenues decline or do not
grow as anticipated due to expiration of research contracts or government
research grants, failure to obtain new contracts or other factors, we may not be
able to correspondingly reduce our operating expenses. In addition, we plan to
increase operating expenses in 2000. Failure to achieve anticipated levels of
revenues could therefore significantly harm our operating results for a
particular fiscal period.
Due to the possibility of fluctuations in our revenues and expenses, we
believe that quarter-to-quarter comparisons of our operating results are not a
good indication of our future performance. Our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that case, our stock price would probably decline.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market after the closing
of this offering or the perception that these sales could occur. In addition,
these factors could make it more difficult for us to raise funds through future
offerings of common stock. There will be shares of common stock
outstanding immediately after this offering, or shares if the
representatives of the underwriters exercise their over-allotment option in
full. Of the shares sold in the offering, shares will be freely
transferable without restriction or further registration under the Securities
Act of 1933, except for any shares purchased by our affiliates, as defined in
Rule 144 of the Securities Act, and shares will be subject to a lock-up
agreement providing that the stockholder will not offer, sell, or otherwise
dispose of any of the shares of common stock owned by them for a period of
180 days after the date of this prospectus. The remaining 6,250,321 shares of
common stock outstanding will be restricted securities as defined in Rule 144.
5,147,478 of these shares may be sold on the 181st day after the date of this
prospectus without registration under the Securities Act to the extent permitted
by Rule 144 or other exemptions under the Securities Act. See "Shares Eligible
for Future Sale."
SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND MAY NOT MAKE
DECISIONS THAT ARE IN THE BEST INTERESTS OF ALL STOCKHOLDERS.
After this offering, our officers, directors and principal stockholders
(greater than 5% stockholders) will together control approximately % of our
outstanding common stock. As a result, these stockholders, if they act together,
will be able to exert a significant degree of influence over our management and
affairs and over matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions. In addition,
this concentration of ownership
13
<PAGE>
may delay or prevent a change in control of us and might affect the market price
of our common stock, even when a change may be in the best interests of all
stockholders. In addition, the interests of this concentration of ownership may
not always coincide with our interests or the interests of other stockholders
and accordingly, they could cause us to enter into transactions or agreements
which we would not otherwise consider.
MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
YOU DO NOT AGREE AND IN WAYS THAT MAY NOT YIELD A RETURN.
Management will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem such uses desirable, and our use of the
proceeds may not yield a significant return or any return at all. Management
intends to use a majority of the proceeds from this offering for research and
development, working capital, and other general corporate purposes and to
finance potential acquisitions or investments. Because of the number and
variability of factors that determine our use of the net proceeds from this
offering, we cannot assure you that these uses will not vary substantially from
our currently planned uses. Pending these uses of the net proceeds from this
offering, we intend to invest the net proceeds from this offering in
interest-bearing, investment grade and U.S. government securities.
AS A NEW INVESTOR, YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
If you purchase shares of our common stock in this offering, you will incur
immediate and substantial dilution of $ per share in pro forma net tangible
book value. If the holders of outstanding options exercise those options, you
will incur further dilution. To the extent we raise additional capital by
issuing equity securities, our stockholders may experience additional
substantial dilution. See "Dilution."
14
<PAGE>
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
This prospectus contains forward looking statements within the meaning of
the federal securities laws that relate to future events or our future financial
performance. You can identify forward-looking statements by terminology such as
"may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "intend," "potential," or "continue," or the negative of these terms
or other comparable terminology. Examples of these forward-looking statements
include, but are not limited to, statements regarding the following:
- our technologies and programs,
- our ability to realize commercially valuable discoveries in our programs,
- our intellectual property portfolio,
- our business strategies and plans, and
- our ability to develop products suitable for commercialization.
Although we believe that the predictions and expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus or to conform these statements to actual
results.
USE OF PROCEEDS
- --------------------------------------------------------------------------------
We estimate that the net proceeds from the sale of the shares of
common stock that we are offering will be $ after deducting estimated
underwriters' discounts and commissions and estimated offering expenses and
assuming an initial public offering price of $ per share. If the
underwriters' over-allotment option is exercised in full, we estimate that the
net proceeds will be $ million.
We anticipate using the net proceeds from this offering for advancing our
product candidates through preclinical and later stage development, discovering
new product candidates, expanding our technology platform including through
in-licensing opportunities or acquisition of complementary technologies, working
capital, and other general corporate purposes and capital expenditures. The
amounts and timing of our actual expenditures will depend upon numerous factors,
including the status of our product development and commercialization efforts,
technological advances, the amount of proceeds actually raised in this offering
and the amount of cash generated by our operations. We may also use a portion of
the proceeds for the acquisition of, or investment in, companies, technologies
or assets that complement our business, although we are not currently planning
any acquisitions, and no portion of the net proceeds has been allocated to any
particular acquisition. We have not determined the amounts we plan to spend on
any of the areas listed above or the timing of these expenditures. As a result,
our management will have broad discretion to allocate the net proceeds from this
offering.
We believe that the net proceeds of this offering, existing cash, cash
equivalents and investments, will be sufficient to meet our operating expenses
and capital requirements for at least the next 24 months. Pending the use of the
net proceeds, we intend to invest the net proceeds in interest-bearing
investment grade and U.S. government securities.
15
<PAGE>
DIVIDEND POLICY
- --------------------------------------------------------------------------------
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain earnings, if any, for use in the expansion and
operation of our business and do not anticipate paying cash dividends for the
foreseeable future.
DILUTION
- --------------------------------------------------------------------------------
Our pro forma net tangible book value, as of December 31, 1999, was
$35.1 million, or $5.94 per share of common stock, including the issuance of
804,196 shares of Series C preferred stock for cash on March 30, 2000 and after
giving effect to the automatic conversion of all outstanding shares of preferred
stock into an aggregate of 4,073,573 shares of common stock. Pro forma net
tangible book value represents the amount of total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding. After
giving effect to our sale of common stock offered hereby at an assumed initial
public offering price of $ per share, and our receipt of the estimated net
proceeds from the offering of $ , our pro forma net tangible book value as
of December 31, 1999 would have been approximately $ million, or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of
$ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering................................................ $ 5.94
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>
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after this offering would be $ per
share, the increase in net tangible book value per share to existing
stockholders would be $ per share and the dilution in net tangible book
value to new investors would be $ per share.
The following table summarizes, on a pro forma basis as of December 31,
1999, as adjusted for the March 2000 issuance of Series C preferred stock
described above, the differences between existing stockholders and the new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid and the average price per share paid before
deducting the underwriting discounts and commissions and our estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 5,900,421 % $45,934,000 % $ 7.78
New investors............................
--------- ----- ----------- -----
Total.................................. 100.0% 100.0%
========= ===== =========== =====
</TABLE>
The discussion and tables above assume no exercise of stock options
outstanding. At December 31, 1999, there were options outstanding to purchase a
total of 455,900 shares of common stock, with a weighted average exercise price
of $0.87 per share. To the extent that any of these options are exercised, there
will be further dilution to new investors.
16
<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
The following table shows our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to give effect to the sale of 804,196 shares of
Series C preferred stock on March 30, 2000 with net proceeds of $24.6
million and after reflecting the automatic conversion of all outstanding
shares of preferred stock into common stock upon the closing of this
offering; and
- on a pro forma as adjusted basis to give effect to the sale of
shares of common stock by us in this offering at an assumed price of
$ per share less the estimated discounts and offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Capital lease and debt obligations, less current portion.... $ 1,591 $ 1,591 $ 1,591
-------- -------- -------
Stockholders' equity:
Convertible preferred stock, par value $0.001; 4,348,182
shares authorized, 3,269,377 shares issued and
outstanding (actual); no shares issued and outstanding
(pro forma and pro forma as adjusted)................... 3 --
Common stock, par value $0.001; 12,000,000 shares
authorized, 1,826,848 shares issued and outstanding,
actual; 5,900,421 shares issued and outstanding, pro
forma; shares issued and outstanding, pro forma as
adjusted................................................ 2 6
Additional paid-in capital.................................. 24,851 49,450
Notes receivable from stockholders.......................... (349) (349) (349)
Deferred stock compensation................................. (2,377) (2,377) (2,377)
Accumulated deficit......................................... (11,593) (11,593) (11,593)
Accumulated other comprehensive loss........................ (66) (66) (66)
-------- -------- -------
Total stockholders' equity............................ 10,471 35,071
-------- -------- -------
Total capitalization.................................. $ 12,062 $ 36,662 $
======== ======== =======
</TABLE>
This table excludes:
- 1,700,000 shares of our common stock reserved for issuance under our 1996
Stock Option Plan, including 800,000 shares authorized following
December 31, 1999, of which 455,900 shares are subject to outstanding
options with a weighted average exercise price of $0.87 per share;
- 100,000 shares available for issuance under our 2000 Employee Stock
Purchase Plan approved in March 2000; and
- 100,000 shares available for issuance under our 2000 Non-Employee Director
Stock Option Plan approved in March 2000.
17
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and related notes
appearing elsewhere in this prospectus. The selected financial data set forth
below with respect to our statements of operations for the years ended
December 31, 1997, 1998 and 1999 and with respect to the our balance sheets at
December 31, 1998 and 1999 are derived from our financial statements that have
been audited by Ernst & Young LLP, which are included elsewhere in this
prospectus, and are qualified by reference to such financial statements. The
statement of operations data for the period from Inception (January 5, 1995) to
December 31, 1995 and for the year ended December 31, 1996 and the balance sheet
data as of December 31, 1996 and 1997 are derived from our audited financial
statements that are not included in this prospectus.
<TABLE>
<CAPTION>
FROM INCEPTION
(JANUARY 5,
1995) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
STATEMENT OF OPERATIONS DATA: 1995 1996 1997 1998 1999
- ----------------------------- -------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Contract revenue............................ $ -- $ -- $ 10 $ 974 $ 5,206
Grant revenue............................... -- 200 277 262 140
------ ------- ------- ------- -------
Total revenues............................ -- 200 287 1,236 5,346
Operating expenses:
Research and development.................. 197 1,286 1,922 4,030 7,623
General and administrative................ 281 402 457 991 1,632
Stock-based compensation.................. -- -- -- -- 1,145
------ ------- ------- ------- -------
Total operating expenses.................... 478 1,688 2,379 5,021 10,400
------ ------- ------- ------- -------
Operating loss.............................. (478) (1,488) (2,092) (3,785) (5,054)
Other income, net........................... -- 35 98 518 653
------ ------- ------- ------- -------
Net loss.................................... $ (478) $(1,453) $(1,994) $(3,267) $(4,401)
====== ======= ======= ======= =======
Historical net loss per share, basic and
diluted................................... $(0.49) $ (1.41) $ (1.46) $ (2.30) $ (2.93)
====== ======= ======= ======= =======
Historical weighted average shares
outstanding............................... 978 1,027 1,365 1,423 1,503
Pro forma net loss per share................ $ (0.92)
=======
Pro forma weighted average shares
outstanding............................... 4,772
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
BALANCE SHEET DATA: 1995 1996 1997 1998 1999
- ------------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments.................................... $ 31 $ 1,465 $ 2,019 $ 6,328 $ 2,022
Working capital.................................. (257) 1,369 1,976 4,267 750
Long-term investments............................ -- -- -- 9,073 8,442
Total assets..................................... 62 1,965 2,757 17,201 14,157
Capital lease and debt obligations,
less current portion........................... -- -- 385 1,004 1,591
Accumulated deficit.............................. (478) (1,930) (3,924) (7,192) (11,593)
Stockholders' equity............................. (226) 1,721 2,111 13,759 10,471
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH
OUR "SELECTED FINANCIAL DATA," OUR FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a biotechnology company that has both proprietary gene manipulating
technologies and a pipeline of potentially high-value pharmaceuticals. We use
our platform technologies to develop product candidates from an important class
of organic natural molecules known as polyketides. Our pipeline of product
opportunities currently targets the areas of infectious disease,
gastrointestinal motility, mucus hypersecretion, cancer, immunology and nerve
regeneration. In infectious disease, we have a collaboration with The R.W.
Johnson Pharmaceutical Research Institute, a Johnson & Johnson company, focusing
on the development of a next generation antibiotic.
We have incurred significant losses since our inception. As of December 31,
1999, our accumulated deficit was $11.6 million and total stockholders' equity
was $10.5 million. We expect to incur additional operating losses over the next
several years as we continue to develop our technologies and fund internal
product research and development.
DEFERRED COMPENSATION
During the year ended December 31, 1999, in connection with the grant of
stock options to employees, we recorded deferred stock-based compensation
totaling $2.9 million, representing the difference between the deemed fair
market value of our common stock for financial reporting purposes on the date
such options were granted and the applicable exercise prices. Such amount is
included as a reduction of stockholders' equity and is being amortized using the
graded vesting method over the vesting period of the individual options, which
is generally four years. We recognized amortization of deferred compensation of
$535,000 for the year ended December 31, 1999. At December 31, 1999, we had a
total of $2.4 million remaining to be amortized over the vesting periods of the
stock options. We expect to defer additional stock-based compensation of
$9.9 million for stock options granted to employees from January 1, 2000 through
March 24, 2000. Accordingly, we expect to recognize additional amortization
expense related to stock-based compensation of approximately $5.6 million during
2000, $3.7 million during 2001, $2.0 million during 2002, $832,000 during 2003
and $85,000 during 2004.
In connection with the grants of stock options and restricted stock to
non-employees, we recognize compensation on a ratable basis over the related
service period. We recognized other stock-based compensation for non-employees
of $610,000 for the year ended December 31, 1999. In addition, we expect to
recognize other stock-based compensation in connection with stock options and
restricted stock granted to non-employees of $934,000 during 2000, $829,000
during 2001, $677,000 during 2002, $213,000 during 2003 and $41,000 during 2004.
The measurement of stock-based compensation to our non-employees is subject to
periodic adjustment as our stock price changes and as the underlying securities
vest. As such, changes to these measurements could be substantial should we
experience significant changes in our stock price. Please see Notes 1 and 9 of
our financial statements.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUE. Our revenues increased to $5.3 million in 1999 from $1.2 million
in 1998. This increase primarily reflected the full year of funding under our
corporate collaboration with The R.W. Johnson Pharmaceutical Research Institute
which was established in September 1998. Total contract revenues earned under
this collaboration were $5.0 million in 1999 and $974,000 in 1998. Also included
in 1999
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contract revenue was $1.2 million of non-recurring milestones earned under this
agreement. The initial term of our collaboration with The R.W. Johnson
Pharmaceutical Research Institute has been extended to December 28, 2000. If we
do not further extend this agreement, our revenues will significantly decrease
thereafter, unless we enter into additional collaborations.
RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses
consist primarily of salaries and other personnel-related expenses, facility
expenses, lab consumables and depreciation of facilities and equipment. Research
and development expenses increased to $7.6 million in 1999 from $4.0 million in
1998. The increase was primarily due to increases in employee costs as our
scientific headcount increased to 43 individuals in December 1999 from 16 in
January 1998 and higher occupancy expenses associated with our move to a larger
facility in March 1999. We expect our research and development expenses will
increase substantially to fund the expansion of our technology platform, support
our collaborative research program and advance our in-house research programs
into later stages of development.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $1.6 million in 1999 from $991,000 in 1998. This increase was
primarily due to additional staffing and higher facility related expenses. We
expect our general and administrative expenses will increase in the future to
support the continued growth of our research and development efforts and to
fulfill our obligations associated with being a publicly held company.
STOCK-BASED COMPENSATION. Stock-based compensation expense was
$1.1 million in 1999. Stock-based compensation results from the amortization of
deferred stock-based compensation related to stock options granted to employees
and compensation expense from the valuation of stock options and restricted
stock granted to consultants.
INTEREST INCOME. Interest income increased to $679,000 in 1999 from
$598,000 in 1998. This increase resulted from higher average investment balances
due to contract revenue received under our collaboration with The R.W. Johnson
Pharmaceutical Research Institute.
INTEREST EXPENSE. Interest expense increased to $196,000 in 1999 from
$80,000 in 1998. This increase resulted from additional debt financing
associated with our fixed asset purchases.
OTHER INCOME. For the year ended December 31, 1999, other income included a
$170,000 termination fee received from the landlord of our previously occupied
facility for the buy-out of the rights to our sublease agreement.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE. Our revenue increased to $1.2 million in 1998 from $287,000 in
1997. This increase was attributable to the initiation of our corporate
collaboration with The R.W. Johnson Pharmaceutical Research Institute in
September 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses
increased to $4.0 million in 1998 from $1.9 million in 1997. The increase was
primarily due to increases in employee related costs as our scientific headcount
increased to 37 at December 1998 from 12 in January 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $991,000 in 1998 from $457,000 in 1997. This increase was primarily
due to higher employee and consulting costs to support our expanding research
and development activities.
INTEREST INCOME. Interest income increased to $598,000 in 1998 from
$154,000 in 1997. This increase resulted from higher investment balances arising
from our April 1998 private placement of preferred stock and contract revenue
received under our collaboration with The R.W. Johnson Pharmaceutical Research
Institute.
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INTEREST EXPENSE. Interest expense increased to $80,000 in 1998 from
$56,000 in 1997. This increase resulted from additional debt financing
associated with our fixed asset purchases.
PROVISION FOR INCOME TAXES
We incurred net operating losses in the years ended December 31, 1999 and
1998, and consequently did not pay federal, state or foreign income taxes. As of
December 31, 1999, we had federal and state net operating loss carryforwards of
approximately $9.6 million and $4.1 million, respectively. We also had federal
research and development tax credit carryforwards of approximately $300,000. If
not utilized, the net operating losses and credit carryforwards will expire at
various dates beginning in 2002 through 2019. Use of the net operating losses
and credits may be subject to a substantial annual limitation due to the change
in the ownership provisions of the Internal Revenue Code of 1986, as amended,
and similar state provisions. The annual limitation may result in the expiration
of net operating losses and credits before utilization. See Note 10 of our
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through sales of
preferred stock, totaling $21.0 million in net proceeds, contract payments under
our collaboration agreement, equipment financing arrangements and government
grants. As of December 31, 1999, we had $10.5 million in cash and investments
compared to $15.4 million as of December 31, 1998. Our funds are currently
invested in U.S. Treasury and government agency obligations, investment-grade
asset-backed securities and corporate obligations.
Our operating activities used cash of $3.9 million in the year ended
December 31, 1999 compared to $1.2 million in the year ended December 31, 1998.
Cash used in 1999 operating activities were primarily to fund our net operating
losses. Non-cash charges of $1.8 million related to stock-based compensation and
depreciation expenses were nearly offset by working capital changes of
$1.3 million. The $1.2 million used for 1998 operations consisted of our
$3.3 million net loss for the period, partially offset by depreciation and
working capital changes of $2.1 million.
Our investing activities provided cash of $978,000 in the year ended
December 31, 1999 compared to the usage of cash of $11.6 million in the year
ended December 31, 1998. Our investing activities consist primarily of purchases
and maturities of investment securities and capital expenditures. Cash provided
by our 1999 investing activities consisted of $2.8 million of net investment
maturities, partially offset by capital expenditures of $1.8 million. Cash used
in our 1998 investing activities primarily reflected the net purchases of
securities with the $14.9 million net proceeds from the issuance of our 1998
Series B preferred stock.
Net additions to property and equipment were $1.8 million for the year ended
December 31, 1999 and $1.2 million for the year ended December 31, 1998.
Proceeds received from equipment financing arrangements amounted to
$1.3 million for the year ended December 31, 1999 and $870,000 for the same
period ended 1998. In January 2000, we secured an additional $2.0 million line
of credit for facility improvements and equipment purchases.
On March 30, 2000, we issued 804,196 shares of Series C preferred stock at a
purchase price of $31.00 per share for net proceeds of approximately $24.6
million. We will reflect a deemed dividend of approximately $13.7 million in our
first quarter 2000 financial statements in relation to the Series C financing.
Please see Note 11 of our financial statements. We believe our existing cash and
investments, including proceeds of the sale of Series C preferred stock and of
this offering, will be sufficient to meet our anticipated cash requirements for
at least 24 months. Our future capital uses and requirements
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depend on numerous forward-looking factors. These factors include, but are not
limited to the following:
- Our ability to establish and the scope of any new collaborations;
- The progress and number of research programs carried out by us;
- The progress and success of preclinical and clinical trials of our drug
candidates;
- Our ability to maintain our existing collaboration;
- The costs and timing of obtaining, enforcing and defending our patent and
intellectual rights;
- The costs and timing of regulatory approvals; and
- Expenses associated with unforeseen litigation.
For the next several years, we do not expect our operations to generate the
amounts of cash required for our future cash needs. In order to fulfill our cash
requirements, we expect to finance future cash needs through the sale of equity
securities, strategic collaborations and debt financing. We cannot assure you
that additional financing or collaboration and licensing arrangements will be
available when needed or that, if available, will be on terms favorable to us or
our stockholders. Insufficient funds may require us to delay, scale back or
eliminate some or all of our research or development programs, to lose rights
under existing licenses or to relinquish greater or all rights to product
candidates at an earlier stage of development or on less favorable terms than we
would otherwise choose or may adversely affect our ability to operate as a going
concern. If additional funds are obtained by issuing equity securities,
substantial dilution to existing stockholders may result.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximize the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. To minimize this risk
in the future, we intend to maintain our portfolio of cash equivalents and
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities and corporate obligations.
The table below presents the principal amounts of our investments and
equipment loans by expected maturity and related weighted average interest rates
at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
US treasury.......................... $ -- $1,300 $ -- $ -- $1,300 $1,290
Corporate bond....................... 1,000 -- -- -- 1,000 990
Average interest rate.................. 5.6% 5.6% -- -- 5.6%
Asset-backed securities................ -- -- -- -- 7,198 7,152
Average interest rate.................. -- -- -- -- 5.9%
Equipment financing.................... 447 497 616 311 1,871 1,871
Average interest rate.................. 10.8% 10.8% 10.8% 11.0% 10.8%
</TABLE>
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BUSINESS
- --------------------------------------------------------------------------------
OVERVIEW
We are a biotechnology company that has both proprietary gene manipulating
technologies and a pipeline of potentially high-value pharmaceuticals. We use
our platform technologies to develop product candidates from an important class
of organic, natural molecules known as polyketides. Polyketides have long been a
rich source of pharmaceutical products for many uses, including antibiotics,
anticancer drugs, cholesterol-lowering drugs, immunosuppressants and other
therapeutics, as well as animal health and agricultural products. Currently,
natural or semi-synthetic polyketide pharmaceuticals represent over 20 products,
with worldwide sales exceeding $10 billion per year.
We are the leader in the alteration of polyketides by gene manipulations.
Polyketides are naturally bioactive, small molecules and possess many built-in
properties that are useful in pharmaceuticals, such as oral availability and the
ability to penetrate biological membranes. Polyketides are structurally complex
molecules that are not easy to make or modify by chemical means. Using our
technologies, we can modify and produce polyketides in ways chemists cannot. Our
approach mimics, accelerates and expands the evolutionary process that gave rise
to this important class of molecules. We use our technologies to:
- create novel, improved versions of currently marketed high-value
pharmaceuticals;
- modify an existing polyketide used in one therapeutic area to create a
novel polyketide to be used in another;
- transfer polyketide genes from their natural hosts to our optimized hosts
to enable large-scale production of the polyketides; and
- significantly expand the repertoire of natural product libraries to
provide a source for the discovery of new product candidates.
We are applying our technologies to develop a pipeline of product candidates
in the areas of infectious disease, gastrointestinal motility, mucus
hypersecretion, cancer, immunosuppression and nerve regeneration. These programs
were selected because they represent opportunities where our technologies could
improve upon existing products or fill unmet needs, and because they address
very large markets. In infectious disease, we have a collaboration with The R.W.
Johnson Pharmaceutical Research Institute, a Johnson & Johnson company, that has
rapidly generated several polyketide antibiotic product candidates that are
effective against organisms resistant to existing related products.
OVERVIEW OF POLYKETIDES
Polyketides are complex natural products that are produced by soil
microorganisms. There are about 7,000 known polyketides, from which numerous
pharmaceutical products in many therapeutic areas have been derived.
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SELECTED POLYKETIDE PRODUCTS AND THEIR USES
<TABLE>
<CAPTION>
PRODUCT (TRADE NAME) USE
- -------------------- --------------------
<S> <C>
Azithromycin (Zithromax)................................. Antibacterial
Clarithromycin (Biaxin).................................. Antibacterial
Erythromycin............................................. Antibacterial
Rifamycin (Rifampin)..................................... Antibacterial
Tetracyclines............................................ Antibacterial
Doxorubicin (Adriamycin)................................. Anticancer
Amphotericin B........................................... Antifungal
Lovastatin (Mevacor)..................................... Cholesterol-lowering
Pravastatin (Pravacol)................................... Cholesterol-lowering
Simvastatin (Zocor)...................................... Cholesterol-lowering
Tacrolimus (FK506, Prograf).............................. Immunosuppressant
Sirolimus (Rapamycin).................................... Immunosuppressant
Spinosad................................................. Insecticide
Avermectin............................................... Veterinary Product
</TABLE>
Unlike most classes of chemicals, polyketides often have unrelated
structures. The common features that link the polyketides as a class are the
sequence of reactions, or biosynthetic pathways, by which they are formed, and
the intermediate compounds made in these reactions. Each polyketide is produced
by a unique polyketide synthase, or PKS, which is a large enzyme composed of
many component enzymes. For example, the antibiotic erythromycin is made by
approximately 25 consecutive enzyme reactions, all carried out within a single
large PKS. There are two types of PKSs, modular and iterative. Modular PKSs
contain many enzymes, each of which is used only once during polyketide
production, while iterative PKSs may use some enzymes several times.
A modular PKS is encoded by neighboring DNA sequences, collectively called a
gene cluster, in the host organism's genome. The genes are not neighboring in
most other biosynthetic pathways for natural products, but are dispersed over
the chromosome of the organism and are not easily identified. Thus, when any
component of the polyketide gene cluster is identified, the entire cluster can
be obtained by DNA sequencing in either direction, and the cluster can be
modified or transferred to another host organism.
[FIGURE 1]
[DESCRIPTION OF POLYKETIDE SYNTHESIS]
[The artwork is a depiction of a polyketide (PKS) gene cluster, with 4
modules indicated; underneath each module is the 2-carbon unit building block of
polyketides it specifies. Underneath the 4 building blocks (in a row) is the
corresponding PKS, showing the component enzymes of each of the 4 modules and
the intermediate polyketide chains formed at each module. Finally, at the bottom
left there is a depiction of the building blocks used by the PKS with an arrow
leading from the building blocks to the PKS; at the right there is a downward
arrow leading from the PKS to the polyketide shown in the right, lower corner.]
A modular PKS is subdivided into units called modules. Polyketide assembly
begins at one end of the PKS, and continues to the other by adding and then
modifying 2-carbon building blocks at each module to form a polyketide chain.
The chain is finally converted into a polyketide ring. Since each module codes
for one building block, the number of modules in a PKS codes for the size of the
polyketide. Each module contains the same three enzyme activities that connect
the polyketide building blocks. One of these modules also selects which one of
about three building blocks is used by that module, and thereby determines the
structure at one of the two carbon atoms of the building block. A
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module may also have 1, 2 or 3 additional enzymes that modify the building
blocks and thereby determine the structure at the other carbon of the building
block.
The structure of a modular polyketide ring can be viewed as being coded by
the content, sequence and number of modules in a PKS, much as the structure of a
protein is encoded by sequence of DNA. The contents of a module code for the
structure of each 2-carbon building block used in a polyketide, the sequence of
modules codes for the arrangement of building blocks, and the number of modules
codes for the number of building blocks in, or size of, a polyketide. Modifying,
rearranging or deleting the modules results in specific changes to the structure
of the polyketide.
OUR STRATEGY
Our goal is to translate our technologies into a pipeline of high-value drug
candidates, and to advance our candidates into clinical trials. Our strategy
includes the following components:
MAXIMIZE VALUE, MINIMIZE RISK. We apply our technologies to improve
existing high-value pharmaceuticals and create new ones, generating a pipeline
of drug candidates moving towards market. By improving the properties of
currently marketed pharmaceuticals, we believe we can create novel products that
take advantage of the known utility, safety, development path and market for
existing drugs to reduce the risk and time required for development.
ESTABLISH COLLABORATIVE RELATIONSHIPS. We have entered into a collaboration
with The R.W. Johnson Pharmaceutical Research Institute, a Johnson & Johnson
company, in the area of infectious disease. We plan to establish additional
collaborative relationships with large pharmaceutical companies to move our
product candidates through clinical trials and into the market, prepare and
screen our polyketide libraries, apply our technologies to new polyketides and
develop large-scale production systems for polyketides.
ENHANCE LEADERSHIP POSITION OF OUR TECHNOLOGY PLATFORM. We will expand and
enhance our enabling technology platform by increasing in-house research
activities in order to maintain our leadership position. We will continue to
extend the reach of our technologies through strategic alliances or
acquisitions. We plan to broaden and protect our intellectual property portfolio
and in-license patents that complement our core technologies.
OUR TECHNOLOGY PLATFORM
Our technology platform has five components: polyketide gene alteration,
chemo-biosynthesis, heterologous over-expression, combinatorial biosynthesis,
and screening libraries. Together, our technologies enable us to modify, create
and produce proprietary polyketides and polyketide libraries that may enable us
to develop valuable pharmaceutical products.
POLYKETIDE GENE ALTERATION
The structure of a polyketide is primarily determined by variation in the
number, sequence and components of modules in the gene cluster. Our technologies
enable us to make these alterations in a specific, directed manner, and thus we
can control the polyketide structure.
Polyketides are structurally complex, small organic molecules that are not
easy to make or modify chemically. Because each building block of a polyketide
is encoded by a specific module of the gene cluster, we use our technologies to
make precise structural changes by altering the module that specifies the
targeted building block. We use our technologies to improve properties of known
biologically active molecules, and to activate inert parts of the polyketide.
This allows us to make subsequent chemical modifications not currently feasible.
We can also make small changes in the structure of existing proprietary
polyketide products to allow freedom to operate in otherwise
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proprietary space. In addition, by changing the order and number of modules, we
can create entirely new libraries of polyketides as sources of new structures
both for screening and for improving bio-activities of a lead compound.
CHEMO-BIOSYNTHESIS
We incorporate chemically synthesized fragments into complicated polyketide
structures, permitting changes in their structures and properties in ways that
have not been achieved by any other process. This should enable us to produce
novel polyketide product candidates.
First, we disable the first two modules in a PKS by gene alteration. This
prevents formation of the two-building-block intermediate that feeds module two,
but leaves the remainder of the PKS fully functional. Then, microorganisms
containing this modified PKS are fed our chemically synthesized fragments which
substitute for the natural building-block intermediate.
HETEROLOGOUS OVER-EXPRESSION
We can isolate a polyketide gene cluster from one organism and transfer it
to another. This is important because many polyketides are produced by
microorganisms that are poorly understood or difficult or slow to grow, or whose
genes are not easy to manipulate. In addition, polyketides are often produced in
small amounts in organisms that naturally produce them, which can limit their
commercial opportunities. We have created genetically-enhanced microorganisms to
serve as optimized hosts for efficient polyketide manipulation and production.
Our proprietary technologies allow us to transfer polyketide genes to these
optimized hosts to enable easier manipulation and increased production of
polyketides necessary for commercialization of our technologies.
COMBINATORIAL BIOSYNTHESIS
We have developed a novel combinatorial technology to produce libraries of
polyketides. Because the approximately 7,000 naturally occurring polyketides
have yielded many pharmaceutical products, we believe that libraries of new
polyketides may do likewise. We separate the large polyketide gene cluster into
several fragments. Each of these gene fragments is then genetically manipulated
to produce numerous variations. We then reassemble the gene cluster with all
possible combinations of the altered fragments to create combinatorial
polyketide libraries. Using our combinatorial biosynthesis technology, we
produce large polyketide libraries. For example, one of our libraries contains
the largest number of erythromycin analogs produced by genetic engineering.
[FIGURE 2]
[DESCRIPTION OF ARTWORK]
[The artwork is a depiction of the process of combinatorial biosynthesis.
A) The first drawing depicts a PKS gene cluster, and underneath it are
individual modules obtained from other PKS gene clusters. B) The second drawing
shows the incorporation of new individual modules into the gene cluster to make
hybrid gene clusters. C) The third drawing shows a number of cells containing
individual (colored) hybrid genes. D) The fourth drawing shows cell colonies,
each producing a different polyketide (color-coded).]
SCREENING LIBRARIES
In addition to our combinatorial library, we have acquired a collection of
over 10,000 soil microorganisms. The collection is unusual because it has been
pre-selected for bioactivities from a larger group of over 100,000
microorganisms. Our collection shows antibiotic, antiviral, and pesticidal
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activities, as well as activity specific to one or more of about 20 enzyme
targets. We believe that the lead compounds from this library, together with our
technologies, will provide a flow of new chemical entities for our product
pipeline.
OUR PRODUCT DEVELOPMENT OPPORTUNITIES
Our primary programs are currently directed at discovery and development of
novel polyketides for bacterial infections, gastrointestinal motility disorders,
mucus hypersecretion, cancer, immunosuppression and nerve regeneration. These
programs were selected because they represent opportunities where our
technologies could improve upon existing products or fill unmet needs, and
because each addresses very large markets. We are able to maintain a diverse
portfolio of product candidates because the fundamental aspects of our
technology generally apply to all PKS gene clusters.
BACTERIAL INFECTIONS
Clarithromycin, marketed as Biaxin, and azithromycin, marketed as Zithromax,
are polyketide-derived antibiotics that show high potency, a broad spectrum of
activity and few side effects. These products had revenues in 1999 of
approximately $2.3 billion. However, organisms are emerging that are resistant
to these two drugs. Ketolides, analogs of the polyketide erythromycin, possess
the potency and spectrum of activity shown by clarithromycin and azithromycin,
but are effective against these resistant organisms. Another company has
recently filed a new drug application with the FDA for a ketolide.
We have a collaborative research agreement with The R.W. Johnson
Pharmaceutical Research Institute, a Johnson & Johnson company, to discover and
develop a next-generation ketolide. Our collaboration was established in
September 1998, and has already resulted in several proprietary ketolides that
we believe have activities competitive with other ketolides. One of these
compounds is currently undergoing preclinical evaluation.
GASTROINTESTINAL MOTILITY
One of the actions of erythromycin is stimulation of gastrointestinal
movement, or GI motility. Therefore, erythromycin-derived compounds called
motilides may be useful to treat diseases such as gastroparesis and
gastroesophageal reflux disease, also known as GERD or heartburn, that are
unresponsive to antacids. The leading product currently used for stimulation of
GI motility is cisapride, marketed as Propulsid, which had sales of
approximately $1 billion in 1999. Cisapride has been reported to have side
effects, including arrhythmias and various drug interactions. Recently,
Cisapride's manufacturer announced that Cisapride will no longer be marketed in
the United States. Motilides have an entirely different mechanism of action and
should not have the same side effects. Another company's motilide candidate is
in clinical trials.
Many members of our erythromycin library can readily be converted into
motilides. In less than a year, we have prepared several proprietary motilides
with IN VITRO activity comparable to the motilide that is in clinical trials. In
addition, our genetic manipulation technology enables the preparation of
numerous new motilides that could not easily be made chemically. We expect to
have optimized candidates advance into preclinical testing within a year.
MUCUS HYPERSECRETION
Mucus hypersecretion, or excessive production of mucus, is a major,
problematic symptom of asthma, chronic obstructive pulmonary disease, or COPD,
cystic fibrosis and allergic rhinitis, including hay fever. Mucus hypersecretion
in these diseases results from the release of mucus from abnormally high numbers
of large mucus-secreting cells, or goblet cells. There is no effective treatment
for this type of mucus hypersecretion from which to determine market potential,
but we believe, based on the disease prevalence, that the market potential is
significant.
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Our scientists, in collaboration with scientists at the University of
California, San Francisco, have discovered a potential target for inhibiting
mucus hypersecretion. We have prepared a non-antibiotic analog of erythromycin
that inhibits this target, and are using our technology to optimize its
activity. Although this is an early-stage project, we believe we will have
candidates advance into preclinical testing within a year.
CANCER
Many cancers are treated by paclitaxel, marketed as Taxol, which had
revenues in 1999 of approximately $1.5 billion. However, some tumors are
resistant to Taxol. Epothilone, a polyketide with an identical mechanism of
action and similar potency to Taxol, is active against Taxol-resistant tumors. A
major problem with the further development of epothilone is that its sole
natural source produces small amounts. Moreover, one of the most effective forms
of epothilone, epothilone D, represents only about 10% of the total epothilones
produced.
Although epothilone has been chemically synthesized, the synthesis is not
readily amenable to large-scale production. Our technology allows polyketide
genes to be moved from their natural organism to another to produce greater
quantities of the polyketide. Our scientists have cloned and expressed the
epothilone gene cluster in two high-producing organisms and demonstrated
production of all important forms of epothilone, including epothilone D. We
believe we can increase current yields of the important types of epothilone
through our gene-manipulating technologies. We also expect to produce
proprietary analogs of epothilone.
IMMUNOSUPPRESSION
Prograf, also known as FK506, is one of the most widely used
immunosuppressants for organ transplantation, with 1999 worldwide revenues of
approximately $259 million. Additionally, FK506 has been approved in Japan to
treat atopic dermatitis and approval for this indication is pending in the
United States. It is also in clinical trials to treat psoriasis and rheumatoid
arthritis. The enzyme P450-3A metabolizes FK506 at a single site to destroy over
90% of the drug. A major problem is that P450-3A levels are variable among
individuals and fluctuate in the presence of other drugs. As a result, FK506
metabolism is variable in different people and its dosage must be carefully
individualized and monitored to avoid under- or over-dosing.
If the primary site at which FK506 is metabolized by P450-3A could be
blocked without affecting its biological activity, the variable metabolism of
the drug might be averted. The primary site of metabolism of FK506 is different
from those required for activity, so we do not expect its modification to
prevent metabolism to be detrimental. This site of metabolism cannot be
protected by chemical modification, but can be protected using our technology.
We have modified this site in an FK506 analog, FK520, to make proprietary,
metabolically stable analogs. We expect to have optimized candidates to advance
into preclinical testing within a year.
NERVE REGENERATION
The immunosuppressive effect of FK506 is generated by concurrent binding to
two proteins, FKBP and calcineurin. However, analogs of FK506 that bind to FKBP
but not calcineurin stimulate nerve regeneration without immunosuppression. Such
compounds could be used to treat peripheral and spinal cord injury, Parkinson's
disease, and other diseases involving nerve degeneration.
We are converting our metabolically stable FK520 analogs to
non-immunosuppressant nerve regeneration agents by removing their ability to
bind to calcineurin. Our analogs may have advantages because we expect them to
be orally available, have well-characterized pharmacokinetic properties, and
penetrate the blood brain barrier. We expect to have optimized candidates to
advance into preclinical testing within a year.
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INTELLECTUAL PROPERTY
Our intellectual property consists of patents, copyrights, trade secrets and
know-how. Our ability to compete effectively depends in large part on our
ability to obtain patents for our technologies and products, maintain trade
secrets and operate without infringing the rights of others and to prevent
others from infringing on our proprietary rights. We will be able to protect our
technologies from unauthorized use by third parties only to the extent that they
are covered by valid and enforceable patents, or copyrights or are effectively
maintained as trade secrets. Accordingly, patents or other proprietary rights
are an essential element of our business. As of March 29, 2000, we owned three
U.S. patents and one foreign patent and had exclusive license rights to six U.S.
patents and five foreign patents owned by Stanford University. We also have 34
U.S. patent applications and 23 foreign patent applications, as well as the
exclusive rights to 15 U.S. patent applications and 33 foreign patent
applications.
We have exclusive rights to the combinatorial biosynthesis technology
developed by Dr. Chaitan Khosla, which is claimed in a series of issued and
pending patents filed by Stanford University beginning in 1993. These patents
include claims to recombinant expression of polyketide synthase enzymes and
production of polyketides using recombinantly expressed enzymes, as well as
useful hosts, vectors and methods of library production. To date, six of these
patents have issued and three patent applications have been allowed by the U.S.
Patent Office. We have also entered into an agreement with Stanford University
that grants us an exclusive option to license certain new technologies involving
polyketides and their production developed by Dr. Khosla.
We have applied for patents claiming the production of polyketide libraries
using our proprietary multi-vector technology, the production of polyketides in
E. COLI, yeast, and plant cells, polyketide gene clusters cloned and expressed
in heterologous hosts, and novel polyketide compounds generated in our drug
discovery and development programs.
Our policy is to file patent applications to protect technology, compounds
and improvements that are commercially important to our business. We also rely
on trade secrets to protect our technology, especially where patent protection
is deemed inappropriate or unobtainable. We protect our proprietary technology
and processes, in part, by confidentiality agreements with our employees,
consultants, collaborators and certain contractors. There can be no assurance
that proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or that we can
meaningfully protect our trade secrets.
COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
JOHNSON & JOHNSON
In September 1998, we signed a two-year collaborative agreement with The
R.W. Johnson Pharmaceutical Research Institute, and Ortho-McNeil
Pharmaceutical, Inc., both Johnson & Johnson companies, which has been extended
through December 2000. Under the terms of the agreement, we use our technologies
to produce specific novel antibiotics on a best efforts basis. The agreement
provides for payments, including payments for research and development costs,
and payments for reaching certain research and development milestones. In
addition to creating a two-year collaborative research term, the agreement
grants several licenses that include:
- a research license, whereby we and The R.W. Johnson Pharmaceutical
Research Institute grant each other a non-exclusive license, with no
sublicense rights, to make and use methods and material covered under the
parties' respective patents to carry out research during the term of the
agreement;
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- a screening license, whereby we grant to The R.W. Johnson Pharmaceutical
Research Institute a non-transferable exclusive license, with the right to
grant sublicenses, to conduct screening for antibiotic activity; and
- a development and commercialization license, whereby we grant to
Ortho-McNeil Pharmaceutical, Inc. and The R.W. Johnson Pharmaceutical
Research Institute exclusive worldwide rights to make, use, develop and
sell the licensed products as defined in the agreement.
The development, marketing, and sale of drugs resulting from this collaboration
will be undertaken by The R.W. Johnson Pharmaceutical Research Institute and
Ortho-McNeil Pharmaceutical, Inc. Should the development efforts result in a
marketable product, we will receive royalty payments based on product sales as
well as payments based on reaching research and development milestones. We
recognized $5.0 million of contract revenue for the year ended December 31, 1999
and $1.0 million for the same period in 1998, pursuant to this agreement.
Included in 1999 contract revenue were $1.2 million of nonrecurring milestones
earned under this agreement. After the research term under this agreement ends,
The R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil
Pharmaceutical can terminate the agreement as a whole or with respect to any
pharmaceutical product upon three months' written notice and they or we may
terminate the agreement upon 90 days' written notice upon a material breach of
the agreement. If The R.W. Johnson Pharmaceutical Research Institute and
Ortho-McNeil Pharmaceutical terminate the agreement, rights to compounds
developed under the agreement revert to us except for rights to compounds being
commercialized by The R.W. Johnson Pharmaceutical Research Institute and
Ortho-McNeil Pharmaceutical.
STANFORD UNIVERSITY
In March 1996, we entered into an exclusive license agreement with the Board
of Trustees of the Leland Stanford Junior University, or Stanford University,
for certain technology and related patent rights now contained in six issued
U.S. patents and five foreign patents, as well as 44 U.S. and foreign patent
applications, and materials for the recombinant production of novel polyketides.
Under the terms of the agreement, we pay annual license fees to Stanford
University and will pay milestones and royalties on net sales resulting from
successful products originating from the licensed technology. In March 2000, an
amendment to the agreement was signed giving us an exclusive option to acquire
an exclusive license to future patents or patent applications related to certain
technology related to polyketides and their production developed by Dr. Khosla.
HARVARD COLLEGE
In December 1998, we entered into an exclusive license agreement with the
President and Fellows of Harvard College for certain technology and related
patent rights for the production of polyketides. In connection with the license
agreement, which gives us the exclusive license rights to the technology in five
patent applications, we paid a non-refundable license fee and will pay annual
maintenance fees, milestones and royalties on net sales of products originating
from the licensed technology.
COMPETITION
The pharmaceutical and biotechnology industries are intensely competitive.
Many companies, including biotechnology, chemical and pharmaceutical companies,
are actively engaged in activities similar to ours, including research and
development of drugs for the treatment of the same diseases and conditions as
our potential product candidates. Many of these companies have substantially
greater financial and other resources, larger research and development staffs,
and more extensive marketing and manufacturing organizations than we do. In
addition, some of them have considerable experience in preclinical testing,
clinical trials and other regulatory approval procedures. There are also
academic
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institutions, governmental agencies and other research organizations that are
conducting research in areas in which we are working. They may also market
commercial products, either on their own or through collaborative efforts.
Our major competitors include fully integrated pharmaceutical companies that
have extensive drug discovery efforts. We face significant competition from
organizations that are pursuing the same or similar technologies, including
polyketide manipulation, as the technologies used by us in our drug discovery
efforts. We expect to encounter significant competition for any of the
pharmaceutical products we plan to develop. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. Other pharmaceutical and biotechnology companies have announced
efforts in the field of polyketide manipulation. We are aware that many other
companies or institutions are pursuing development of drugs and technologies
directly targeted at applications for which we are developing our drug
compounds.
Developments by others may render our product candidates or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for collaborative arrangements with
pharmaceutical and biotechnology companies, for establishing relationships with
academic and research institutions and for licenses to additional technologies.
These competitors, either alone or with their collaborative partners, may
succeed in developing technologies or products that are more effective than
ours.
In order to compete successfully, we must develop proprietary positions in
patented drugs for therapeutic markets that have not been satisfactorily
addressed by conventional research strategies and, in the process, expand our
expertise in polyketide manipulation. Our potential products, even if
successfully tested and developed, may not be adopted by physicians over other
products and may not offer economically feasible alternatives to other
therapies.
GOVERNMENT REGULATION
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our potential products.
The process required by the FDA before our products may be marketed in the
United States generally involves the following:
- preclinical laboratory and animal tests;
- submission of an investigational new drug, or IND, application, which must
become effective before clinical trials may begin;
- adequate and well-controlled human clinical trials to establish the safety
and efficacy of the proposed drug for its intended use; and
- FDA approval of a new drug application, or NDA, or biologics license
application, or BLA.
The testing and approval process requires substantial time, effort, and
financial resources, and we cannot be certain that any approvals for any of our
potential products will be granted on a timely basis, if at all.
Prior to commencing clinical trials, which are typically conducted in three
sequential phases, we must submit an IND application to the FDA. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the
FDA, within the 30-day time period, raises concerns or questions about
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the conduct of the trial. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before the clinical trial can begin. Our
submission of an IND may not result in FDA authorization to commence a clinical
trial. Further, an independent institutional review board at the medical center
proposing to conduct the clinical trial must review and approve the plan for any
clinical trial before it commences.
We may not successfully complete any of the three phases of testing of any
of our potential products within any specific time period, if at all.
Furthermore, the FDA or an institutional review board or the sponsor may suspend
a clinical trial at any time on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health risk.
The results of product development, preclinical studies and clinical studies
are submitted to the FDA as part of a NDA or BLA. The FDA may deny a NDA or BLA
if the applicable regulatory criteria are not satisfied or may require
additional clinical data. Even if such data is submitted, the FDA may ultimately
decide that the NDA or BLA does not satisfy the criteria for approval. Once
issued, the FDA may withdraw product approval if compliance with regulatory
standards is not maintained or if problems occur after the product reaches the
market. In addition, the FDA may require testing and surveillance programs to
monitor the effect of approved products which have been commercialized, and the
FDA has the power to prevent or limit further marketing of a product based on
the results of these post-marketing programs.
Satisfaction of FDA requirements or similar requirements of state, local and
foreign regulatory agencies typically takes several years and the actual time
required may vary substantially, based upon the type, complexity and novelty of
the product or indication. Government regulation may delay or prevent marketing
of potential products or new indications for a considerable period of time and
to impose costly procedures upon our activities. Success in early stage clinical
trials does not assure success in later stage clinical trials. Data obtained
from clinical activities is not always conclusive and may be susceptible to
varying interpretations which could delay, limit or prevent regulatory approval.
Even if a product receives regulatory approval, the approval may be
significantly limited to specific indications and dosages. Further, even after
regulatory approval is obtained, later discovery of previously unknown problems
with a product may result in restrictions on the product or even complete
withdrawal of the product from the market. Delays in obtaining, or failures to
obtain additional regulatory approvals for any of our products would have a
material adverse effect on our business.
Any products manufactured or distributed by us pursuant to FDA approvals are
subject to continuing regulation by the FDA, including record-keeping
requirements and reporting of adverse experiences with the drug. Drug
manufacturers and their subcontractors are required to register their
establishments with the FDA and certain state agencies, and are subject to
periodic unannounced inspections by the FDA and certain state agencies for
compliance with good manufacturing practices, which impose certain procedural
and documentation requirements upon us and our third party manufacturers. We
cannot be certain that we or our present or future suppliers will be able to
comply with the good manufacturing practices regulations and other FDA
regulatory requirements.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Community, or EC, registration
procedures are available to companies wishing to market a product in more than
one EC member state. If the regulatory authority is satisfied that adequate
evidence of safety, quality and efficacy has been presented, a marketing
authorization will be granted. This foreign regulatory approval process involves
all of the risks associated with FDA clearance.
LITIGATION
We are not currently involved in any litigation.
EMPLOYEES
As of March 30, 2000 we had 55 full-time employees, 29 of whom hold Ph.D.
degrees and 28 of whom were engaged in full-time research activities. We believe
that our relations with our employees are good.
FACILITIES
Our facilities consist of approximately 44,000 square feet of research and
office space located in Hayward, California that is leased to us until 2003. We
believe that our facility will meet our space requirements for research and
development and administration functions through the year 2002, and beyond that
time, that suitable additional space will be available on commercially
reasonable terms.
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MANAGEMENT
- --------------------------------------------------------------------------------
The following table provides information regarding our directors, executive
officers and key employees:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------------------- ------------------------------------------
<S> <C> <C>
Daniel V. Santi, M.D., Ph.D............... 58 Chief Executive Officer and Chairman of
the Board of Directors
Michael S. Ostrach........................ 48 Chief Operating Officer
Brian Metcalf, Ph.D....................... 54 Senior Vice President, Chief Scientific
Officer
Susan M. Kanaya........................... 37 Vice President, Finance and Chief
Financial Officer
Kevin Kaster.............................. 40 Vice President, Intellectual Property
C. Richard Hutchinson..................... 56 Vice President, New Technologies
Chaitan Khosla, Ph.D...................... 35 Director
Jean Deleage.............................. 59 Director
Raymond Whitaker, Ph.D.................... 52 Director
Peter Davis, Ph.D......................... 55 Director
Christopher Walsh, Ph.D................... 56 Director
</TABLE>
- ------------------------
DANIEL V. SANTI, M.D., PH.D., is one of our co-founders, and has served as
Chairman of the Board of Directors since our inception. In November 1998,
Dr. Santi was appointed as our Chief Executive Officer. He is on leave of
absence from his position as Professor of Biochemistry and Biophysics, and of
Pharmaceutical Chemistry at University of California, San Francisco. Dr. Santi
was one of the original members of the Scientific Advisory Boards of Chiron
Corporation and Mitotix, Inc., and has served as a consultant to several large
pharmaceutical companies. In 1988, Dr. Santi founded and served as Chairman of
the Board of Directors of the biotechnology firm Protos, a subsidiary of Chiron
Corporation, which was merged with Chiron in 1992. Dr. Santi was also founder
and Chairman of Parnassus Pharmaceuticals. Dr. Santi has published over 275
scientific papers and is inventor on many patents in combinatorial chemistry and
other areas. Dr. Santi received a Ph.D. in medicinal chemistry from the State
University of New York, his M.D. from the University of California, San
Francisco, and his B.S. in pharmacy from the State University of New York.
MICHAEL S. OSTRACH has served as our Chief Operating Officer since
October 1998. Prior to joining Kosan as Vice President, Corporate Development in
October 1997, Mr. Ostrach worked as an independent consultant for biotechnology
companies from October 1996 to October 1997. Mr. Ostrach was Executive Vice
President and Chief Operating Officer of Neurobiological Technologies, Inc., a
publicly-held biotechnology company from 1994 to 1996. From 1981 to 1991, he was
a Senior Vice President at Cetus Corporation. In 1991, Cetus Corporation merged
into Chiron Corporation and during 1992 Mr. Ostrach was a Vice President of
Chiron Corporation and a founder and the President of Chiron Technologies, a
Chiron business unit. Mr. Ostrach received his B.A. from Brown University and
his J.D. from Stanford Law School.
BRIAN W. METCALF, PH.D. has served as our Senior Vice President and Chief
Scientific Officer since March 2000. From 1983 to 2000, Dr. Metcalf held a
number of executive management positions with SmithKline Beecham, most recently
as Senior Vice President, Discovery Chemistry & Platform Technologies worldwide.
Prior to joining SmithKline Beecham, Dr. Metcalf held positions with Merrell
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Research Center from 1973-1983. Dr. Metcalf received his B.S. and Ph.D. in
organic chemistry from the University of Western Australia.
SUSAN M. KANAYA has served as our Vice President, Finance and Chief
Financial Officer since November 1999. Prior to joining Kosan, Ms. Kanaya was
most recently Vice President, Finance and Treasurer at SUGEN, Inc., a
publicly-held biotechnology company that was recently acquired by Pharmacia &
Upjohn, Inc. Since joining SUGEN in 1994, Ms. Kanaya held various positions in
finance. Before joining SUGEN, Ms. Kanaya was the Controller at 50/50 Micro
Electronics, Inc. and at Power Up Software Corporation. Ms. Kanaya received her
B.S. in business administration from the University of California, Berkeley.
KEVIN KASTER has served as our Vice President, Intellectual Property since
August 1998. Prior to joining Kosan, he was Vice President, Intellectual
Property at Geron Corporation. Prior to joining Geron in 1994, Mr. Kaster
managed the patent group at Affymax N.V. between 1991 and 1994. Between 1988 and
1991, he was a Patent Attorney at Cetus Corporation. After receiving a B.S.,
magna cum laude, in chemistry and molecular biology from Vanderbilt University,
Mr. Kaster joined Eli Lilly and Co. as an Associate Biologist, later becoming a
patent technician. Mr. Kaster received his J.D. from Indiana University,
Indianapolis.
C. RICHARD HUTCHINSON has served as our Vice President, New Technologies
since March 2000. From 1971 to 2000, Dr. Hutchinson served on the faculty of the
University of Wisconsin-Madison, most recently as Professor of Medicinal
Chemistry, School of Pharmacy and Professor of Bacteriology. Dr. Hutchinson
received his B.S. in pharmacy from Ohio State University and his Ph.D. in
organic chemistry from the University of Minnesota.
CHAITAN KHOSLA, PH.D., is one of our co-founders and has served as our
director since our inception. Dr. Khosla has been Associate Professor of
chemical engineering, chemistry and biochemistry at Stanford University since
1997, and has been a faculty member since 1992. Dr. Khosla is co-chairman of our
Scientific Advisory Board. Dr. Khosla is the inventor of the combinatorial
biosynthesis technology that we licensed from Stanford University. He is the
recipient of several awards, including the 1999 Alan T. Waterman award by the
National Science Foundation, the 1999 Eli Lilly Award in biological chemistry,
and the 2000 ACS Award in pure science. Dr. Khosla is the author of over 90
publications and is an inventor on numerous patents. Dr. Khosla received his B.
Tech. from the Indian Institute of Technology, Bombay, India and his Ph.D. from
the California Institute of Technology.
JEAN DELEAGE, PH.D., has served as our director since April 1996. He is a
founder and managing general partner of Alta Partners, a venture capital
partnership investing in information technologies and life science companies.
From 1979 to 1996, Dr. Deleage was a managing partner of Burr, Egan, Deleage &
Co., a venture capital firm. Dr. Deleage was the founder of Sofinnova, a venture
capital firm in France, and Sofinnova, Inc., the U.S. subsidiary of Sofinnova.
Dr. Deleage is a director of Flamel Technologies, S.A., Aclara
BioSciences, Inc. and several privately held companies. Dr. Deleage received a
Baccalaureate in France, a Masters Degree in electrical engineering from the
Ecole Superieure d'Electricite, and a Ph.D. in economics from the Sorbonne.
RAYMOND WHITAKER, MBA, PH.D., has served as our director since April 1998.
Dr. Whitaker has been Vice President of S.R. One, Ltd., the venture investment
affiliate of SmithKline Beecham, since 1997. From 1992 to 1996, he was Director,
Worldwide Business Development, SmithKline Beecham Pharmaceuticals. He has over
twenty-five years of international business development experience. His previous
appointments include Director, Corporate Development at Recordati SpA, Milan,
Italy, and Director, Business Development with Laboratories Delagrange--SESIF in
Paris, France. He is a member of the Board of Directors of CPBD, Inc.,
Electrosols Limited, OnyVax Limited and Xenogen
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Corporation. Dr. Whitaker received his Ph.D. in biochemistry, his M.B.A. and his
B.S. in biochemistry and mathematics from the National University of Ireland,
University College Dublin.
PETER DAVIS, PH.D., has served as our director since April 1998. Dr. Davis
has been a member of the Executive Committee of Pulsar International, S.A., an
affiliate of A.G. Biotech Capital since 1993. Dr. Davis was a faculty member at
the Wharton School of the University of Pennsylvania, where he was Director of
the Applied Research Center and Director of Executive Education. He is a Board
member of several Pulsar companies including Bionova Holdings Inc. and
Seminis, Inc. He is also a Board member of Lutron Electronics, Inc.,
Instromedix, Inc., C.H. Werfen and Celsa S.A. Dr. Davis received his B.A. in
physics from Cambridge University, his Masters Degree in operations research
from the London School of Economics and his Ph.D. in operations research from
the Wharton School.
CHRISTOPHER WALSH, PH.D., has served as our director since April 1996.
Dr. Walsh has been the Hamilton Kuhn Professor of biological chemistry and
molecular pharmacology at Harvard Medical School since 1991 and formerly was
President of the Dana-Farber Cancer Institute and Chairman of the Department of
Biological Chemistry and Molecular Pharmacology at Harvard Medical School. He
has performed extensive research in enzyme stereochemistry, reaction mechanisms
and the mechanisms of action of anti-infective and immunosuppressive agents. He
is co-chairman of the Kosan Scientific Advisory Board. Dr. Walsh is also a
member of the board of directors of Diacrin, Inc. Dr. Walsh received his A.B. in
biology from Harvard University and Ph.D. in life sciences from The Rockefeller
University, New York.
In April 1998, Mr. Ostrach consented, without admitting or denying the
Securities and Exchange Commission's allegations and conclusions, to the entry
of a Commission administrative order requiring future compliance with Rule 102
of the Commission's Regulation M, a regulation which prohibits participants in a
public stock offering from purchasing securities for their own account until the
public distribution is complete. The administrative order resulted from
Mr. Ostrach's purchase of 600 shares of Neurobiological Technologies, Inc., or
NTI, common stock during a restricted period preceding a 1996 stock offering by
NTI.
SCIENTIFIC ADVISORY BOARD
The following individuals are members of our Scientific Advisory Board, or
SAB:
CHAITAN KHOSLA, PH.D., is co-chairman of our SAB and a member of our board
of directors.
CHRISTOPHER WALSH, PH.D., is co-chairman of our SAB and a member of our
board of directors.
HOMER A. BOUSHEY, M.D., is a Professor of Medicine at the University of
California, San Francisco. Dr. Boushey is an expert in clinical research on the
causes and treatment of asthma and serves as Principal Investigator for UCSF's
Asthma Clinical Research Center.
DAVID CANE, PH.D., is Professor of Chemistry at Brown University. He is an
expert in the biosynthesis of natural products, with particular emphasis on
macrolide polyketides and terpenes.
SAMUEL DANISHEFSKY, PH.D., is Professor of Chemistry at Columbia University.
He is an expert in synthetic organic chemistry.
SIR DAVID A. HOPWOOD, PH.D., is Professor and Head of the Genetics Dept. at
John Innes Institute, Norwich, U.K. He is an expert in Streptomyces genetics,
molecular biology and the genetic manipulation of polyketide genes.
IVAN KOMPIS, PH.D., has an extensive background in natural products
chemistry, in particular antibacterial agents. He recently retired from
Hoffmann-La Roche, where he held the position of Deputy Director of the
Department of Infectious Diseases since 1987.
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MOHAMMED A. MARAHIEL, PH.D., is Professor of Biochemistry at Philipps
University, Marburg, Germany. Dr. Marahiel is an expert in the field of
non-ribosomal peptide biosynthesis.
HARUO SETO, PH.D., is Professor of the Institute of Molecular and Cellular
Biosciences, University of Tokyo, Japan. Dr. Seto has an extensive background in
the structure, biosynthesis and screening of antibiotics.
BOARD COMPOSITION
Dr. Santi is currently the chairman of the board of directors. Immediately
following the sale of securities under this registration statement, our board of
directors will consist of six directors divided into three classes with each
class serving for a term of three years.
- Drs. Khosla and Whitaker will be the Class I directors whose terms expire
at the annual meeting of stockholders to be held in 2001;
- Drs. Walsh and Davis will be the Class II directors whose terms will
expire at the annual meeting of stockholders to be held in 2002; and
- Drs. Deleage and Santi will be the Class III directors whose terms will
expire at the annual meeting of stockholders to be held in 2003.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following the election. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of one-third of the directors.
This classification of our board of directors may have the effect of delaying or
preventing change in our control or management.
COMMITTEES OF THE BOARD
COMPENSATION COMMITTEE. The compensation committee, which is composed of
Drs. Davis, Deleage and Walsh, reviews and recommends to our board of directors
the compensation and benefits of all our officers and establishes and reviews
general policies relating to compensation and benefits to our employees.
AUDIT COMMITTEE. The audit committee, which is comprised of Drs. Whitaker,
Davis and Deleage, reviews our internal accounting procedures and the services
provided by our independent auditors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee is currently, or has ever
been at any time since our formation, one of our officers or employees, nor has
served as a member of the board of directors or compensation committee of any
entity that has one or more officers serving as a member of our board of
directors or compensation committee.
COMPENSATION OF DIRECTORS
We reimburse our non-employee directors for expenses incurred in connection
with attending board and committee meetings but do not compensate them for their
services as board or committee members. We have in the past granted non-employee
directors options to purchase our common stock pursuant to the terms of our
stock option plans, and our board continues to have the discretion to grant
options to new non-employee directors. On March 14, 2000, we granted an option
to purchase 5,000 shares of common stock to director Dr. Christopher Walsh. See
"Management--Stock Plans--2000 Non-Employee Director Stock Option Plan" and
"Related Party Transactions."
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EMPLOYMENT AGREEMENTS
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. At the time of commencement of employment, our employees also
generally sign offer letters specifying basic terms and conditions of
employment.
In March 2000, we entered into an agreement with Brian Metcalf, Ph.D. in
connection with his appointment as Senior Vice President and Chief Scientific
Officer. Under the agreement, Dr. Metcalf is entitled to receive an annual
salary of $280,000, a $100,000 sign-on bonus and an option to purchase 100,000
shares of our common stock. In addition, Dr. Metcalf is entitled to a housing
loan up to $400,000 which will be secured by a deed of trust on Dr. Metcalf's
principal residence. In addition, Dr. Metcalf is entitled to five years of
monthly mortgage assistance to support up to a $400,000 mortgage. Either we or
Dr. Metcalf may terminate his employment at any time for any reason. If we
terminate Dr. Metcalf without cause during his first three years of employment,
he will receive twelve months of salary continuation. Further, if such
termination occurred after one year from his date of hire, six additional months
of vesting of his stock options will be accelerated.
In October 1999, we entered into an agreement with Susan M. Kanaya in
connection with her appointment as Vice President, Finance and Chief Financial
Officer. Under the agreement, Ms. Kanaya is entitled to receive an annual salary
of $172,500, a $20,000 sign-on bonus and an option to purchase 50,000 shares of
our common stock. In addition, Ms. Kanaya is entitled to a $50,000 loan to
replace an existing loan arrangement with her former employer, which is forgiven
on the third anniversary date of her employment with us. Either we or
Ms. Kanaya may terminate her employment at any time for any reason. If we
terminate Ms. Kanaya's employment without cause during the first two years of
employment, she will receive six months of salary continuation and an additional
six months of vesting on her stock options. If such termination occurs following
a change in control, the period of salary continuation will be twelve months.
In November 1998, we entered into an agreement with Daniel V. Santi, MD,
Ph.D. in connection with his appointment as our Chief Executive Officer. Under
the agreement, Dr. Santi is entitled to receive an annual base salary of
$250,000, adjusted annually by a minimum of a percentage change equal to the
annual percentage change in the Consumer Price Index, and an option to purchase
250,000 shares of our common stock. Either we or Dr. Santi may terminate his
employment at any time for any reason. If we terminate Dr. Santi without cause,
he will receive a lump sum severance payment in the amount equal to eighteen
months of his then current base salary, and eighteen months accelerated vesting
of the shares subject to the stock option.
In July 1998, we entered into an agreement with Kevin Kaster in connection
with his appointment as Vice President, Intellectual Property. Under the
agreement, Mr. Kaster is entitled to receive an annual base salary of $180,000
and an option to purchase 60,000 shares of our common stock. Either we or
Mr. Kaster may terminate his employment at any time for any reason. If we
terminate Mr. Kaster without cause during the first three and one-half years of
employment, he will receive an amount equal to six months of his then current
base salary and will accelerate the vesting of the lesser of (a) six months of
his original stock option grant and (b) the remainder of his original stock
option grant.
Drs. Santi, Khosla and Metcalf, Messrs. Ostrach and Kaster and Ms. Kanaya
each have stock option or stock purchase agreements which contain acceleration
clauses providing for 100% vesting of the unvested shares in the event of a
change in control.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation that we
paid during 1999 to our Chief Executive Officer and to our four other most
highly compensated executive officers who received salary and bonus compensation
of more than $100,000 during 1999 on an annualized basis. All option grants were
made under our 1996 Stock Option Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS
- --------------------------- -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Daniel V. Santi .................................... $250,812 -- -- --
Chairman and Chief Executive Officer
Michael S. Ostrach ................................. 191,667 -- -- --
Chief Operating Officer
Susan M. Kanaya(1) ................................. 26,870 $20,000 -- 50,000
Vice President, Finance and Chief Financial
Officer
Kevin Kaster ....................................... 190,559 -- -- 12,500
Vice President, Intellectual Property
Daniel Chu(2) ...................................... 172,560 -- $46,800 --
Former Vice President, Research
</TABLE>
- ------------------------
(1) Ms. Kanaya joined Kosan in November 1999. Her annual salary is $172,500.
(2) Dr. Chu resigned as Vice President, Research, effective November 30, 1999.
His other compensation represents a separation payment.
OPTION GRANTS
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and four of our other executive
officers whose salary and bonus was in excess of $100,000 on an annualized basis
during 1999. Options granted to purchase shares of our common stock under our
1996 Stock Option Plan are generally immediately exercisable by the optionee but
are subject to a right of repurchase pursuant to the vesting schedule of each
specific grant. In the event that a purchaser ceases to provide service to us,
we have the right to repurchase any of that person's unvested shares of common
stock at the original option exercise price. The purchase price per share is
equal to the deemed fair market value of our common stock on the date of grant
as determined by our board of directors. The percentage of total options was
calculated based on options to purchase an aggregate of 154,700 shares of common
stock granted under our 1996 Stock Option Plan in 1999. The potential realizable
value was calculated based on the ten-year term of the options and assumed rates
of stock appreciation of 5% and 10%, compounded annually from the date the
options were granted to their expiration date based on the fair market value of
the common stock on the date of grant. These assumed rates of appreciation
comply with the rules of the Securities and Exchange Commission and do not
represent our estimate of our future stock price. For our employees and
officers, 25% of the option grant generally vests on the one-year anniversary of
employment, and the remainder vest in a series of equal monthly installments
beginning on the one-year anniversary of employment and
38
<PAGE>
continuing over the next three years of service. See "Management--Stock Plans"
for a description of the material terms of these options.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
PERCENTAGE OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------------
NAME GRANTED FISCAL YEAR (PER SHARE) DATE 5% 10%
- ---- ---------- ------------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel V. Santi................. -- -- -- -- $ $
Michael S. Ostrach(1)........... -- -- -- --
Susan M. Kanaya(2).............. 50,000 32% $1.00 11/04/09
Kevin Kaster(3)................. 12,500 8% 1.00 08/06/09
Daniel Chu...................... -- -- -- --
</TABLE>
- ------------------------
(1) In February 2000, we granted Mr. Ostrach an option to purchase 25,000 shares
of common stock at an exercise price of $1.25 per share, which was equal to
the fair market value of the common stock on the date of grant as determined
by the board of directors. These options vest over a four-year period from
the date of grant.
(2) In March 2000, we granted Ms. Kanaya an option to purchase 5,000 shares of
common stock at an exercise price of $3.00 per share, which was equal to the
fair market value of the common stock on the date of grant. These options
vest over a four-year period from the date of grant.
(3) In February 2000, we granted Mr. Kaster an option to purchase 12,500 shares
of common stock at an exercise price of $1.25 per share, which was equal to
the fair market value of the common stock on the date of grant as determined
by the board of directors. These options vest over a four-year period from
the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by our Chief
Executive Officer and four of our other most highly compensated executive
officers with annualized base salaries in excess of $100,000 as of December 31,
1999. Options granted to purchase shares of our common stock under our 1996
Stock Option Plan are generally immediately exercisable by optionees but are
subject to a right of repurchase pursuant to the vesting schedule of each
specific grant. The repurchase option generally lapses over a four-year period
with 25% lapsing after the first year and the remainder in equal monthly
installments thereafter over a three-year period. In the event that a purchaser
ceases to provide service to us, we have the right to repurchase any of that
person's unvested shares of common stock at the original option exercise price.
Amounts shown in the value realized column were calculated based on the
difference between the option exercise price and the fair market value of the
common stock on the
39
<PAGE>
date of exercise, without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares of common
stock underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel V. Santi.................. -- -- -- -- --
Michael S. Ostrach............... -- -- 110,000 -- --
Susan M. Kanaya.................. -- -- 50,000 -- --
Kevin Kaster..................... -- -- 72,500 -- --
Daniel Chu....................... -- -- -- -- --
</TABLE>
- ------------------------
(1) Based on an assumed initial public offering price of $ per share, minus
the per-share exercise price, multiplied by the number of shares issued upon
exercise of the option.
(2) The value of unexercised in-the-money options is calculated based on the
difference between an assumed initial public offering price of $ per
share and the exercise price for these shares, multiplied by the number of
shares underlying the option.
STOCK PLANS
1996 STOCK OPTION PLAN
Our 1996 Stock Option Plan was adopted by our board of directors in
June 1996 and approved by the stockholders in June 1996. This plan provides for
the grant of incentive stock options to our employees and nonstatutory stock
options to our employees, directors and consultants. The board of directors
approved amendments to the stock option plan to increase the number of shares
reserved under the stock option plan in October 1998, October 1999 and
March 2000. The stockholders approved these amendments in October, 1998,
November, 1999 and March 2000, respectively. As of March 30, 2000, 1,700,000
shares of common stock were reserved for issuance under this plan. Of these
shares, 701,439 shares were issued upon exercise of stock options, 355,434
shares were subject to outstanding options and 643,127 shares were available for
future grant.
Our board of directors or a committee appointed by the board administers the
stock option plan and determines the terms of options granted, including the
exercise price, the number of shares subject to individual option awards and the
vesting of the options. The exercise price of nonstatutory options must
generally be at least 85% of the fair market value of the common stock on the
date of grant. The exercise price of incentive stock options cannot be lower
than 100% of the fair market value of the common stock on the date of the grant
and, in the case of incentive stock options granted to holders of more than 10%
of our voting power, not less than 110% of the fair market value. The term of an
incentive stock option cannot exceed ten years, and the term of an incentive
stock option granted to a holder of more than 10% of our voting power cannot
exceed five years.
A participant may not transfer rights granted under our stock option plan
other than by will, the laws of descent and distribution or as otherwise
provided under the stock option plan.
Options granted under our stock option plan are immediately exercisable.
Unvested shares are subject to our right of repurchase in the event the
employee, director or consultant ceases his or her employment with us. Our board
of directors may not, without the adversely affected optionee's prior written
consent, amend, modify or terminate the stock option plan if the amendment,
modification or termination would impair the rights of optionees. Our stock
option plan will terminate in 2006 unless terminated earlier by the board of
directors.
40
<PAGE>
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 employee stock purchase plan was adopted by our board of directors
in March 2000, and we expect will be approved by our stockholders in
April 2000. A total of 100,000 shares of our common stock has been reserved for
issuance under the 2000 employee stock purchase plan.
The 2000 purchase plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, contains a 6 month offering period. The offering
period generally starts on the first trading day on or after June 1 and
December 1 of each year, except for the first such offering period which
commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before November 30.
Employees are eligible to participate if they are employed by us for at
least 20 hours per week and more than five months in any calendar year. However,
employees may not be granted an option to purchase stock under the 2000 employee
stock purchase plan if they either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock; or
- hold rights to purchase stock under our employee stock purchase plans
which accrue at a rate which exceeds $25,000 worth of stock for each
calendar year.
The 2000 employee stock purchase plan permits participants to purchase our
common stock through payroll deductions of up to 15% of the participant's
compensation. Compensation is defined as the participant's base gross earnings
but exclusive of incentive compensation and bonuses. The maximum number of
shares a participant may purchase during a single purchase period is 5,000
shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 2000 purchase plan is generally 85% of the lower of the fair
market value of the common stock either:
- at the beginning of the offering period; or
- at the end of the purchase period.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the lower fair market value as of the first date of the
new offering period to determine the purchase price for future purchase periods.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
Rights granted under the 2000 employee stock purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 2000 employee stock purchase
plan. The 2000 employee stock purchase plan provides that, in the event we merge
with or into another corporation or there is a sale of substantially all of our
assets, each outstanding option may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding options, the offering period then in progress
will be shortened and a new exercise date will be set.
The 2000 employee stock purchase plan will terminate in 2010. Our board of
directors has the authority to amend or terminate the 2000 employee stock
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 2000 employee stock purchase plan.
41
<PAGE>
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Non-employee directors are entitled to participate in our 2000 non-employee
director stock option plan, or the director option plan. The director option
plan was adopted by our board of directors in March 2000 and we expect will be
approved by our stockholders in April 2000, but it will not become effective
until the date of this offering. The director option plan has a term of ten
years, unless terminated sooner by our board of directors. A total of 100,000
shares of our common stock have been reserved for issuance under the director
option plan.
The director option plan generally provides for an automatic initial grant
of an option to purchase 2,500 shares of our common stock to each non-employee
director on the date which the later of the following events occur:
- the effective date of the director option plan; or
- the date when a person first becomes a non-employee director.
After the initial grant, a non-employee director will automatically be
granted subsequent options to purchase 1,250 shares of our common stock each
year on the date of our annual stockholder's meeting, if on such date he or she
has served on our board of directors for at least six months. Each initial
option grant and each subsequent option grant shall have a term of 10 years.
Each initial option grant will vest as to 25% of the shares subject to the
option on each anniversary of its date of grant and each subsequent option grant
will vest as to 100% of the shares subject to the option on each anniversary of
its date of grant. The exercise price of all options will be 100% of the fair
market value per share of our common stock on the date of grant.
The director option plan provides that in the event of our merger with or
into another corporation, or a sale of substantially all of our assets, each
option will become fully vested and exercisable for a period of thirty days from
the date our board of directors notifies the optionee of the option's full
exercisability, after which period the option shall terminate. Options granted
under the director option plan must be exercised within three months of the end
of the optionee's tenure as a director of the Company, or within 12 months after
such director's termination by death or disability, but in no event later than
the expiration of the option's ten year term. No option granted under the
director option plan is transferable by the optionee other than by will or the
laws of descent and distribution, and each option is exercisable, during the
lifetime of the optionee, only by the optionee.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION MATTERS
Our certificate of incorporation and bylaws limit the liability of our
directors, officers, employees, and other agents to the fullest extent permitted
by Delaware law. However, we will indemnify a person in connection with a
proceeding initiated by such person only if such proceeding was authorized by
our board. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except for liability for
- breach of their duty of loyalty to the corporation or its stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
42
<PAGE>
We believe that indemnification under our bylaws and certificate of
incorporation covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee, or other agent for any liability arising out of
his or her actions in this capacity, regardless of whether the bylaws permit
indemnification.
We have entered and intend to continue to enter into agreements to indemnify
our directors, in addition to the indemnification provided for in our bylaws.
These agreements, among other things, indemnify our directors and officers for
certain expenses (including attorneys' fees), judgments, fines, and settlement
amounts incurred by any such person in any action or proceeding, including any
action by or in our right arising out of such person's services as one of our
directors or such person's services to any of our subsidiaries or any other
company or enterprise to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and officers. See "Related Party Transactions."
There is no pending litigation or proceeding involving any of our directors
or officers in which indemnification is required or permitted, and we are not
aware of any threatened litigation or proceeding that may result in a claim for
indemnification.
43
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
The following executive officers, directors and holders of more than five
percent of our voting securities purchased securities in the amounts as of the
dates shown below.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
COMMON ------------------------------
STOCK SERIES A SERIES B SERIES C
----------------- -------- -------- --------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Daniel V. Santi, M.D., Ph.D.... 966,498 229,761 24,244 --
Chaitan Khosla, Ph.D........... 587,857 7,143 -- --
5% STOCKHOLDERS
AG Biotech Capital LLC(1)...... -- -- 484,848 16,129
Alta California Partners(2).... 52,263 462,968 5,415 23,654
Alta Embarcadero Partners(2)... 1,552 13,224 237,009 540
Franklin Biotechnology
Discovery Fund............... -- -- -- 387,097
Lombard Odier & Cie............ 363,636 58,065
S.R. One, Limited(3)........... 303,030 16,129
Price per share................ $0.001 to $1.10 $4.20 $8.25 $ 31.00
Date(s) of purchase............ Jan 1995 - Nov 99 Jan 97 Apr 98 Mar 00
</TABLE>
- ------------------------
(1) Peter Davis, one of our directors, is a member of the Executive Committee of
Pulsar International, S.A., an affiliate of AG Biotech Capital LLC.
(2) Jean Deleage, one of our directors, is a general partner of Alta Partners,
an affiliate of Alta California Partners and Alta Embarcadero Partners.
(3) Raymond Whitaker, one of our directors, is Vice President of S.R. One,
Limited, the venture investment affiliate of SmithKline Beecham.
PROMISSORY NOTES. Stock options granted under our 1996 Stock Option Plan
are immediately exercisable as to both vested and unvested shares, with unvested
shares being subject to a right of repurchase in our favor in the event of
termination of employment or consultancy prior to vesting of all shares. These
individuals pay the exercise price for their outstanding options pursuant to
full recourse promissory notes secured by the common stock underlying the
options. The notes bear interest at the Applicable Mid Term Federal Rate at the
time of exercise. Principal and interest is due on the earlier of the employee's
or consultant's termination date or three years after the date of the promissory
note. As of February 29, 2000, the original and outstanding principal amounts of
each promissory note by a director or executive officer are set forth below.
<TABLE>
<CAPTION>
ORIGINAL AND
OUTSTANDING NOTE
DIRECTOR OR EXECUTIVE OFFICER ISSUANCE DATE AMOUNT
- ----------------------------- -------------- ----------------
<S> <C> <C>
Daniel V. Santi............................. December 1998 $275,000
Michael S. Ostrach.......................... February 2000 74,250
Susan M. Kanaya............................. February 2000 50,000
Kevin Kaster................................ February 2000 72,500
Chaitan Khosla.............................. September 1999 71,500
</TABLE>
CONSULTING AGREEMENTS. In December 1998, we entered into an amended and
restated consulting agreement with our co-founder and director, Dr. Chaitan
Khosla. Under the terms of this agreement, Dr. Khosla is entitled to receive
consulting fees of not less than $100,000 per year and was granted an
44
<PAGE>
option to purchase 65,000 shares of our common stock at an exercise price of
$1.10 per share which vest over a four year period. During 1999, total
consulting fees paid to Dr. Khosla totaled $104,279. Either Kosan or Dr. Khosla
may terminate his consultancy at any time for any reason. If we terminate
Dr. Khosla without cause or as a result of a change in control, he will receive
the greater of (i) any compensation payable during the extended term of his
consulting agreement or (ii) an amount equal to two times his then-current
annual compensation. Further, all of Dr. Khosla's stock options and other
similar equity rights will immediately vest in full.
In December 1995, we entered into a consulting agreement with our director,
Dr. Christopher Walsh. Under the terms of this agreement, Dr. Walsh is entitled
to receive $1,000 per day for consultations and entered into a restricted stock
purchase agreement which provided for the purchase of 20,000 shares of common
stock at a purchase price of $0.002 per share, which vest over five years. In
March 2000, we granted Dr. Walsh an additional option to purchase 5,000 shares
of common stock at a purchase price of $3.00 per share, which vest over a
four-year period.
INDEMNIFICATION AGREEMENTS. We have entered into indemnification agreements
with Drs. Davis, Deleage, Khosla, Santi, Walsh and Whitaker, Mr. Ostrach,
Ms. Kanaya and Mr. Kaster. We intend to enter into indemnification agreements
with all of our directors and officers for the indemnification of those persons
to the full extent permitted by law. We also intend to execute these agreements
with our future directors and officers.
STOCK OPTIONS. Stock option grants to our executive officers and directors
are described in this prospectus under the captions "Management--Compensation of
Directors", "--Executive Compensation" and "--Option Grants".
45
<PAGE>
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
The following table sets forth information with respect to beneficial
ownership of our common stock as of March 30, 2000, as adjusted to reflect the
sale of common stock in this offering. Information is given for:
- each stockholder who is known by us to beneficially own more than five
percent of our common stock;
- our Chief Executive Officer and each of our four other most highly
compensated executive officers whose compensation on an annualized basis
exceeded $100,000 in 1999;
- each of our directors and executive officers; and
- all of our directors and officers as a group.
Percentage of ownership in the following table is calculated based on
6,250,321 shares of our common stock outstanding as of March 30, 2000 and
shares of common stock outstanding after completion of this offering.
Beneficiary ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person are deemed
outstanding. Those shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. Except as indicated
in the footnotes to the table, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
AMOUNT OF SHARES BENEFICIALLY OWNED
AS OF MARCH 30, 2000
-----------------------------------------
PERCENTAGE OF TOTAL
OUTSTANDING SHARES
BENEFICIALLY OWNED
-------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------- -------- --------
<S> <C> <C> <C>
Daniel V. Santi, M.D., Ph.D.(1)......................... 1,220,503 19.5%
Alta Partners (2)....................................... 796,625 12.8%
AG Biotech Capital (3).................................. 500,977 8.0%
Lombard Odier & Cie (4)................................. 421,701 6.8%
Franklin Biotechnology Discovery Fund (5)............... 387,097 6.2%
S.R. One, Limited (6)................................... 319,159 5.1%
Peter Davis, Ph.D. (7).................................. 500,977 8.0%
Jean Deleage, Ph.D. (8)................................. 796,625 12.8%
Chaitan Khosla, Ph.D. (9)............................... 595,000 9.5%
Christopher Walsh, Ph.D. (10)........................... 26,500 *
Raymond Whitaker, Ph.D. (11)............................ 319,159 5.1%
Michael S. Ostrach (12)................................. 135,000 2.2%
Brian W. Metcalf, Ph.D. (13)............................ 100,000 1.6%
Susan M. Kanaya (14).................................... 55,000 *
Kevin Kaster (15)....................................... 85,000 1.4%
Daniel Chu (16)......................................... 22,500 *
All directors and executive officers as a group (10
persons)(17).......................................... 3,856,264 61.7%
</TABLE>
- ------------------------
* Less than one percent (1%)
(1) Includes 161,458 shares that are subject to our right of repurchase as of
March 30, 2000 if Dr. Santi is no longer an employee, director or
consultant with us. Dr. Santi is located at 3832 Bay Center Place, Hayward,
CA 94545.
46
<PAGE>
(2) Alta Partners is located at One Embarcadero Center, Suite 4050, San
Francisco, CA 94111. Includes 544,300 shares that are held by Alta
California Partners, L.P. and 252,325 shares that are held by Alta
Embarcadero Partners, LLC.
(3) AG Biotech Capital, LLC is located at AG Biotech Capital LLC, c/o Viridian
Management, LLC, 686 N. DuPont Boulevard #200, Milford, DE 19963.
(4) Lombard Odier & Cie is located at Sihlstrasse 20, 8021 Zurich, Switzerland.
(5) Franklin Biotechnology Discovery Fund is located at 777 Mariners Island
Blvd., San Mateo, CA 94404
(6) S.R. One, Limited is located at Four Tower Bridge, West Conshohoken, PA
19428.
(7) Includes 500,977 shares that are held by AG Biotech Capital LLC. Dr. Davis,
one of our directors, is a member of the Executive Committee of Pulsar
International, S.A., an affiliate of AG Biotech Capital. Dr. Davis
disclaims beneficial ownership of the shares held by AG Biotech Capital
except to the extent of his proportionate pecuniary interest therein.
Dr. Davis is located c/o Pulsar International, 1 Tower Bridge, West
Conshohoken, PA 19428.
(8) Consists of 796,625 shares held directly by Alta Partners. Dr. Deleage, one
of our directors, is the managing general partner of Alta Partners and
disclaims beneficial ownership of such shares except to the extent of his
proportionate pecuniary interest therein. Dr. Deleage is located at One
Embarcadero Center, Suite 4050, San Francisco, CA 94111.
(9) Includes 46,041 shares that are subject to our right of repurchase as of
March 30, 2000 if Dr. Khosla is no longer an employee, director or
consultant with us. Dr. Khosla is located at 3832 Bay Center Place,
Hayward, CA 94545.
(10) Includes the following:
(i) 3,333 shares that are subject to our right of repurchase as of
March 30, 2000; and
(ii) 6,500 shares that are subject to option as of March 30, 2000, of
which 5,687 would be subject to our right of repurchase if Dr.
Walsh is no longer an employee, director or consultant with us.
(11) Includes 319,159 shares that are held by S.R. One, Limited. Dr. Whitaker,
one of our directors, is Vice President of S.R. One, Limited, the venture
investment affiliate of SmithKline Beecham. Dr. Whitaker disclaims
beneficial ownership of the shares held by S.R. One, Limited except to the
extent of his proportionate pecuniary interest therein. Dr. Whitaker is
located at Four Tower Bridge, West Conshohoken, PA 19428.
(12) Includes the following.
(i) 52,916 shares that are subject to our right of repurchase as of
March 30, 2000; and
(ii) 25,000 shares that are subject to option as of March 30, 2000, of
which 24,479 would be subject to our right of repurchase if Mr.
Ostrach is no longer an employee, director or consultant with us.
(13) Includes 100,000 shares that are subject to option as of March 30, 2000,
all of which would subject to our right of repurchase if Dr. Metcalf is no
longer an employee, director or consultant with us.
(14) Includes the following:
(i) 50,000 shares that are subject to our right of repurchase as of
March 30, 2000; and
(ii) 5,000 shares that are subject to option as of March 30, 2000, all
of which would be subject to our right of repurchase if Ms. Kanaya
is no longer an employee, director or consultant with us.
(15) Includes the following:
(i) 46,927 shares that are subject to our right of repurchase as of
March 30, 2000; and
(ii) 12,500 shares that are subject to option as of March 30, 2000, of
which 12,239 would be subject to our right of repurchase if Mr.
Kaster is no longer an employee, director or consultant with us.
(16) Dr. Chu resigned as Vice President, Research, effective November 30, 1999.
(17) Includes shares included pursuant to notes (1) and (8) through (16) above.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
Our certificate of incorporation, the filing of which will occur at the
closing of this offering, authorizes the issuance of up to 200,000,000 shares of
common stock, par value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share, the rights and preferences of which may be
established from time to time by our board of directors. As of March 30, 2000,
after giving effect to the conversion of all of our preferred stock into common
stock, 6,250,321 shares of common stock were outstanding. As of March 30, 2000,
we had 99 stockholders.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the board of directors out of funds legally available
therefor. In the event of our liquidation, dissolution or winding up, holders of
common stock will be entitled to share in our assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights, and there
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and the shares of common stock offered
by us in this offering, when issued and paid for, will be, fully paid and
nonassessable. The rights, preferences and privileges of the holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock, which we may designate in
the future.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations prescribed by law, without stockholder
approval, from time to time to issue up to an aggregate of 10,000,000 shares of
preferred stock, $0.001 par value per share, in one or more series, each of such
series to have such rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by the board of directors. The rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We have no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to the Third Amended and Restated Registration Rights Agreement
entered into between us and holders of 4,408,827 shares of common stock and
holders of shares of common stock issuable upon conversion of our Series A,
Series B and Series C preferred stock, we are obligated, under limited
circumstances and subject to specified conditions and limitations, to use our
reasonable best efforts to register the registrable shares.
We must use our reasonable best efforts to register shares subject to such
registration rights if we:
- receive written notice from holders of 50% or more of the registrable
shares requesting that we effect a registration with respect to at least
20% of the registrable shares then held by the holders requesting
registration;
- decide to register our own securities; or
48
<PAGE>
- both receive written notice from any holder or holders of the registrable
shares requesting that we effect a registration on Form S-3 (a shortened
form of registration statement) with respect to the registrable shares,
and are then eligible to use Form S-3 (which at the earliest could occur
12 calendar months after the closing of this offering).
However, in addition to certain other conditions and limitations, if we are
proposing to issue registered shares and the underwriters request to decrease
the number of shares registered, we can limit the number of registrable shares
included in the registration statement. The underwriters have requested that no
registrable shares be registered in this offering. In addition, the holders of
these registration rights have entered into lockup agreements and waived their
registration rights until 180 days following the completion of this offering.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
Certain provisions of our certificate of incorporation and bylaws may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. Certain of these provisions will
create a classified board of directors, will allow us to issue preferred stock
without any vote or further action by the stockholders, require advance
notification of stockholder proposals and nominations of candidates for election
as directors, eliminate cumulative voting in the election of directors and
eliminate shareholder action by written consent. In addition, our bylaws will
provide that special meetings of the stockholders may be called only by the
Chairman of the Board, the President, or board of directors and that the
authorized number of directors may be changed only by resolution of the board of
directors. These provisions may make it more difficult for stockholders to take
certain corporate actions and could have the effect of delaying or preventing a
change in our control.
In addition, we will be subject to Section 203 of the Delaware General
Corporation Law. This law prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder, unless any of the
following conditions are met. First, this law does not apply if prior to the
date of the transaction, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder. Second, the law does not apply
if upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by persons who are directors and also
officers and by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer. Third, the law does not apply if
at or after the date of the transaction, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is Chase Mellon
Shareholder Services LLC.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could reduce prevailing market prices. Furthermore, since certain shares
will not be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after any
restrictions on sale lapse could adversely affect the prevailing market price of
the common stock and impair our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares of
common stock, assuming no exercise of the over-allotment option and no exercises
of outstanding options after , 2000. Of these shares, all of the
shares sold in the public offering will be freely tradable without restriction
or further registration under the Securities Act, unless these shares are
purchased by affiliates. The remaining 6,250,321 shares of common stock held by
existing stockholders are restricted securities. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration described below under Rules 144, 144(k) or 701 promulgated
under the Securities Act.
As a result of contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, the restricted shares will be available for sale
in the public market as follows:
- unless held by affiliates, the shares sold in the public
offering will be freely tradable upon completion of the offering;
- 5,147,478 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus; and
- 66,853 shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
LOCK-UP AGREEMENTS
All of our directors, officers, employees and other stockholders, who
together hold all of our securities, have entered into lock-up agreements in
connection with this offering. These lock-up agreements generally provide that
these holders will not offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of our common stock or any securities exercisable
for or convertible into our common stock owned by them for a period of 180 days
after the date of this prospectus without the prior written consent of Warburg
Dillon Read LLC. Notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
may not be sold until these agreements expire or are waived by Warburg Dillon
Read LLC.
RULE 144
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; and
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
50
<PAGE>
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
RULE 701
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract to resell such shares in reliance upon Rule 144, but without compliance
with certain restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 90 days after effectiveness without complying
with the holding period requirement and that non-affiliates may sell such shares
in reliance on Rule 144 90 days after effectiveness without complying with the
holding period, public information, volume limitation or notice requirements of
Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 4,408,827 shares of our
common stock, or their transferees, will be entitled to rights with respect to
the registration of their shares under the Securities Act. Registration of their
shares under the Securities Act would result in these shares becoming freely
tradeable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of such
registration.
STOCK OPTIONS
We intend to file a registration statement under the Securities Act after
the effective date of this offering to register shares to be issued pursuant to
our employee and director benefit plans. As a result, any options or rights
exercised under the 1996 stock option plan, the 2000 employee stock purchase
plan and the 2000 non-employee directors' stock option plan will also be freely
tradable in the public market. However, shares held by affiliates will still be
subject to the volume limitation, manner of sale, notice and public information
requirements of Rule 144, unless otherwise resalable under Rule 701. As of
March 30, 2000, we had granted options to purchase 355,434 shares of common
stock that had not been exercised, of which options to purchase 48,063 shares
were both exercisable and not subject to a right of repurchase in our favor.
51
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
We have entered into an underwriting agreement with the underwriters named
below. Warburg Dillon Read LLC, CIBC World Markets Corp., and Prudential
Securities Incorporated are acting as representatives of the underwriters.
The underwriting agreement will provide for the purchase of a specific
number of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specific number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter will severally agree to purchase
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ---- ----------------
<S> <C>
Warburg Dillon Read LLC.....................................
CIBC World Markets Corp.....................................
Prudential Securities Incorporated..........................
-----
Total...................................................
=====
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The representatives have advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a concession
of $ per share. The underwriters may also allow to dealers, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
We have granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of additional shares of
our common stock to cover over-allotments. If the underwriters exercise all or
part of this option, they will purchase shares covered by the option at the
public offering price that appears on the cover page of this prospectus, less
the underwriting discount. If this option is exercised in full, the underwriters
will purchase shares from us, the total price to the public will be
, and the total proceeds to us will be . The underwriters have
severally agreed that, to the extent the over-allotment option is exercised,
each of the underwriters will purchase a number of additional shares
proportionate to its initial amount reflected in the above table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us:
<TABLE>
<CAPTION>
PAID BY US
---------------------------------------------
NO EXERCISE OF FULL EXERCISE OF
OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------------------- ---------------------
<S> <C> <C>
Per Share.............................. $ $
Total.................................. $ $
</TABLE>
We estimate that the total expenses of this offering, excluding the
underwriter discount, will be approximately $ .
52
<PAGE>
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act.
We and our directors, executive officers, and all of the holders of our
common stock and securities convertible into or exercisable or exchangeable for
common stock issued prior to this offering, have agreed pursuant to certain
lock-up agreements with the underwriters that we and they will not offer, sell,
contract to sell, pledge, grant any option to sell, or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exercisable or exchangeable for our common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Warburg Dillon Read LLC. Warburg Dillon Read LLC, in its sole discretion, may
release the shares subject to the lock-up agreements in whole or in part at any
time with or without notice. However, Warburg Dillon Read LLC has no current
plan to do so.
At our request, the underwriters have reserved for offer and sale at the
initial public offering price up to shares of our common stock for our
officers, directors, employees, clients, friends and related persons who express
an interest in purchasing these shares. The number of shares of our common stock
available for sale to the general public will be reduced to the extent these
persons purchase these reserved shares. The underwriters will offer any shares
not so purchased by these persons to the general public on the same basis as the
other shares in this initial public offering.
Warburg Dillon Read LLC and CIBC World Markets Corp. intend to distribute
and deliver this prospectus only by hand or mail and intend to use only printed
prospectuses. Prudential Securities Incorporated facilitates the marketing of
new issues online through its PrudentialSecurities.com division. Clients of
Prudential advisors may view offering terms and this prospectus online.
Prior to this offering, there has been no public market for our common
stock. Consequently, the offering price for our common stock will be determined
by negotiations between us and the underwriters and will not necessarily be
related to our asset value, net worth or other established criteria of value.
The factors to be considered in these negotiations, in addition to prevailing
market conditions, will include the history of and prospects for the industry in
which we compete, an assessment of our management, our prospects, our capital
structure and certain other factors as are deemed relevant.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of shares is
completed. However, the underwriters may engage in the following activities in
accordance with the rules:
- STABILIZING TRANSACTIONS--The representatives may make bids for or
purchases of the shares for the purpose of pegging, fixing or maintaining
the price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
- OVER-ALLOTMENTS AND SYNDICATE COVERING TRANSACTIONS--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with this offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
- PENALTY BIDS--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of these transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If these transactions are commenced, they may be discontinued at any time
without notice. The underwriters do not expect sales to discretionary accounts
to exceed five percent of the total number of shares offered.
53
<PAGE>
LEGAL MATTERS
- --------------------------------------------------------------------------------
Wilson Sonsini Goodrich & Rosati, PC, will pass upon the validity of the
issuance of the shares of common stock offered by this prospectus. The
underwriters have been represented by Brobeck, Phleger & Harrison LLP. An
investment partnership composed of current and former members of and persons
associated with Wilson Sonsini Goodrich & Rosati, PC, beneficially owns 5,479
shares of our common stock.
CHANGE IN INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
Effective May 28, 1998, Ernst & Young LLP was engaged as our independent
accountants and replaced Coopers & Lybrand L.L.P. (now, PricewaterhouseCoopers
LLP), who were dismissed as our independent accountants in May 1998. The
decision to change accountants was approved by our Board of Directors. The audit
reports of PricewaterhouseCoopers LLP for the years ended December 31, 1997 and
1996 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principle. In
connection with its audits through December 31, 1997 and through May 1998, there
were no disagreements with PricewaterhouseCoopers LLP on any matter of
accounting principles or practices, financial statements disclosure or auditing
scope or procedures, which disagreements, if not resolved to their satisfaction
would have caused them to make reference in connection with their opinion to the
subject matter of the disagreement. PricewaterhouseCoopers LLP has not audited
or reported on any of the financial statements or information included in this
prospectus. For purposes of this filing, the financial statements at December
31, 1997, 1996 and 1995 as well as the financial statements for the years ended
December 31, 1997 and 1996 and the period from inception (January 5, 1995) to
December 31, 1995 have been audited by Ernst & Young LLP. Prior to May 28, 1998,
we had not consulted with Ernst & Young LLP on items that involved our
accounting principles or the form of audit opinion to be issued on our financial
statements.
EXPERTS
- --------------------------------------------------------------------------------
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999 and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
- --------------------------------------------------------------------------------
We have filed with the Securities and Exchange Commission, Washington, D.C.,
a registration statement on Form S-1 under the Securities Act, with respect to
the common stock offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules to the registration statement. For further information with
respect to us and our common stock, reference is made to the registration
statement and the exhibits and schedules filed as part of the registration
statement. Statements contained in this prospectus as to the contents of any
contract or document filed as an exhibit to the registration statement are
qualified by reference to the applicable exhibit as filed.
A copy of the registration statement, and the exhibits and schedules to the
registration statement, as well as reports and other information filed by us
with the SEC may be inspected without charge at
54
<PAGE>
the public reference facilities maintained by the SEC in Room 1025, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13(th) Floor, New York, New York
10048, and copies of all of any part of the registration statement may be
obtained from those offices upon the payment of the fees prescribed by the SEC.
You can obtain information about the operation of the public reference
facilities by calling the SEC at 1-800-SEC-0330. In addition, registration
statements and other filings we make with the SEC through its electronic data
gathering, analysis and retrieval, or EDGAR, system, including our registration
statement, are publicly available through the Internet. The SEC maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
SEC's web site is http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with the Exchange
Act, will file periodic reports, proxy statements and other information with the
SEC.
55
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999.......................... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Kosan Biosciences Incorporated
We have audited the accompanying balance sheets of Kosan Biosciences
Incorporated as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kosan Biosciences
Incorporated at December 31, 1998 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
Palo Alto, California
March 10, 2000
F-2
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,049 $ 1,032
Short-term investments.................................... 3,279 990
Other receivables......................................... 168 498
Prepaid expenses and other current assets................. 209 325
------- --------
Total current assets........................................ 6,705 2,845
Property and equipment, net................................. 1,407 2,587
Long-term investments....................................... 9,073 8,442
Notes receivable from related party......................... 12 87
Other assets................................................ 4 196
------- --------
Total assets................................................ $17,201 $ 14,157
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 333 $ 486
Accrued liabilities....................................... 98 626
Deferred revenue.......................................... 1,719 409
Current portion of capital lease obligation............... 118 127
Current portion of equipment loan......................... 170 447
------- --------
Total current liabilities................................... 2,438 2,095
Equipment loan, less current portion........................ 700 1,424
Capital lease obligation, less current portion.............. 304 167
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 4,348,182
shares authorized, 3,269,377 shares issued and
outstanding at December 31, 1998 and 1999 (none pro
forma) (aggregate liquidation preference of $21,095 at
December 31, 1999)...................................... 3 3 $ --
Common stock, $0.001 par value, 12,000,000 shares
authorized, 1,729,317 and 1,826,848 shares issued and
outstanding at December 31, 1998 and 1999, respectively
(5,096,225 shares issued and outstanding pro forma)..... 2 2 5
Additional paid-in capital................................ 21,230 24,851 24,851
Notes receivable from stockholders........................ (275) (349) (349)
Deferred stock compensation............................... -- (2,377) (2,377)
Accumulated other comprehensive income (loss)............. (9) (66) (66)
Accumulated deficit....................................... (7,192) (11,593) (11,593)
------- -------- -------
Total stockholders' equity.................................. 13,759 10,471 $10,471
------- -------- -------
Total liabilities and stockholders' equity.................. $17,201 $ 14,157
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Contract revenue........................................ $ 10 $ 974 $ 5,206
Grant revenue........................................... 277 262 140
------- ------- -------
Total revenues............................................ 287 1,236 5,346
Operating expenses:
Research and development................................ 1,922 4,030 7,623
General and administrative.............................. 457 991 1,632
Amortization of stock-based compensation................ -- -- 535
Other stock-based compensation.......................... -- -- 610
------- ------- -------
Total operating expenses.................................. 2,379 5,021 10,400
------- ------- -------
Loss from operations...................................... (2,092) (3,785) (5,054)
Interest income........................................... 154 598 679
Interest expense.......................................... (56) (80) (196)
Other income.............................................. -- -- 170
------- ------- -------
Net loss.................................................. $(1,994) $(3,267) $(4,401)
======= ======= =======
Basic and diluted net loss per share........................ $ (1.46) $ (2.30) $ (2.93)
======= ======= =======
Shares used in computing basic and diluted net loss per
share..................................................... 1,365 1,423 1,503
Pro forma net loss per share (unaudited).................... $ (0.92)
=======
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)................................ 4,772
</TABLE>
See accompanying notes.
F-4
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED
---------------------- ---------------------- PAID-IN FROM STOCK-BASED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
--------- ---------- --------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996...... 1,215,988 $ 2 1,156,095 $ 1 $ 3,649 $ -- --
Conversion of Series A convertible
preferred stock to common
stock............................ (213,722) (1) 213,722 1 -- -- --
Conversion of Series B convertible
preferred stock to Series A
convertible preferred stock and
common stock..................... (122,500) -- 122,500 -- -- -- --
Issuance of Series A convertible
preferred stock, net of issuance
costs of $15..................... 571,429 -- -- -- 2,384 -- --
Repurchase of common stock......... -- -- (6,800) -- -- -- --
Net loss........................... -- -- -- -- -- -- --
--------- ---------- --------- ---------- ------- ----- -------
BALANCES AT DECEMBER 31, 1997...... 1,451,195 1 1,485,517 2 6,033 -- --
Issuance of common stock upon
exercise of options.............. -- -- 4,008 -- 1 -- --
Issuance of common stock upon
exercise of options in exchange
for promissory note.............. -- -- 250,000 -- 275 (275) --
Issuance of Series B convertible
preferred stock, net of issuance
costs of $77..................... 1,818,182 2 -- -- 14,921 -- --
Repurchase of common stock......... -- -- (10,208) -- -- -- --
Comprehensive income (loss):
Net loss......................... -- -- -- -- -- -- --
Unrealized loss on
available-for-sale
securities..................... -- -- -- -- -- -- --
Comprehensive loss................. -- -- -- -- -- -- --
--------- ---------- --------- ---------- ------- ----- -------
BALANCES AT DECEMBER 31, 1998...... 3,269,377 3 1,729,317 2 21,230 (275) --
Issuance of common stock upon
exercise of options.............. -- -- 26,906 -- 25 -- --
Issuance of common stock upon
exercise of options in exchange
for promissory note.............. -- -- 70,625 -- 74 (74) --
Deferred stock compensation........ -- -- -- -- 2,912 -- (2,912)
Amortization of deferred stock
compensation..................... -- -- -- -- -- -- 535
Revaluation of stock options issued
to non-employees................. -- -- -- -- 610 -- --
Comprehensive income (loss):
Net loss......................... -- -- -- -- -- -- --
Unrealized loss on
available-for-sale
securities..................... -- -- -- -- -- -- --
Comprehensive loss................. -- -- -- -- -- -- --
--------- ---------- --------- ---------- ------- ----- -------
BALANCES AT DECEMBER 31, 1999...... 3,269,377 $ 3 1,826,848 $ 2 $24,851 $(349) $(2,377)
========= ========== ========= ========== ======= ===== =======
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
INCOME (LOSS) DEFICIT EQUITY
-------------- ------------ -------------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996...... $ -- $ (1,931) $ 1,721
Conversion of Series A convertible
preferred stock to common
stock............................ -- -- --
Conversion of Series B convertible
preferred stock to Series A
convertible preferred stock and
common stock..................... -- -- --
Issuance of Series A convertible
preferred stock, net of issuance
costs of $15..................... -- -- 2,384
Repurchase of common stock......... -- -- --
Net loss........................... -- (1,994) (1,994)
---- --------- -------
BALANCES AT DECEMBER 31, 1997...... -- (3,925) 2,111
Issuance of common stock upon
exercise of options.............. -- -- 1
Issuance of common stock upon
exercise of options in exchange
for promissory note.............. -- -- --
Issuance of Series B convertible
preferred stock, net of issuance
costs of $77..................... -- -- 14,923
Repurchase of common stock......... -- -- --
Comprehensive income (loss):
Net loss......................... -- (3,267) (3,267)
Unrealized loss on
available-for-sale
securities..................... (9) -- (9)
-------
Comprehensive loss................. -- -- (3,276)
---- --------- -------
BALANCES AT DECEMBER 31, 1998...... (9) (7,192) 13,759
Issuance of common stock upon
exercise of options.............. -- -- 25
Issuance of common stock upon
exercise of options in exchange
for promissory note.............. -- -- --
Deferred stock compensation........ -- -- --
Amortization of deferred stock
compensation..................... -- -- 535
Revaluation of stock options issued
to non-employees................. -- -- 610
Comprehensive income (loss):
Net loss......................... -- (4,401) (4,401)
Unrealized loss on
available-for-sale
securities..................... (57) -- (57)
-------
Comprehensive loss................. -- -- (4,458)
---- --------- -------
BALANCES AT DECEMBER 31, 1999...... $(66) $ (11,593) $10,471
==== ========= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(1,994) $(3,267) $(4,401)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 122 246 654
Amortization of stock-based compensation................ -- -- 535
Other stock-based compensation.......................... -- -- 610
Loss on sale of investments............................. -- -- 41
Loss on disposal of property and equipment.............. -- -- 10
Changes in assets and liabilities:
Other receivables..................................... (136) (8) (330)
Prepaid expenses and other current assets............. (42) (156) (116)
Other assets and notes receivable from related
parties............................................. 8 28 (267)
Accounts payable...................................... 8 282 153
Accrued liabilities................................... 46 (17) 528
Deferred revenue...................................... (8) 1,719 (1,310)
------- ------- -------
Net cash used in operating activities............... (1,996) (1,173) (3,893)
------- ------- -------
INVESTING ACTIVITIES
Acquisition of property and equipment, net................ (111) (1,173) (1,828)
Proceeds from sale of property and equipment.............. 324 -- 2
Purchase of investments................................... (1,914) (21,419) (11,929)
Proceeds from maturity of investments..................... -- 10,972 14,733
------- ------- -------
Net cash provided by (used in) investing
activities........................................ (1,701) (11,620) 978
------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... -- 1 25
Proceeds from issuance of convertible preferred stock, net
of issuance costs....................................... 2,385 14,923 --
Proceeds from equipment loans............................. -- 870 1,336
Principal payments under capital lease obligations........ (48) (34) (128)
Principal payments under equipment loans.................. -- (23) (335)
------- ------- -------
Net cash provided by financing activities........... 2,337 15,737 898
------- ------- -------
Net decrease in cash and cash equivalents................... (1,360) 2,944 (2,017)
Cash and cash equivalents at beginning of period............ 1,465 105 3,049
------- ------- -------
Cash and cash equivalents at end of period.................. $105 $3,049 $1,032
======= ======= =======
SUPPLEMENTAL DISCLOSURES
Interest expense paid in cash............................... $56 $80 $196
======= ======= =======
NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock under note receivable.............. $-- $275 $74
Fixed assets acquired under capital lease................... 403 35 --
Deferred stock-based compensation........................... -- -- 2,912
</TABLE>
See accompanying notes.
F-6
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OVERVIEW
Kosan Biosciences Incorporated (the "Company") was incorporated under the
laws of the state of California on January 6, 1995. The Company was considered
to be in the development stage through December 31, 1998. The Company is engaged
in the discovery and development of pharmaceuticals by genetic manipulation of
biosynthetic pathways of natural products, with an initial focus on polyketides.
The Company's technology permits modifications of polyketides not feasible by
chemical methods, and over-expression of scarce polyketides in optimized hosts.
Therapeutic targets for the Company's compounds include infectious disease,
gastrointestinal motility disorders, mucus hypersecretion, cancer, nerve
regeneration and immunosuppression.
The Company has funded its operations primarily through sales of preferred
stock, contract payments under our collaboration agreement, equipment financing
arrangements and government grants. Prior to achieving profitable operations,
the Company intends to fund operations through the additional sale of equity
securities, strategic collaborations and debt financing.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
UNAUDITED PRO FORMA INFORMATION
If the Company's initial public offering, or IPO, as described in Note 11 is
consumated, all of the preferred stock outstanding will automatically be
converted into common stock. The unaudited pro forma convertible preferred stock
and stockholders' equity at December 31, 1999 has been adjusted for the assumed
conversion of preferred stock based on the shares of preferred stock outstanding
at December 31, 1999.
CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. The Company
limits its concentration of risk by diversifying its investments among a variety
of issuers.
The Company classifies all investment securities as available-for-sale in
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115").
Available-for-sale investments are recorded at fair value determined based on
quoted market prices, with unrealized gains and losses excluded from earnings
and reported in other comprehensive income. Purchase premiums and discounts are
recognized in interest income using the interest method over the terms of the
securities. Declines in the fair value of available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings
as realized losses. Gains and losses on the sale of securities are recorded on
the trade date and are determined using the specific identification method.
F-7
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of three to five years. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the lease term.
REVENUE RECOGNITION
The Company recognizes license and other upfront fees on a ratable basis
over the term on the respective agreement. Milestone payments are recognized
pursuant to the terms of the agreement upon the achievement of the specified
milestones. Contract revenues related to collaborative research and development
agreements and government grants are recognized based on the timing of the
performance of services. Any amounts received in advance of performance are
recorded as deferred revenue.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of costs incurred for
Company-sponsored and collaborative research and development activities. These
costs consist of direct and indirect internal costs related to specific projects
as well as fees paid to other entities which conduct certain research activities
on behalf of the Company. Research and development expenses under the government
grants and collaborative agreements approximated the revenue recognized under
such arrangements for the years ended December 31, 1998 and 1999.
NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in conformity with
the Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), for all periods presented. Following the guidance given by the
Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock that has been issued or granted for
nominal consideration prior to the anticipated effective date of the initial
public offering must be included in the calculation of the basic and diluted net
loss per common share as if these shares had been outstanding for all periods
presented. To date, the Company has not issued or granted shares for nominal
consideration.
In accordance with SFAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Diluted net loss is not
presented separately as the Company is in a net loss position. Pro forma basic
and diluted net loss per common share, as presented in the statement of
operations, has been computed for the year ended December 31, 1999 as described
above, and also gives effect to the conversion of the convertible preferred
stock which will automatically convert to common stock immediately prior to the
completion of the Company's initial public offering (using the if-converted
method) from the original date of issuance.
F-8
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculation of basic, diluted and pro forma
basic and diluted net loss per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss.................................................... $(1,994) $(3,267) $(4,401)
Weighted-average shares of common stock outstanding......... 1,458 1,484 1,758
Less: weighted-average shares subject to repurchase......... (93) (61) (255)
------- ------- -------
Weighted-average shares used in computing basic
and diluted net loss per share............................ 1,365 1,423 1,503
======= ======= =======
Basic and diluted net loss per share........................ ($ 1.46) $ (2.30) $ (2.93)
======= ======= =======
Pro forma:
Shares used above........................................... 1,503
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock
(unaudited)............................................... 3,269
-------
Shares used in computing pro forma basic
and diluted net loss per share (unaudited)................ 4,772
=======
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.92)
=======
</TABLE>
The Company has excluded all convertible preferred stock, outstanding stock
options and shares subject to repurchase from the calculation of diluted net
loss per common share because all such securities are antidilutive for all
applicable periods presented. The total number of shares excluded from the
calculations of diluted net loss per share, prior to application of the treasury
stock method for options was 34,800, 471,600 and 455,900 for the years ended
December 31, 1997, 1998 and 1999, respectively. Such securities, had they been
dilutive, would have been included in the computations of diluted net loss per
share. See Note 9 for further information on these securities.
STOCK-BASED COMPENSATION
The Company accounts for common stock options granted to employees using the
intrinsic value method and, thus, recognizes no compensation expense for options
granted with exercise prices equal to or greater than the deemed fair value of
the Company's common stock on the date of the grant.
Stock compensation expense for options granted to non-employees has been
determined in accordance with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and EITF 96-18
as the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measured. The measurement of
stock-based compensation to non-employees is subject to periodic adjustment as
the underlying securities vest.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), at December 31, 1998. Under
SFAS 130, the Company is
F-9
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
required to display comprehensive income and its components as part of the
Company's full set of financial statements. Comprehensive income is comprised of
net income and other comprehensive income. Other comprehensive income includes
certain changes in equity of the Company that are excluded from net income.
Specifically, SFAS 130 requires unrealized holding gains and losses on the
Company's available-for-sale securities, which were reported separately in
shareholders' equity, to be included in accumulated other comprehensive income.
INCOME TAXES
Since inception, the Company has recognized income taxes under the liability
method. Deferred income taxes are recognized for differences between the
financial statement and tax basis of assets and liabilities at enacted statutory
tax rates in effect for years in which the differences are expected to reverse.
The effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. In addition, valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
SEGMENT REPORTING
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 established standards for the way companies
report information about operating segments in annual financial statements. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company did not have any separately
reportable business segments as of December 31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 requires the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through net income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of asset,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. SFAS 133
is effective for years beginning after June 15, 2000. The Company does not
currently hold any derivatives and does not expect this pronouncement to
materially impact the results of its operations.
REVENUE RECOGNITION
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company believes that its current revenue recognition principles
comply with SAB 101.
F-10
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE COSTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 requires the capitalization of certain
costs incurred in connection with developing or obtaining internal use software.
The Company has no capitalized software at December 31, 1999, therefore, the
adoption of this statement did not have a significant impact on the Company's
results of operations or financial condition.
2. COLLABORATIVE RESEARCH AND DEVELOPMENT AND LICENSE AGREEMENTS
THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE
In September 1998, the Company signed a collaborative agreement with The
R.W. Johnson Pharmaceutical Research Institute and Ortho-McNeil
Pharmaceutical, Inc., both Johnson & Johnson companies. Under the terms of the
agreement, the Company will use its technologies to produce novel macrolide
antibiotics on a "best efforts" basis. The agreement provides for certain
payments, including payments for research and development costs for at least two
years, and payments for reaching certain research and development milestones.
The collaborative partner received exclusive worldwide rights to the products
developed in the field of use as defined in the agreement. The development,
marketing, and sale of drugs resulting from the collaboration will be undertaken
by the partner and should the development efforts result in a marketable
product, the Company will receive royalty payments based on product sales. Upon
the execution of the collaborative agreement the Company received an initial
up-front fee of $1.0 million which was deferred and will be recognized on a
ratable basis over the term of the agreement. For the years ended December 31,
1998 and 1999, the Company recognized $974,000 and $5.0 million, respectively,
of contract revenues pursuant to this agreement which represents 100% and 96% of
the contract revenues for 1998 and 1999, respectively. Included in 1999 contract
revenue was $1.2 million of milestones earned under this agreement.
LICENSE AGREEMENTS
The Company entered into exclusive license agreements with The Board of
Trustees of The Leland Stanford Junior University (Stanford) and with the
President and Fellows of Harvard College (Harvard) in March 1996 and December
1998, respectively. These licenses provide the Company with certain technology
and related patent rights and materials for the production of polyketides. Under
the terms of the agreements, the Company pays annual license or maintenance fees
and will pay milestones and royalties on net sales of products originating from
the licensed technology.
F-11
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The amortized cost and fair value of securities, with gross unrealized gains
and losses, were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------------------------------------------------ ------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
US treasury.......... $ 2,967 $ 2 $ -- $ 2,969 $1,300 $ -- $(10) $1,290
US agency notes...... 3,298 -- (8) 3,290 -- -- -- --
Corporate bonds...... 1,000 1 -- 1,001 1,000 -- (10) 990
Asset-backed
securities........... 5,096 -- (4) 5,092 7,198 1 (47) 7,152
------- ---- ---- ------- ------ ---- ---- ------
$12,361 $ 3 $(12) $12,352 $9,498 $ 1 $(67) $9,432
======= ==== ==== ======= ====== ==== ==== ======
</TABLE>
The fair value of available-for-sale debt securities by contractual maturity
at December 31, 1999 were as follows:
<TABLE>
<S> <C>
Within 1 year............................................... $ 990
Greater than 1 year less than 5 years....................... 1,290
Mortgage-backed securities.................................. 7,152
------
$9,432
======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Computer equipment and software............................. $ 249 $ 362
Office furniture............................................ 138 165
Lab equipment............................................... 1,400 2,228
Leasehold improvements...................................... 42 825
------ ------
1,829 3,580
Less accumulated depreciation and amortization.............. (422) (993)
------ ------
$1,407 $2,587
====== ======
</TABLE>
Depreciation expense was $246,000 and $636,000 for the years ended
December 31, 1998 and 1999, respectively. Property and equipment financed under
capital leases amounted to $562,000 at December 31, 1998 and 1999. Accumulated
amortization related to this property and equipment amounted to $264,000 and
$378,000 at December 31, 1998 and 1999, respectively.
F-12
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL LEASES AND EQUIPMENT FINANCING
The Company leases certain equipment and facility improvements under
noncancelable capital leases and debt obligations. Future minimum lease and loan
payments under these obligations are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES EQUIPMENT LOANS
-------------- ---------------
<S> <C> <C>
Year ended December 31,.........................
2000.......................................... $ 162 $ 627
2001.......................................... 168 627
2002.......................................... 9 688
2003.......................................... -- 324
----- ------
Total minimum lease payments.................... 339 2,266
Less amount representing interest............... (45) (395)
----- ------
Present value of net minimum lease payments..... 294 1,871
Less current portion............................ (127) (447)
----- ------
Long-term portion............................... $ 167 $1,424
===== ======
</TABLE>
In 1997, the Company entered into a capital lease line agreement for up to
$1.0 million in aggregate borrowings. Financing under this lease line was
available through June 1998, at which time approximately $569,000 had been
utilized and $431,000 was allowed to expire. In August 1998, the Company entered
into a $2.2 million equipment loan agreement which was fully utilized by
June 1999.
The terms of the lease and loan obligations are for four years. The
equipment loans have a balloon payment at the end of the term. The interest
rates of each of the leases and loans are fixed at the time of the draw down,
with the interest rates range from 10.55% to 10.96%. Obligations under the
leases and loans are secured by the assets financed under the leases.
In January 2000, the Company secured a $2.0 million line of credit which is
available for draw down through December 2000. Each note will have a term of
43 months and have a balloon payment at the end of the term.
F-13
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FACILITY LEASES
In March 1999, the Company moved its facilities from Burlingame, California
to Hayward, California. The Company leases its new facility under a
noncancelable operating lease with no renewal options, which commenced in
February 1999 and expires in 2003. Minimum annual rental commitments under the
operating lease at December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31,
2000...................................................... $1,081
2001...................................................... 1,118
2002...................................................... 1,144
2003...................................................... 682
------
Total minimum payments...................................... $4,025
======
</TABLE>
In September 1999, the Company terminated its Burlingame facility lease
agreement and at the same time, the rights to the Company's sublease agreement
under this facility lease was bought out by the former landlord. In connection
with this buy-out, the Company received a $170,000 termination fee which was
recorded as other income.
Rent expense for operating leases was approximately $181,000, $204,000, and
$1.2 million for the years ended December 31, 1997, 1998 and 1999 respectively.
The sublease income was approximately $100,000, $14,000, and $159,000 for the
years ended December 31, 1997, 1998 and 1999, respectively.
7. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Facilities related.......................................... $ -- $280
Compensation................................................ 37 163
Professional fees........................................... 40 120
Other....................................................... 21 63
---- ----
$ 98 $626
==== ====
</TABLE>
8. RELATED PARTY TRANSACTIONS
In December 1998 and September 1999, the Company issued promissory notes to
an officer and a director totaling $346,500 for the exercise of certain stock
options. These notes bear interest between 4.47% and 5.89% per annum, compounded
semiannually, and the principal and accrued interest is repayable three years
from the date of issuance. These are full recourse notes secured in part by a
pledge of the Company's common stock owned by the officer and director.
The Company issued full recourse loans to certain employees, of which
$12,000 and $87,000 were outstanding at December 31, 1998 and 1999,
respectively. These loans bear interest at rates ranging from 4.47% to 5.43%
with terms ranging from 4 to 5 years. The loans were issued for the purchase of
the employees' residence, are secured by deeds of trust and are classified on
the balance sheet as other assets.
F-14
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company entered into a 14-month evaluation agreement with Savia
Corporation and DNAP Plant Technologies ("DNAP") on March 1, 1998. The
evaluation program was for the development of intellectual property and
technology for use in the field. The Company received revenue of approximately
$90,000 upon signing the agreement for work performed to that date. This
agreement was subsequently terminated effective December 31, 1999. Under the
terms of the termination agreement the Company will receive approximately
$160,000 for development services performed through December 31, 1999, which is
included in revenue and other receivables in 1999. A board member of the company
which controls DNAP is also a board member of the Company.
9. STOCKHOLDERS' EQUITY
During January 1997, the Company converted each existing share of "Original"
Series A preferred stock into 0.76190 shares of common stock and 0.23810 shares
of Series A preferred stock. Each existing share of "original" Series B
preferred stock was converted into 0.13095 shares of common stock and 0.86905
shares of Series A preferred stock. Outstanding shares of the Company's
preferred stock were converted to Series A preferred stock and common stock as
follows:
<TABLE>
<CAPTION>
SHARES OF
SHARES SERIES A SHARES OF
OUTSTANDING SERIES A PREFERRED COMMON STOCK COMMON STOCK
BEFORE CONVERSION STOCK AFTER CONVERSION AFTER
SERIES CONVERSION RATE CONVERSION RATE CONVERSION
- ------ ----------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
"Original" A...................... 280,512 0.23810 66,790 0.76190 213,722
"Original" B...................... 935,476 0.86905 812,976 0.13095 122,500
</TABLE>
Convertible preferred stock outstanding as of December 31, 1999 was as
follows (in thousands, except share data):
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND REDEMPTION/
AUTHORIZED OUTSTANDING LIQUIDATION VALUE
---------- ----------- -----------------
<S> <C> <C> <C>
Convertible preferred stock:
Series A............................. 1,480,000 1,451,195 $ 6,095
Series B............................. 1,818,182 1,818,182 15,000
--------- --------- -------
Total.............................. 3,298,182 3,269,377 $21,095
========= ========= =======
</TABLE>
Upon the closing of an initial public offering, each of the outstanding
3,269,377 shares of convertible preferred stock will be automatically converted
into one share of common stock.
SERIES A PREFERRED STOCK
On January 31, 1997, the Company completed a private placement for the sale
of 571,429 shares of Series A convertible preferred stock resulting in gross
proceeds of $2.4 million. The Series A convertible preferred stock is
convertible at any time after the issuance date, at the option of the holder,
into a number of shares of common stock equal to the stated value divided by the
conversion price. Additionally, the Series A convertible preferred stock shall
be automatically converted into common stock upon the closing of an initial
public offering where the gross proceeds are at least $15.0 million and the
offering price is not less than $21.00 per share. The conversion price initially
will
F-15
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
be $4.20 adjusted for any stock splits or combinations, consolidation, stock
dividends, and recapitalizations. The Series A preferred shareholders are
entitled to vote together with Series B preferred shareholders and common
shareholders as a single class on all matters, except as otherwise required by
law. The number of votes to which each Series A preferred shareholder will be
entitled will equal the maximum number of shares of common stock into which each
preferred stock will be converted. In the event of liquidation, dissolution or
winding up of the Company, funds available for distribution to shareholders
shall be paid to the holders of Series A preferred stock in an amount per share
equal to $4.20 (adjusted for any stock dividends, split or combination,
recapitalization, consolidation with respect to such shares) prior to any
distribution to holders of Series B preferred stock and common stock. If there
are inadequate funds available to provide a full payment of the liquidation
preference amount to both the Series A and B preferred shareholders, then the
assets available for distribution will be shared in proportion to the preference
amount each such shareholder is entitled to receive. Noncumulative annual
dividends of $0.25 per share (as adjusted for any stock dividend, combination,
or split with respect to these shares), payable quarterly, will be paid if and
when declared by the board of directors.
SERIES B PREFERRED STOCK
On April 3, 1998, the Company completed a private placement for the sale of
1,818,182 shares of Series B convertible preferred stock resulting in gross
proceeds of $15.0 million. The Series B convertible preferred stock is
convertible into a number of shares of common stock equal to the stated value
divided by the conversion price. Additionally, the Series B convertible
preferred stock shall be automatically converted into common stock upon the
closing of an initial public offering where the gross proceeds are at least
$15.0 million and the offering price is not less than $21.00 per share. The
initial conversion price is $8.25, and may be adjusted for any stock splits or
combination, consolidation, stock dividends, and recapitalizations. The
Series B preferred shareholders are entitled to vote together with the Series A
preferred and common shareholders as a single class on all matters, except as
otherwise required by law. The number of votes to which each Series B Preferred
Stock preferred shareholder will be entitled will equal the maximum number of
shares of common stock into which each preferred stock is convertible. In the
event of a liquidation, the holders of Series B convertible preferred stock
shall be paid an amount per share equal to $8.25 (adjusted for any stock splits
or combination, consolidation, stock dividends, and recapitalization respect to
such shares) prior to any distribution to holders of common stock. Noncumulative
annual dividends of $0.49 per share (as adjusted for any stock dividend,
combination, or split with respect to these shares), payable quarterly, will be
paid if and when declared by the board of directors.
COMMON STOCK
Under the terms of the 1996 Stock Option Plan (the "1996 Plan"), options are
exercisable when granted and such shares are subject to repurchase upon
termination of employment or consulting agreement. Repurchase rights lapse over
the vesting periods which are generally four years. Should the employment of the
holders of common stock subject to repurchase terminate prior to full vesting of
the outstanding shares, the Company may repurchase all unvested shares at a
price per share equal to the original exercise price. At December 31, 1999,
247,553 shares were subject to such repurchase terms.
F-16
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
1996 STOCK OPTION PLAN
In 1996, the board of directors adopted the 1996 Stock Option Plan (the
"Plan") that provides for the granting of incentive stock options and
nonstatutory stock options to employees, officers, directors and consultants of
the Company. Incentive stock options may be granted with exercise prices not
less than fair value, and nonstatutory stock options may be granted with an
exercise price not less than 85% of the fair value of the common stock on the
date of grant. The fair value is determined by the board of directors. Stock
options granted to a stockholder owning more than 10% of voting stock of the
Company may be granted with an exercise price of not less than 110% of the fair
value of the common stock on the date of grant. Options expire no later than ten
years from the date of the grant. The number of shares, terms, and exercise
period are determined by the board of directors. Options generally vest at 25%
per year over a four-year period. Subsequent to December 31, 1999 the Company
increased the total shares of common stock reserved for issuance under the 1996
Plan from 900,000 to 1,700,000 shares. A summary of the activity follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------
WEIGHTED
SHARES AVAILABLE NUMBER OF EXERCISE AGGREGATE AVERAGE
FOR GRANT SHARES PRICE PRICE EXERCISE PRICE
---------------- --------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C>
Reserved at inception............ 250,000 -- -- $ -- $ --
Granted........................ (66,000) 66,000 $0.25 16,500 $0.25
-------- -------- ---------
Balances at December 31, 1996.... 184,000 66,000 $0.25 16,500 $0.25
Granted........................ (28,800) 28,800 $0.25-$0.45 11,960 $0.42
Canceled....................... 60,000 (60,000) $0.25 (15,000) $0.25
-------- -------- ---------
Balances at December 31, 1997.... 215,200 34,800 $0.25-$0.45 13,460 $0.39
Additional reserved............ 590,000 -- -- -- --
Granted........................ (695,000) 695,000 $0.45-$1.10 671,775 $0.97
Canceled....................... 4,192 (4,192) $0.25-$1.00 (1,978) $0.47
Exercised...................... -- (254,008) $0.25-$1.10 (276,262) $1.09
-------- -------- ---------
Balances at December 31, 1998.... 114,392 471,600 406,995 $0.86
Additional reserved............ 60,000 -- -- -- --
Granted........................ (154,700) 154,700 $1.00 154,700 $1.00
Canceled....................... 72,869 (72,869) $0.45-$1.00 (66,023) $0.91
Exercised...................... -- (97,531) $0.25-$1.10 (99,127) $1.02
-------- -------- ---------
Balances at December 31, 1999.... 92,561 455,900 $ 396,545 $0.87
======== ======== =========
</TABLE>
Options vested at December 31, 1998 and 1999 were 39,678 and 130,721,
respectively.
F-17
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
- -------------------------------------------------
NUMBER OPTIONS VESTED
OUTSTANDING WEIGHTED-AVERAGE ---------------------------------
WEIGHTED-AVERAGE AND REMAINING NUMBER OF WEIGHTED-AVERAGE
EXERCISE PRICE EXERCISABLE CONTRACTUAL LIFE OPTIONS VESTED EXERCISE PRICE
- ---------------- ----------- ---------------- -------------- ----------------
(IN YEARS)
<S> <C> <C> <C> <C>
$0.25 5,000 7.02 3,646 $0.25
$0.45 101,100 7.97 54,665 $0.45
$1.00 349,800 9.05 72,410 $1.00
------- -------
455,900 8.79 130,721 $0.75
======= =======
</TABLE>
STOCK-BASED COMPENSATION
The Company has elected to follow the provision of APB Opinion No. 25 and
related interpretations in the accounting for the stock-based awards because, as
discussed below, the alternative fair value accounting provided for under
FAS 123 requires use of option valuation models that were not developed for use
in valuing employee stock-based awards. During the year ended December 31, 1999,
in connection with the grant of stock options to employees, the Company recorded
deferred stock-based compensation totaling $2.9 million, representing the
difference between the deemed fair market value of the common stock on the date
such options were granted and the applicable exercise prices. Such amount is
included as a reduction of stockholders' equity and is being amortized using the
graded vesting method over the vesting period of the individual options, which
is generally four years. The Company recognized amortization of deferred
stock-based compensation of $535,000 for the year ended December 31, 1999.
The Company records compensation related to the grants of stock options and
restricted stock to non-employees in accordance with SFAS 123 and EITF 96-18
using the Black-Scholes Model with the following assumptions: risk-free interest
rate of 5%; volatility of 70%, expected lives of 2 to 3 years; and a dividend
yield of zero. The Company recognized other stock-based compensation for grants
to non-employees of $610,000 for the year ended December 31, 1999. The
measurement of stock-based compensation to non-employees is subject to periodic
adjustment as the underlying awards vest.
Pro forma net loss and net loss per share information is required by
SFAS 123 which also requires that the information be determined as if the
Company had accounted for its employee stock options granted since inception
under the fair value method of that statement. The fair value of these options
was estimated at the date of grant using a minimum value option pricing model
with the following assumptions: risk-free interest rate of 5.0%; a
weighted-average expected life of the option of four years from the grant date
for grants under the Stock Option Plan; and a dividend yield of zero.
F-18
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. STOCKHOLDERS' EQUITY (CONTINUED)
The Company's pro forma information follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(1,994) $(3,267) $(4,401)
Pro forma....................................... (1,994) (3,454) (4,772)
Basic and diluted net loss per share:
As reported..................................... $ (1.46) $ (2.30) $ (2.93)
Pro forma....................................... (1.46) (2.43) (3.17)
</TABLE>
10. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $9.6 million and $4.1 million, respectively.
The Company also had federal and California research and development tax credit
carryforwards of approximately $300,000 and $200,000. The federal and state net
operating loss and credit carryforwards will expire at various dates beginning
in the year 2002 through 2019, if not utilized.
Utilization of the federal and state net operating loss and credit
carryforwards may be subject to a substantial annual limitation due to the
"change in ownership" provisions of the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of net operating losses and
credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting and the amount
used for income tax purposes. Significant components of the Company's deferred
tax assets for federal and state income taxes as of December 31, are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards........................ $ 2,100 $ 3,500
Research and development credits........................ 300 500
Capitalized research and development expenses........... 200 300
------- -------
Total deferred tax assets................................. 2,600 4,300
Valuation allowance....................................... (2,600) (4,300)
------- -------
Net deferred taxes........................................ $ -- $ --
======= =======
</TABLE>
Due to the Company's lack of earnings history, the net deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased by $900,000 and $1.7 million during the years ended December 31, 1998
and 1999, respectively.
F-19
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS
SERIES C FINANCING
In March 2000, the Company issued 804,196 shares of Series C preferred stock
at a purchase price of $31.00 per share for gross proceeds of $24.9 million. The
Company will reflect a deemed dividend of approximately $13.7 million in the
first quarter of fiscal year 2000 in relation to the Series C financing.
INITIAL PUBLIC OFFERING
In March, 2000, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission to
sell shares of its common stock to the public. If the initial public offering is
completed under the terms presently anticipated, all of the preferred stock
outstanding will automatically convert into 4,073,573 shares of common stock.
Unaudited pro forma stockholders' equity, as adjusted for the assumed conversion
of the preferred stock, is set forth on the balance sheet.
2000 EMPLOYEE STOCK PURCHASE PLAN
In March 2000, subject to stockholder approval, the Company adopted its 2000
Employee Stock Purchase Plan (the "Purchase Plan"). A total of 100,000 shares of
the Company's common stock have been reserved for issuance under the Purchase
Plan. In addition, the Purchase Plan provides for annual increases in the number
of shares available for issuance under the Purchase Plan on each anniversary
date of the effective date of the offering. The number of shares reserved
automatically is equal to the lesser of 50,000 shares, 0.75% of the outstanding
shares on the date of the annual increase or such amount as may be determined by
the board. The Purchase plan permits eligible employees to purchase common stock
at a discount through payroll deductions during defined offering periods. The
price at which the stock is purchased is equal to the lower of 85% of the fair
market value of the common stock on the first day of the offering or 85% of the
fair market value of the Company's common stock on the purchase date. The
initial offering period will commence on the effective date of the offering.
2000 NON-EMPLOYEE DIRECTORS PLAN
In March 2000, subject to stockholder approval, the Company adopted the 2000
Non-Employee Directors' Stock Option Plan and reserved 100,000 shares of common
stock for issuance thereunder. Each non-employee director who becomes a director
of the Company will be automatically granted a non-statutory stock option to
purchase 2,500 shares of common stock on the date on which such person first
becomes a director and will vest over four years. Beginning with the 2001 Annual
Stockholders Meeting and each year thereafter, each non-employee director will
automatically be granted a non-statutory option to purchase 1,250 shares of
common stock which will vest in one year from the date of grant. The exercise
price of options under the Directors' Plan will be equal to the fair market
value of the common stock on the date of grant. The maximum term of the options
granted under the Directors' Plan is ten years. The Directors' Plan will
terminate in March 2010, unless terminated in accordance with the provisions of
the Directors' Plan.
F-20
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF A COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF TIME OF DELIVERY OF THIS PROSPECTUS
OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT BUY, SELL OR, TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 5
Forward-Looking Statements............ 15
Use of Proceeds....................... 15
Dividend Policy....................... 16
Dilution.............................. 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
Management............................ 33
Related Party Transactions............ 44
Principal Stockholders................ 46
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 54
Change in Independent Accountants..... 54
Experts............................... 54
Where you can find more information... 54
Index to Financial Statements......... F-1
</TABLE>
PRELIMINARY PROSPECTUS
Shares
[LOGO]
COMMON STOCK
Warburg Dillon Read LLC
CIBC World Markets
Prudential Vector Healthcare
a unit of Prudential Securities
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
----------
<S> <C>
SEC Registration Fee........................................ 21,120
NASD Fee.................................................... 8,500
Nasdaq Listing Fee.......................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent Fees......................................... *
Printing Fees and Expenses.................................. *
Miscellaneous............................................... *
Total..................................................... $
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care. In addition, as permitted by Section 145
of the Delaware General Corporation Law, the bylaws of the registrant provide
that: (1) the registrant is required to indemnify its directors and executive
officers and persons serving in such capacities in other business enterprises
(including, for example, subsidiaries of the registrant) at the registrant's
request, to the fullest extent permitted by Delaware law, including in those
circumstances in which indemnification would otherwise be discretionary;
(2) the registrant may, in its discretion, indemnify employees and agents in
those circumstances where indemnification is not required by law; (3) the
registrant is required to advance expenses, as incurred, to its directors and
executive officers in connection with defending a proceeding (except that it is
not required to advance expenses to a person against whom the registrant brings
a claim for breach of the duty of loyalty, failure to act in good faith,
intentional misconduct, knowing violation of law or deriving an improper
personal benefit; (4) the rights conferred in the bylaws are not exclusive, and
the registrant is authorized to enter into indemnification agreements with its
directors, executive officers and employees; and (5) the registrant may not
retroactively amend the bylaw provisions in a way that it adverse to such
directors, executive officers and employees.
The registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional procedural
protections. In addition, such indemnity agreements provide that directors and
executive officers will be indemnified to the fullest possible extent not
prohibited by law against all expenses (including attorney's fees) and
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of the registrant, on account
of their
II-1
<PAGE>
services as directors or executive officers of the registrant or as directors or
officers of any other company or enterprise when they are serving in such
capacities at the request of the registrant. The registrant will not be
obligated pursuant to the indemnity agreements to indemnify or advance expenses
to an indemnified party with respect to proceedings or claims initiated by the
indemnified party and not by way of defense, except with respect to proceedings
specifically authorized by the registrant's board of directors or brought to
enforce a right to indemnification under the indemnity agreement, the
registrant's bylaws or any statute or law. Under the agreements, the registrant
is not obligated to indemnify the indemnified party (1) for any expenses
incurred by the indemnified party with respect to any proceeding instituted by
the indemnified party to enforce or interpret the agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless the
registrant consents to such settlement; (3) with respect to any proceeding
brought by the registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith or
was frivolous; (4) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of the registrant pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and related
laws; (5) on account of the indemnified party's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; (6) an account
of any conduct from which the indemnified party derived an improper personal
benefit; (7) on account of conduct the indemnified party believed to be contrary
to the best interests of the registrant or its stockholders; (8) on account of
conduct that constituted a breach of the indemnified party's duty of loyalty to
the registrant or its stockholders; or (9) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification provision in the bylaws and the indemnification
agreements entered into between the registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
registrant's officers and directors for liabilities arising under the 1933 Act.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
- -------- --------
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Amended and Restated Articles of Incorporation of
Registrant................................................ 3.1
Form of Certificate of Incorporation of Registrant, to be
filed upon closing of the offering........................ 3.2
Bylaws of Registrant, to be filed upon closing of the
offering.................................................. 3.3
Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.................................................. 4.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March 1997 or as otherwise indicated, the Registrant has issued and
sold the following securities:
From June 1996 to March 2000 we sold an aggregate of 701,439 shares of
unregistered common stock to 43 directors, officers, employees, former employees
and consultants at prices ranging from $0.25 to $1.10 per share, for aggregate
consideration of approximately $677,000. These shares were sold pursuant to the
exercise of options granted by the board of directors. As to each director,
officer, employee, former employee and consultant of Kosan who was issued such
securities, Kosan relied upon Rule 701 of the Securities Act of 1933, as amended
(the "Securities Act"). Each such person purchased
II-2
<PAGE>
securities of Kosan pursuant to a written contract between such person and
Kosan; in addition, Kosan met the conditions imposed under Rule 701(b).
On April 3, 1998 and April 16, 1998, the registrant sold in the aggregate
1,818,182 shares of unregistered Series B preferred stock at a price per share
of $8.25 to certain investors for aggregate cash consideration of approximately
$15 million. The registrant relied upon Section 4(2) of the Securities Act in
connection with the sale of these shares. Each investor who was not an
accredited investor represented to the registrant that he or she had such
knowledge and experience in financial and business matters that he or she was
capable of evaluating the merits and risks of the investment.
On March 30, 2000, the registrant sold in the aggregate 804,196 shares of
unregistered Series C preferred stock at a price per share of $31.00 to certain
investors for aggregate cash consideration of approximately $24.9 million. The
registrant relied upon Regulation D, Rule 506, of the Securities Act in
connection with the sale of these shares. The sale of the Series C preferred
stock was made in compliance with all the terms of Rules 501 and 502 of
Regulation D, there were no more than 35 investors (as calculated pursuant to
Rule 501(e) of Regulation D), and each investor who was not an accredited
investor represented to the registrant that he or she had such knowledge and
experience in financial and business matters that he or she was capable of
evaluating the merits and risks of the investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of
Registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made
under the Registration Statement.
3.3 Bylaws of Registrant to be filed upon the closing of the
offering made under the Registration Statement.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Third Amended and Restated Registration Rights Agreement,
dated March 30, 2000 between Registrant and certain
shareholders.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2 1996 Stock Option Plan, as amended.
10.3 Form of Stock Option Agreement under the 1996 Stock Option
Plan, as amended.
10.3 2000 Employee Stock Purchase Plan and related agreements.
10.4 2000 Non-Employee Director Stock Option Plan and related
agreements.
10.8+ License Agreement between the Registrant and The Board of
Trustees of The Leland Stanford Junior University, dated
March 11, 1996; Letter to Mona Wan to confirm the agreement
between Registrant and the Board of Trustees of the Leland
Stanford Junior University, dated September 21, 1998; and
Amendment No. 3 to License Agreement, dated March 20, 2000.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.9+ Amendment No. 1 to License Agreement with the Board of
Trustees of The Leland Stanford Junior University, dated
March 1996.
10.10+ License Agreement between Registrant and President and
Fellows of Harvard College, dated December 2, 1998.
10.11+ Research and License Agreement between Registrant and
Ortho-McNeil Pharmaceutical Corporation and The R.W. Johnson
Pharmaceutical Research Institute, dated September 28, 1998.
10.12+ Amendment No. 1 to the Research and License Agreement
between the Registrant and Ortho-McNeil Pharmaceutical
Corporation and The R.W. Johnson Pharmaceutical Research
Institute, dated March 17, 2000.
10.13 Sublease Agreement between Registrant and Lynx Therapeutics,
Inc., dated January 6, 1999.
10.14 Consent to Sublease Agreement between Spieker Properties
L.P. and Lynx Therapeutics, Inc., dated September 17, 1999.
10.15 Master Equipment Lease between Registrant and Phoenix
Leasing Incorporated, dated September 3, 1996.
10.16 Master Loan and Security Agreement between Registrant and
Finova Technology Finance, Inc., dated August 25, 1998.
10.17 Commitment Letter between Registrant and Finova Technology
Finance, Inc., dated August 25, 1998.
10.18 Commitment Letter between Registrant and Finova Capital
Corporation, dated January 6, 2000
10.19 Restated Promissory Note from Shareholder by and between
Registrant and Daniel V. Santi, M.D., Ph.D., dated December
23, 1998.
10.20* Promissory Note from Shareholder by and between Registrant
and Chaitan Khosla, Ph.D., dated September 22, 1999.
10.21 Promissory Note from Shareholder by and between Registrant
and Michael S. Ostrach, dated February 21, 2000.
10.22 Promissory Note from Shareholder by and between Registrant
and Susan M. Kanaya, dated February 21, 2000.
10.23 Promissory Note from Shareholder by and between Registrant
and Kevin Kaster, dated February 21, 2000.
10.24 Employment Agreement between Registrant and Daniel V. Santi,
M.D., Ph.D., dated November 1, 1998.
10.25 Employment Agreement between Registrant and Kevin Kaster,
dated July 20, 1998.
10.26 Employment Agreement between Registrant and Susan M. Kanaya,
dated October 11, 1999.
10.27 Employment Agreement between Registrant and Brian W.
Metcalf, Ph.D., dated March 15, 2000.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
24.1 Power of Attorney (See page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions referenced in Item 14 of this registration Statement
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the 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 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Hayward,
State of California, on this 30th day of March 2000.
<TABLE>
<S> <C>
KOSAN BIOSCIENCES, INC.
By: /s/ DANIEL V. SANTI
--------------------------------------------
Daniel V. Santi
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE
BOARD OF DIRECTORS
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Daniel V. Santi and
Michael S. Ostrach and each one of them, his true and lawful attorney-in-fact
and agents, each with full power of substitution, for his and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and any registration
statement related to the offering contemplated by this registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933 and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as she might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done or by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
Chief Executive Officer and
/s/ DANIEL V. SANTI Chairman of the Board of
------------------------------------------- Directors (Principal March 30, 2000
Daniel V. Santi Executive Officer)
Vice President, Finance and
/s/ SUSAN M. KANAYA Chief Financial Officer
------------------------------------------- (Principal Financial and March 30, 2000
Susan M. Kanaya Accounting Officer)
------------------------------------------- Director March , 2000
Peter Davis
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
------------------------------------------- Director March , 2000
Jean Deleage
/s/ CHAITAN KHOSLA
------------------------------------------- Director March 30, 2000
Chaitan Khosla
/s/ CHRISTOPHER WALSH
------------------------------------------- Director March 30, 2000
Christopher Walsh
/s/ RAYMOND WHITAKER
------------------------------------------- Director March 30, 2000
Raymond Whitaker
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of
Registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed upon the closing of the offering made
under the Registration Statement.
3.3 Bylaws of Registrant to be filed upon the closing of the
offering made under the Registration Statement.
4.1* Form of Registrant's Common Stock Certificate.
4.2 Third Amended and Restated Registration Rights Agreement,
dated March 30, 2000 between Registrant and certain
shareholders.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2 1996 Stock Option Plan, as amended.
10.3 2000 Employee Stock Purchase Plan and related agreements.
10.4 2000 Non-Employee Director Stock Option Plan and related
agreements.
10.8+ License Agreement between the Registrant and The Board of
Trustees of The Leland Stanford Junior University, dated
March 11, 1996.
10.9+ Amendment No. 1 to License Agreement with the Board of
Trustees of The Leland Stanford Junior University, dated
March 1996; Letter to Mona Wan to confirm the agreement
between Registrant and the Board of Trustrees of The Leland
Stanford Junior University, dated September 21, 1998; and
Amendment No. 3 to License Agreement, dated March 10, 2000.
10.10+ License Agreement between Registrant and President and
Fellows of Harvard College, dated December 2, 1998.
10.11+ Research and License Agreement between Registrant and
Ortho-McNeil Pharmaceutical Corporation, and The R.W.
Johnson Pharmaceutical Research Institute, dated September
28, 1998.
10.12+ Amendment No. 1 to the Research and License Agreement
between the Registrant and Ortho-McNeil Pharmaceutical
Corporation and The R.W. Johnson Pharmaceutical Research
Institute, dated March 17, 2000.
10.13 Sublease Agreement between Registrant and Lynx Therapeutics,
Inc., dated January 6, 1999.
10.14 Consent to Sublease Agreement between Spieker Properties
L.P. and Lynx Therapeutics, Inc., dated September 17, 1999.
10.15 Master Equipment Lease between Registrant and Phoenix
Leasing Incorporated, dated September 3, 1996.
10.16 Master Loan and Security Agreement between Finova Technology
Finance, Inc., dated August 25, 1998.
10.17 Commitment Letter between Registrant and Finova Technology
Finance, Inc., dated August 24, 1998.
10.18 Commitment Letter between Registrant and Finova Capital
Corporation, dated January 6, 2000
10.19 Restated Promissory Note from Shareholder by and between
Registrant and Daniel V. Santi, M.D., Ph.D., dated December
23, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.20* Promissory Note from Shareholder by and between Registrant
and Chaitan Khosla, Ph.D., dated September 22, 1999.
10.21 Promissory Note from Shareholder by and between Registrant
and Michael S. Ostrach, dated February 21, 2000.
10.22 Promissory Note from Shareholder by and between Registrant
and Susan M. Kanaya, dated February 21, 2000.
10.23 Promissory Note from Shareholder by and between Registrant
and Kevin Kaster, dated February 21, 2000.
10.24 Employment Agreement between Registrant and Daniel V. Santi,
M.D., Ph.D., dated November 1, 1998.
10.25 Employment Agreement between Registrant and Kevin Kaster,
dated July 20, 1998.
10.26 Employment Agreement between Registrant and Susan M. Kanaya,
dated October 11, 1999.
10.27 Employment Agreement between Registrant and Brian W.
Metcalf, Ph.D., dated March 15, 2000.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (See page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
KOSAN BIOSCIENCES INCORPORATED
Daniel V. Santi and Blair W. Stewart certify that:
A. They are the Chief Executive Officer and Secretary, respectively, of
Kosan Biosciences Incorporated, a California corporation (the "Corporation").
B. The Amended and Restated Articles of Incorporation of the Company
are hereby amended and restated in their entirety to read as set forth below:
* * *
I.
The name of this corporation is Kosan Biosciences Incorporated.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
1. AUTHORIZATION TO ISSUE TWO CLASSES. This Corporation is authorized
to issue two classes of shares designated, respectively, Preferred Stock and
Common Stock. The Corporation is authorized to issue 4,348,182 shares of
Preferred Stock, $0.001 par value, 1,480,000 shares of which are designated
"Series A Preferred Stock" (the "Series A Preferred"), 1,818,182 shares of which
are designated "Series B Preferred Stock" (the "Series B Preferred") and
1,050,000 shares of which are designated "Series C Preferred Stock" (the
"Series C Preferred", and together with the Series A Preferred and the Series B
Preferred, the "Preferred Stock"), and 12,000,000 shares of Common Stock, $0.001
par value (the "Common Stock").
2. PREFERRED STOCK. The rights, preferences, privileges and
restrictions granted to and imposed upon the Preferred Stock are as follows:
(a) DIVIDENDS.
(i) PREFERRED STOCK. The holders of the Series A
Preferred shall be entitled to receive, when and as declared by the Board of
Directors, noncumulative dividends at the rate of
<PAGE>
$0.25 per share (as appropriately adjusted for any stock dividend, stock
split, recapitalization, consolidation or the like of the Series A Preferred)
per annum, payable quarterly as the Board of Directors may from time to time
determine out of funds legally available therefor. The holders of the
Series B Preferred shall be entitled to receive, when and as declared by the
Board of Directors, noncumulative dividends at the rate of $0.49 per share
(as appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series B Preferred) per
annum, payable quarterly as the Board of Directors may from time to time
determine out of funds legally available therefor. The holders of the
Series C Preferred shall be entitled to receive, when and as declared by the
Board of Directors, noncumulative dividends at the rate of $1.86 per share
(as appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series C Preferred) per
annum, payable quarterly as the Board of Directors may from time to time
determine out of funds legally available therefor. No dividend shall be
declared or paid with respect to Common Stock, the Series A Preferred or the
Series B Preferred until the full dividend for the applicable period has been
declared and paid on the Series C Preferred. After the payment of such
preferential amounts to the holders of the Preferred Stock with respect to
any year, any additional dividend which the Board of Directors may declare
with respect to such year shall be declared simultaneously with respect to
the Preferred Stock and the Common Stock, as if the Preferred Stock were
converted to Common Stock. The right to any dividends under this subsection
(i) shall not be cumulative and no right shall accrue to holders of Preferred
Stock by reason of the fact that dividends on said shares are not declared.
If less than full dividends are paid or declared and set apart for payment to
the holders of the Series A or Series B Preferred Stock, then the amount to
be paid or declared and set aside for payment shall be divided as between the
holders of the Series A Preferred and the holders of the Series B Preferred
in the same proportion as the aggregate preferential dividend payable to the
holders of the Series A Preferred bears to the aggregate preferential
dividend payable to the holders of the Series B Preferred.
(ii) COMMON STOCK. No dividends (other than those
payable solely in the Common Stock of the Corporation) shall be paid on any
Common Stock of the Corporation during any fiscal year of the Corporation until
dividends in the full preferential amounts set forth in Section 2(a)(i) hereof
shall have been paid to the holders of Preferred Stock or declared and set apart
for payment to the holders of Preferred Stock during such fiscal year.
(b) LIQUIDATION PREFERENCE.
(i) SERIES A PREFERRED, SERIES B PREFERRED AND
SERIES C PREFERRED LIQUIDATION PREFERENCE AMOUNT. In the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary
or involuntary, the holders of the outstanding shares of Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of
any of the assets or surplus funds of the Corporation to the holders of the
Common Stock or the holders of any other capital stock of the Corporation by
reason of their ownership thereof, (x) a per share amount equal to $4.20 per
share (as appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series A Preferred) for
each share of Series A Preferred then held by them plus an amount equal to
all declared but unpaid dividends on the Series A Preferred (the "Series A
Preferred Liquidation Preference Amount"), (y) a per share amount equal to
$8.25 per
-2-
<PAGE>
share (as appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series B Preferred) for
each share of Series B Preferred then held by them plus an amount equal to
all declared but unpaid dividends on the Series B Preferred (the "Series B
Preferred Liquidation Preference Amount") and (z) a per share amount equal to
$31.00 per share (as appropriately adjusted for any stock dividend, stock
split, recapitalization, consolidation or the like of the Series C Preferred)
for each share of Series C Preferred then held by them plus an amount equal
to all declared but unpaid dividends on the Series C Preferred (the "Series C
Preferred Liquidation Preference Amount"). If upon the occurrence of such
event, the assets and funds to be distributed among the holders of the
Preferred Stock shall be insufficient to permit the full payment of the
Series A Preferred Liquidation Preference Amount, the Series B Preferred
Liquidation Preference Amount and the Series C Preferred Liquidation
Preference Amount, then the holders of each share of Series C Preferred shall
be entitled to be paid first out of the assets and funds of the Corporation
legally available for distribution up to an amount equal to the Series C
Preferred Liquidation Preference Amount and then all remaining assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred and the
Series B Preferred (both of which shall be junior to the Series C Preferred
in liquidation) in proportion to the full preferential amount each such
holder is entitled to receive.
(ii) ADDITIONAL DISTRIBUTIONS. After the full
liquidation preference has been paid to the holders of the Preferred Stock
pursuant to subsection (b)(i) above, all remaining assets shall be distributed
to the holders of the Preferred Stock and Common Stock on a pro rata basis, as
if such Preferred Stock was converted to Common Stock; provided, that the
holders of the Series A Preferred, the Series B Preferred and the Series C
Preferred shall not be entitled to receive more than two times the Series A
Preferred Liquidation Preference Amount, the Series B Preferred Liquidation
Preference Amount or the Series C Preferred Liquidation Preference Amount,
respectively, by reason of their ownership of Preferred Stock (which includes
amounts paid pursuant to subsection (i) of subparagraph (b) above).
(iii) MERGER OR SALE SHALL BE A LIQUIDATION. A
consolidation or merger of the Corporation with or into any other entity, an
acquisition by any other entity, or a sale of all or substantially all of the
assets or voting control of the Corporation, in which the prior shareholders of
the Corporation do not own a majority of the outstanding shares of the surviving
entity after the transaction shall be deemed to be a liquidation, dissolution or
winding up within the meaning of Sections 2(b)(i) and, (ii) above.
(c) VOTING RIGHTS.
(i) GENERALLY. Except as otherwise required by law or
by subsection (iii) of this subparagraph (c) hereof, the holder of each share of
Preferred Stock shall be entitled to the number of votes equal to the number of
shares of Common Stock into which such shares of Preferred Stock could be
converted pursuant to subparagraph (d) hereof, and shall have full voting rights
and powers equal to the voting rights and powers of the Common Stock (voting
together with the Common Stock as a single class) and shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of the
Corporation and applicable law. In the event the Preferred Stock
-3-
<PAGE>
is convertible into a non-integral number of shares of Common Stock, the
aggregate number of votes to which such shareholder is entitled shall be
rounded to the nearest whole vote.
(ii) BOARD OF DIRECTORS. So long as at least
435,000 shares of Series A Preferred (as appropriately adjusted for any stock
dividend, stock split, recapitalization, consolidation or the like of the
Series A Preferred) remain outstanding, the holders of the Series A Preferred
voting as a separate class shall be entitled to elect two directors and to
remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors. So long as at least 545,454
shares of Series B Preferred (as appropriately adjusted for any stock
dividend, stock split, recapitalization, consolidation or the like of the
Series B Preferred) remain outstanding, the holders of the Series B Preferred
voting as a separate class shall be entitled to elect two directors and to
remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors. So long as at least 272,727
shares of Series B Preferred (as appropriately adjusted for any stock
dividend, stock split, recapitalization, consolidation or the like of the
Series B Preferred) but not more than 545,453 shares of Series B Preferred
(as appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series B Preferred) remain
outstanding, the holders of the Series B Preferred voting as a separate class
shall be entitled to elect one director and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal
of such director. So long as at least 157,258 shares of Series C Preferred
(as appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Series C Preferred) remain
outstanding, the holders of the Series C Preferred voting as a separate class
shall be entitled to elect one director and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal
of such director. The holders of the Common Stock voting together as a single
class shall be entitled to elect two directors and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal
of such directors. If the holders of the Series A Preferred are no longer
entitled to elect two directors voting separately as a series, the holders of
the Common Stock, together with the holders of any series of Preferred Stock
that are not otherwise then entitled to elect a director voting as a series
pursuant to this Section, voting together as a single class on an
as-if-converted to Common Stock basis, shall be entitled to elect such
directors and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors. If the holders
of the Series B Preferred are no longer entitled to elect two directors
voting separately as a series but are entitled to elect one director voting
separately as a series, the holders of the Common Stock, together with the
holders of the Series B Preferred, the holders of the Series A Preferred if
they are not otherwise then entitled to elect two directors as a series
pursuant to this Section and the holders of the Series C Preferred, if they
are not otherwise then entitled to elect one director as a series pursuant to
this Section, voting together as a single class on an as-if-converted to
Common Stock basis, shall be entitled to elect the director previously
reserved for election by the holders of the Series B Preferred as a series,
and to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director. If the holders of the Series
B Preferred are no longer entitled to elect two directors as a series, the
holders of the Common Stock, together with the holders of the Series B
Preferred, the holders of the Series A Preferred, if they are not otherwise
then entitled to
-4-
<PAGE>
elect two directors as a series pursuant to this Section, and the holders of
the Series C Preferred, if they are not otherwise then entitled to elect one
director as a series pursuant to this Section, voting together as a single
class on an as-if-converted to Common Stock basis, shall be entitled to elect
both directors previously reserved for election by the holders of the Series
B Preferred, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors. If the holders
of the Series C Preferred are no longer entitled to elect one director voting
separately as a series, the holders of the Common Stock, together with the
holders of any series of Preferred Stock that are not otherwise then entitled
to elect a director voting as a series pursuant to this Section, voting
together as a single class on an as-if-converted to Common Stock basis, shall
be entitled to elect such directors and to remove from office such director
and to fill any vacancy caused by the resignation, death or removal of such
director.
(iii) CERTAIN RESTRICTIONS AND LIMITATIONS. In
addition to any other rights provided by law or herein:
(1) So long as at least 800,000 shares of
Preferred Stock (as appropriately adjusted for any stock dividend, stock split,
recapitalization, consolidation or the like of the Preferred Stock) remain
outstanding, consent of the holders of at least seventy five percent (75%) of
the Preferred Stock voting as a single class shall be required for any action
that:
(A) alters or changes the rights,
preferences or privileges of the Preferred Stock;
(B) creates (by reclassification or
otherwise) any new class or series of shares or any other securities convertible
into equity securities of the Corporation having rights, preferences or
privileges senior to or on a parity with the Preferred Stock; or
(C) amends, waives or repeals any
provision of, or adds any provision to, the Articles of Incorporation or Bylaws
of the Corporation in a manner which adversely affects the Preferred Stock.
(2) Consent of the holders of at least
seventy percent (70%) of the Preferred Stock voting as a single class shall
be required for any action that:
(A) increases or decreases the total
number of authorized shares of the Common Stock or the Preferred Stock;
(B) results in the redemption of any
shares of Common Stock (other than pursuant to equity incentive agreements
with employees, consultants, officers, directors and other service providers
that give the Corporation the right to repurchase shares of Common Stock upon
the termination of services);
(C) results in any merger, other
corporate reorganization, sale of control, or sale or other conveyance of all
or substantially all of the assets of the Corporation, as a result of which
the shareholders of the Corporation immediately prior to the consummation of
such transaction do not hold a majority of the voting power of the resulting
entity; provided, that if a
-5-
<PAGE>
holder of any equity security of the Corporation or an affiliate of such
holder is a party to such transaction (other than as a shareholder of the
Corporation or as an advisor to any party thereto), then the shares held by
such holder shall not be deemed to be outstanding for the purposes of such
approval;
(D) results in the declaration or
payment of any dividend on any shares of the Common Stock or the Preferred
Stock of the Corporation (other than dividends on Common Stock payable in
shares of Common Stock); or
(E) increases or decreases the size of
the Company's Board of Directors.
(3) Consent of the holders of at least seventy
percent (70%) of the Series B Preferred shall be required for any action that:
(A) increases or decreases the
total number of authorized shares of the Series B Preferred; or
(B) changes the rights,
preferences, privileges or restrictions of the Series B Preferred in a way that
adversely affects the Series B Preferred in a different manner than the Series A
Preferred.
(4) Consent of the holders of at least fifty
percent (50%) of the Series C Preferred shall be required for any action that:
(A) increases or decreases the total
number of authorized shares of the Series C Preferred; or
(B) changes the rights, preferences,
privileges or restrictions of the Series C Preferred in a way that adversely
affects the Series C Preferred.
(d) CONVERSION. The holders of the Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(i) RIGHT TO CONVERT.
(1) VOLUNTARY CONVERSION. Each share of
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after the date of issuance of such share at the office of the
Corporation or any transfer agent for such stock, into such number of fully paid
and nonassessable shares of Common Stock at a rate (the "Conversion Rate") as is
determined by dividing (A) $4.20 in the case of the Series A Preferred,
(B) $8.25 in the case of the Series B Preferred and (C) $31.00 in the case of
the Series C Preferred, in each case by the then applicable Conversion Price
for such series of Preferred Stock, determined as hereinafter provided, in
effect at the time of the conversion. The Conversion Price of the Series A
Preferred shall initially be $4.20. The Conversion Price of the Series B
Preferred shall initially be $8.25. The Conversion Price of the
-6-
<PAGE>
Series C Preferred shall be $31.00. Such initial Conversion Prices shall be
subject to adjustment as hereinafter provided.
(2) AUTOMATIC CONVERSION. Each share of Series A
Preferred shall be automatically converted into shares of Common Stock at the
then effective applicable Conversion Rate (A) upon the consent of the holders
of at least seventy percent (70%) of the outstanding shares of the Series A
Preferred, or (B) upon the closing of the sale of the Corporation's Common
Stock in a firmly underwritten initial public offering registered under the
Securities Act of 1933, as amended (the "Act"), at a public offering price
equal to not less than $21.00 per share of Common Stock (as appropriately
adjusted for any stock dividend, stock split or combination,
recapitalization, consolidation or the like of the Common Stock) with
expected aggregate proceeds to the Corporation of not less than $15,000,000
before deduction of any underwriters' commissions and expenses (a "Qualified
IPO"). Each share of Series B Preferred shall be automatically converted into
shares of Common Stock at the then effective applicable Conversion Rate
(A) upon the consent of the holders of at least seventy percent (70%) of the
outstanding shares of the Series B Preferred, or (B) upon the closing of a
Qualified IPO. Each share of Series C Preferred shall be automatically
converted into shares of Common Stock at the then effective applicable
Conversion Rate (A) upon the consent of the holders of at least a majority of
the outstanding shares of the Series C Preferred, or (B) upon the closing of
an initial public offering at a Common Stock per share public offering price
equal to not less than $40.30 per share of Common Stock (appropriately
adjusted for any stock dividend, stock split or combination,
recapitalization, consolidation or the like of the Common Stock) with
expected aggregate proceeds to the Corporation of not less than $25,000,000
before deduction of any underwriters' commissions and expenses.
(ii) MECHANICS OF CONVERSION.
(1) EFFECTING CONVERSION. In order to effect a
voluntary conversion of Preferred Stock, such holder shall provide written
notice to the Corporation that he or she elects to convert the same into
Common Stock and deliver such notice to the office of the Corporation or of
any transfer agent for such shares. Such voluntary conversion shall be deemed
to have been made immediately prior to the close of business on the date of
surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common Stock on such date. In the case of an automatic
conversion in connection with an underwritten offering of securities under
the Act, the conversion may, at the option of any holder tendering shares of
Preferred Stock for conversion, be conditioned upon the closing with the
underwriter(s) of the sale of securities pursuant to such offering, in which
case the person or persons entitled to receive the Common Stock issuable upon
such conversion shall not be deemed to have converted such Preferred Stock
until immediately prior to the closing of such sale of securities.
(2) EXCHANGE OF CERTIFICATES. Before delivery to
any person of certificates representing shares of Common Stock issued upon
voluntary or automatic conversion of shares of the Preferred Stock, the
holder of such Preferred Stock shall surrender the certificate or
certificates for such Preferred Stock, duly endorsed, at the office of the
Corporation or of any
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<PAGE>
transfer agent for such shares and shall provide a written declaration of the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which he or she shall be entitled as aforesaid and a check
payable to the holder for any cash amounts payable as the result of a
conversion into fractional shares of Common Stock pursuant to subparagraph
2(d)(xii), and pay in cash or, to the extent sufficient funds are not then
legally available therefor, in Common Stock (at the Common Stock's fair
market value determined by the Board of Directors as of the date of such
conversion), any declared and unpaid dividends on the shares of Preferred
Stock being converted.
(iii) ADJUSTMENT FOR SUBDIVISIONS AND CERTAIN
DISTRIBUTIONS; ADJUSTMENTS FOR COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK
AND STOCK DIVIDENDS.
(1) In the event the outstanding shares of Common
Stock shall be subdivided (by stock split or otherwise) into a greater number
of shares of Common Stock, or a dividend or distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents" ) without payment of any consideration by such holder of the
additional shares of Common Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the
Conversion Price of the Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each
share of Preferred Stock shall be increased in proportion to such increase in
the aggregate numbers of shares issuable with respect to Common Stock
Equivalents, with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in subparagraph 2(d)(vi)(1)(E).
(2) In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise,
into a lesser number of shares of Common Stock, the Conversion Price of the
Preferred Stock shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(iv) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event
the Corporation at any time or from time to time makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive any
distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subparagraph
2(d)(iii)(1) hereof, then in each such event provision shall be made so that
the holders of Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which they would have received had
their Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event
to and including the date of conversion, retained such securities receivable
by them as
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aforesaid during such period, subject to all other adjustments called for
during such period under this subparagraph 2(d) with respect to the rights of
the holders of the Preferred Stock.
(v) ADJUSTMENTS FOR REORGANIZATION, RECLASSIFICATION,
EXCHANGE AND SUBSTITUTION. If the Common Stock issuable upon conversion of
the Preferred Stock shall be changed into the same or a different number of
shares of any other class or classes of stock or other securities or
property, whether by reorganization (unless such reorganization is deemed a
liquidation under subparagraph 2(b)(iii) hereof), reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the Conversion Price of the Preferred Stock then in effect shall,
concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted such that the Preferred Stock
shall be convertible into, in lieu of the number of shares of Common Stock
which the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock or other securities or
property equivalent to the number of shares of Common Stock that would have
been subject to receipt by the holders upon conversion of the Preferred Stock
immediately before such event; and, in any such case, appropriate adjustment
(as determined by the Board) shall be made in the application of the
provisions herein set forth with respect to the rights and interest
thereafter of the holders of the Preferred Stock, to the end that the
provisions set forth herein (including provisions with respect to change in
and other adjustments of the Conversion Price of the Preferred Stock) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion
of the Preferred Stock.
(vi) CONVERSION PRICE ADJUSTMENTS WITH RESPECT TO
CERTAIN DILUTING ISSUANCES. The Conversion Price of each series of Preferred
Stock shall be subject to adjustment from time to time as follows:
(1) (A) If the Corporation shall issue or be
deemed to issue any Additional Stock (as defined below) without consideration
or for a consideration per share less than the Conversion Price of a series
of Preferred Stock in effect immediately prior to the issuance of such
Additional Stock, then the Conversion Price of such series of Preferred Stock
in effect immediately prior to each such issuance shall (except as otherwise
provided in this clause (1)) be adjusted to:
a new Conversion Price determined by dividing (X) an amount
equal to the sum of (a) the product derived by multiplying the
Conversion Price of such series in effect immediately prior to such
issuance times the number of shares of Common Stock (including shares
of Common Stock issued or issuable upon conversion of the outstanding
Preferred Stock or otherwise under Section 2(d)(vi)(1)(E)) outstanding
immediately prior to such issue, plus (b) the consideration, if any,
received by or deemed to have been received by the Corporation upon
such issuance, by (Y) an amount equal to the sum of (c) the number of
shares of Common Stock (including shares of Common Stock issued or
issuable upon conversion of the outstanding Preferred Stock or
otherwise under Section 2(d)(vi)(1)(E)) outstanding immediately prior
to such issuance, plus (d) the number of shares of Common Stock issued
or deemed to have been issued in such issuance; provided, however, that
if in the
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>
Corporation's next financing transaction (i) consisting of a
private placement of $7,500,000 or more of equity securities led and
negotiated (including the negotiation of the terms, conditions and
pricing) by a financial or venture capital investor, Additional Stock
is issued without consideration or for consideration per share less
than the then-applicable Series C Preferred Conversion Price, the
Series C Conversion Price shall be adjusted to the consideration per
share received by the Corporation with respect to such Additional
Stock, or (ii) consisting of a public offering, Additional Stock is
issued without consideration or for consideration per share less than
the then-applicable Series C Preferred Conversion Price, the Series C
Conversion Price shall be adjusted to eighty percent (80%) of the
consideration per share paid by the public with respect to such
Additional Stock, all to be calculated as though the securities issued
in the public offering were issued immediately prior to the closing of
the public offering and conversion of the Series C Preferred.
(B) No adjustment of the Conversion Price for
any series of Preferred Stock shall be made in an amount less than one cent
($0.01) per share, provided that any adjustment that is not required to be
made by reason of this sentence shall be carried forward and taken into
account in any subsequent adjustment to the Conversion Price for such series
of Preferred Stock. Except to the limited extent provided for in
Sections 2(d)(vi)(1)(E)(z) and 2(d)(vi)(1)(E)(aa), no adjustment of such
Conversion Price shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of
securities of the Corporation for cash, the consideration shall be deemed to
be the amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or incurred by this
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
(D) In the case of the issuance of
securities of the Corporation 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 by the Board of Directors.
(E) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities (where
the shares of Common Stock issuable upon exercise of such options or rights
or upon conversion or exchange of such securities are not excluded from the
definition of Additional Stock), the following provisions shall apply:
(x) the aggregate maximum 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 Sections
2(d)(vi)(1)(C) and 2(d)(vi)(1)(D)), if any, received by the Corporation upon
the issuance of such options or rights plus the minimum purchase price
provided in such options or rights for the Common Stock covered thereby;
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(y) the aggregate maximum 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, if
any, received by the Corporation for any such securities and related options
or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the 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 Sections 2(d)(vi)(1)(C) and
2(d)(vi)(1)(D));
(z) In the event of any change in
the number of shares of Common Stock deliverable upon exercise of such options
or rights or upon conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price in effect at the time
for each series of Preferred Stock shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustment that was made upon
the issuance of such options, rights or securities not converted prior to such
change or the options or rights related to such securities not converted prior
to such change been made upon the basis of such change, but no further
adjustment shall be made for the actual issuance of Common Stock upon the
exercise of any such options or rights or the conversion or exchange of such
securities;
(aa) Upon the expiration of any
such options or rights, the termination of any such rights to convert or
exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price for each series
of Preferred Stock shall forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment which was made upon the issuance of
such options, rights or securities or options or rights related to such
securities been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities.
(2) "Effective Date" with respect to each
series of Preferred Stock means the first date on which shares of such series of
Preferred Stock were issued.
(3) "Additional Stock" shall mean any shares
of Common Stock issued (or deemed to have been issued pursuant to Section
2(d)(vi)(1)(E)) by the Corporation after the Effective Date other than:
(A) Common Stock issued pursuant to a
transaction described in Section 2(d)(iii).
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(B) Shares of Common Stock
issued or issuable to employees, officers, or directors of, or consultants
to, the Corporation, approved by at least sixty-five percent (65%) of the
members of the Board of Directors.
(C) Common Stock issued or issuable
upon conversion of the shares of Preferred Stock.
(vii) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this subparagraph 2(d)
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Preferred Stock
against impairment.
(viii) CERTIFICATES AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price of any
series of Preferred Stock pursuant to this subparagraph 2(d), the Corporation
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (1) such applicable adjustments and
readjustments, (2) the applicable Conversion Price at the time in effect, and
(3) the number of shares of Common Stock and the amount, if any, of other
property that at the time would be received upon the conversion of Preferred
Stock. Any certificate sent to the holders of Preferred Stock pursuant to
this subparagraph shall be signed by an officer of the Corporation.
(ix) NOTICES OF RECORD DATE. In the event of any taking
by the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive Common Stock, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of record of Preferred Stock at least
fifteen (15) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution, security or right, and the amount and character of
such dividend, distribution, security or right. In addition, the Corporation
shall mail to each holder of record of Preferred Stock a notice specifying
that a liquidation, dissolution or winding up, or a merger, sale of assets or
change of control transaction involving the Corporation is to occur (or so
deemed pursuant to Section 2(b)(iii) hereof), such notice to be mailed at
least fifteen (15) days prior to the date on which any such action is
expected to be consummated.
(x) ISSUE TAXES. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery
of shares of Common Stock on
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conversion of shares of Preferred Stock pursuant hereto; provided, however,
that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any
such conversion.
(xi) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of
Preferred Stock then, in addition to such other remedies as shall be
available to the holders of Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(xii) FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share or shares of Preferred Stock. If the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the
fair market value of such fraction on the date of conversion (as determined
in good faith by the Board of Directors of the Corporation).
(e) NOTICES. The Corporation shall give each holder of
Preferred Stock at least fifteen (15) days prior written notice of any date
(i) for the determination of the distribution of assets in connection with any
liquidation, dissolution or winding up of the Corporation, or (ii) on which
automatic conversion is expected to occur. Any notice required by the provisions
of these Articles to be given to the holders of shares of Preferred Stock shall
be deemed given if delivered personally or deposited in the United States mail,
first class postage prepaid (or, if to an international addressee, sent by
express messenger specifying not more than three days' delivery), and addressed
to each holder of record at his or her address appearing on the books of the
Corporation.
(f) CERTAIN REPURCHASES. Each holder of an outstanding share
of Preferred Stock shall be deemed to have consented, for purposes of Sections
502, 503 and 506 of the General Corporation Law, to distributions made by the
Corporation in connection with the repurchase, at the initial purchase price
thereof, or at such other price as may be approved by the Board of Directors, of
shares of Common Stock issued to or held by officers, directors, employees or
consultants upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase between the Corporation
and such persons.
IV.
1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the directors
of this corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.
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2. INDEMNIFICATION OF CORPORATE AGENTS. This corporation is authorized
to provide indemnification of its agents (as defined in Section 317 of the
California General Corporations Law) through bylaw provisions, agreements with
agents, vote of shareholders or disinterested directors, or otherwise, in excess
of the indemnification otherwise permitted by such Section 317, subject only to
the limits set forth in Section 204 of the California General Corporations Law
with respect to actions for breach of duty to the corporation and its
shareholders.
3. REPEAL OR MODIFICATION. Any repeal or modification of the foregoing
provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification."
* * *
C. The foregoing amendment and restatement has been duly approved by
the Board of Directors of the Company.
D. The foregoing amendment has been duly approved by the required vote
of shareholders in accordance with Sections 902 and 903 of the California
General Corporations Law. The total number of outstanding shares is 2,159,148
shares of Common Stock, 1,451,195 shares of Series A Preferred Stock and
1,818,182 shares of Series B Preferred Stock. The number of shares voting in
favor of the amendment equaled or exceeded the votes required. The percentage
vote was more than 50% of the outstanding Common Stock and more than 75% of the
outstanding Series A Preferred Stock and Series B Preferred Stock voting
together as a single class.
We further declare under penalty of perjury under the laws of
California that the matters set forth in this amendment and restatement are true
of our own knowledge.
Executed at Palo Alto, California on March 17, 2000.
/s/ Daniel V. Santi
-----------------------------------------
Daniel V. Santi, Chief Executive Officer
/s/ Blair W. Stewart
-----------------------------------------
Blair W. Stewart, Jr., Secretary
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AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
KOSAN BIOSCIENCES, INC.
A DELAWARE CORPORATION
Daniel V. Santi and Blair W. Stewart hereby certify that:
1. They are the President and Secretary, respectively, of Kosan
Biosciences, Inc., a Delaware Corporation (the "Corporation").
2. The Certificate of Incorporation of the Corporation, filed with the
Secretary of State of the State of Delaware on May __, 2000, is hereby amended
and restated in its entirety to read as follows:
"FIRST: The name of the corporation is Kosan Biosciences, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware, 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THIRD: 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.
FOURTH: This Corporation is authorized to issue two classes of shares
designated Common Stock and Preferred Stock.
1. The Corporation is authorized to issue 200,000 shares of Common
Stock, par value $0.01 per share (the "Common Stock"), and 10,000 shares of
Preferred Stock, par value $0.01 per share (the "Preferred Stock").
2. The shares of Preferred Stock may be issued from time to time in one
or more series pursuant to a resolution or resolutions providing for such issue
duly adopted by the Board of Directors. The Board of Directors of the
Corporation is expressly authorized, by filing a certificate pursuant to the
applicable law of the State of Delaware, to: (i) establish from time to time the
number of shares to be included in each such series; (ii) fix the rights,
preferences, restrictions and designations of the shares of each such series,
including but not limited to the fixing or alteration of the dividend rights,
dividend rate, conversion rights, conversion rate, voting rights, rights and
terms of redemption (including sinking fund provisions), redemption price or
prices, voting rights and
<PAGE>
liquidation preferences of any series of Preferred Stock for which no shares
have been issued and are outstanding; (iii) increase number of shares of any
series at any time; and (iv) decrease the number of shares of any series
prior or subsequent to the issue of shares of that series, but not below the
number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend,
or repeal the Bylaws of the Corporation.
SIXTH. Advance notice of new business and stockholder nominations for
the election of directors shall be given in the manner and to the extent
provided in the Bylaws of the Corporation. Election of directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. No action that is required or
permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders. The books of the Corporation
may be kept (subject to any provision contained in the statutes) outside of 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. The directors of
the Corporation need not be elected by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins, or
unless the Bylaws so provide
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this right.
NINTH: Subject to the provisions of the General Corporation Law of the
State of Delaware, the number of Directors of the Corporation shall be
determined as provided by the Bylaws.
TENTH: The Board of Directors shall be divided into three classes
consisting of as nearly equal numbers of directors as possible, and designated
Class A, Class B, and Class C. The term of office of Class A shall expire at the
first annual meeting of stockholders following the effectiveness of this
Article, and each third annual meeting of stockholders thereafter; the term of
office of Class B shall expire at the second annual meeting of stockholders
following the effectiveness of this Article, and each third annual meeting of
stockholders thereafter; and the term of office of Class C shall expire at the
third annual meeting of stockholders following the effectiveness of this
Article, and each third annual meeting of stockholders thereafter. Directors
added to the board of directors between annual meetings of stockholders by
reason of an increase in the authorized number of directors shall belong to the
class designated by the Board of Directors; provided however that the number of
board seats designated to belong to Class A, Class B and Class C must be as
nearly equal in number as possible. Following the effectiveness of this Article,
stockholders may effect the
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removal of a director only for cause. This provision shall supersede any
provision to the contrary in the Corporation's Bylaws.
ELEVENTH: The Corporation shall indemnify and hold harmless any
director, officer, employee or agent of the Corporation from and against any and
all expenses and liabilities that may be imposed upon or incurred by him in
connection with, or as a result of, any proceeding in which he may become
involved, as a part or otherwise, by reason of the fact that he is or was such a
director, officer, employee or agent of the Corporation, whether or not he
continues to be such at the time such expenses and liabilities shall have been
imposed or incurred, to the extent permitted by the laws of the State of
Delaware, as they may be amended from time to time.
TWELTH: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (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 Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this TWELTH Article shall be prospective
and shall not affect the rights under this Thirteenth Article in effect at the
time of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
3. The foregoing Restated Certificate of Incorporation has been duly
approved by the board of directors of the Corporation in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law.
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4. The foregoing Amended and Restated Certificate of Incorporation
has been duly approved by the required vote of the stockholders in accordance
with the Certificate of Incorporation and the provisions of Sections 242 and
245 of the Delaware General Corporation Law.
The undersigned hereby acknowledges that the foregoing Amended and
Restated Certificate of Incorporation is his act and deed and that the facts
stated herein are true.
Executed at Palo Alto, CA, this ____ day of May, 2000.
- ---------------------------------- -----------------------------------
Daniel V. Santi, President Blair W. Stewart, Secretary
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<PAGE>
Exhibit 3.3
BYLAWS
OF
KOSAN BIOSCIENCES INCORPORATED
(a Delaware Corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
2.3 SPECIAL MEETING
Except as otherwise required by law, a special meeting of the
stockholders may be called only by the Board of Directors, the Chairman of the
Board, or the President; provided however, that if at any time no directors
remain in office, then a special meeting for the purpose of electing
<PAGE>
directors may be called in accordance with the procedure set forth in the
Bylaws. No business may be transacted at such special meeting otherwise than
as specified in the notice of such meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise
given in accordance with Section 2.6 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
Subject to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any
stockholder meeting
may be made by the board of directors or proxy committee appointed by the
board of directors or by any stockholder entitled to vote in the election of
directors generally if such nomination or business proposed is otherwise
proper business before such meeting. However, any such stockholder may
nominate one or more persons for election as directors at a meeting or
propose business to be brought before a meeting, or both, only if such
stockholder has given timely notice to the secretary of the corporation in
proper written form of their intent to make such nomination or nominations or
to propose such business. To be timely, such stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than one hundred twenty (120) calendar days in advance
of the date of the corporation's proxy statement released to stockholders in
connection with the previous year's annual meeting of stockholders; provided,
however, that in the event that no annual meeting was held in the previous
year or the date of the annual meeting has been changed by more than thirty
(30) days from the date contemplated at the time of the previous year's proxy
statement, notice by the stockholder to be timely must be so received a
reasonable time before the solicitation is made. To be in proper form, a
stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who
intends to make the nominations or propose the business and, as the case may
be, of the person or persons to be nominated or of the business to be
proposed;
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(ii) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) if applicable, a description of all
arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee
or each matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, or the matter been proposed, or
intended to be proposed by the board of directors; and
(v) if applicable, the consent of each nominee to
serve as director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stock-holders for the
transaction of business except as otherwise pro-vided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought
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before such meeting, unless the question is one upon which, by express
provision of the laws of the State of Delaware or of the certificate of
incorporation or these bylaws, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) 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.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder with respect to any matter submitted
to a vote of the stockholders and stockholders shall not be entitled to cumulate
their votes in the election of directors.
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
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2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
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
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the pro-visions of Section 212(e) of the General Corporation Law of
Delaware.
2.13 ORGANIZATION
The president, or in the absence of the president, the chair-man of the
board, or, in the absence of the president and the chairman of the board, one of
the corporation's vice presidents, shall call the meeting of the stockholders to
order, and shall act as chairman of the meeting. In the absence of the
president, the chairman of the board, and all of the vice presidents, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall deter-mine the order of business and the
procedures at the meeting, including such matters as the regulation of the
manner of voting and the conduct of business. The secretary of the corporation
shall act as secretary of all meetings of the stockholders, but in the absence
of the secretary at any meeting of the stockholders, the chairman of the meeting
may appoint any person to act as secretary of the meeting.
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2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the certificate of incorporation and these bylaws
relating to action required to be approved by the stockholders or by the
out-standing shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of
the board of directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of nine members. The board of
directors may increase or decrease the number of directors constituting the
board of directors upon the approval of a majority of the directors then in
office. The number of directors so determined shall be the authorized number of
directors of the corporation. No reduction of the authorized number of directors
shall have the effect of removing any director before that director's term of
office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy, shall hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that
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resignation to become effective. If the resignation of a director is
effective at a future time, the board of directors may elect a successor to
take office when the resignation becomes effective.
All vacancies in the board of directors may be filled by a majority of
the remaining directors, even if less than a quorum, or by a sole remaining
director; provided, that whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created directorships
of such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware -that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors. If any
regular meeting day shall fall on a legal holiday, then the meeting shall be
held next succeeding full business day.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not
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specify the purpose or the place of the meeting, if the meeting is to be held
at the principal executive office of the corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and other applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
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3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have and may exercise all
the powers and authority of the board, but no such committee shall have the
power of authority to:
(a) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the corporation);
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(b) adopt an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of Delaware;
(c) recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets;
(d) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution; or
(e) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws,
Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7
(special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of
notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment),
and Section 3.12 (action without meeting), with such changes in the context
of those bylaws as are necessary to substitute the committee and its members
for the board of directors and its members; provided, however, that the time
of regular meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that special
meetings of committees may also be called by resolution of the board of
directors, and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
4.3 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report
the same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and
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such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any con-tract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be pre-scribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of
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the corporation and shall, subject to the control of the board of directors,
have general supervision, direction, and control of the business and the
officers of the corporation. He shall preside at all meetings of the
stockholders and, in the absence or non-existence of a chairman of the board,
at all meetings of the board of directors. He shall have the general powers
and duties of management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may be
pre-scribed by the board of directors or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
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The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists or
may hereafter be amended, indemnify any person against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit, or proceeding in which such person was or is a party or is
threatened to be made a party by reason of the fact that such person is or was a
director or officer of the corporation. For purposes of this Section 6.1, a
"director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director of officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of Incorporation,
these bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
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Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reason-ably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose
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reasonably related to such person's interest as a stock-holder. In every
instance where an attorney or other agent is the person who seeks the right
to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make copies of)
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such person
directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or other-wise
altered to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days before any such action. In that case, only
stockholders of
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record at the close of business on the date so fixed are entitled to receive
the dividend, distribution or allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date so fixed, except as otherwise
provided in the General Corporation Law of Delaware.
If the board of directors does not so fix a record date, then the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the president or vice-president, and by the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of such corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has 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 or she were such officer,
transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board
of directors may designate and shall state the name of the record holder of the
shares represented thereby; its number;
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date of issuance; the number of shares for which it is issued; a summary
statement or reference to the powers, designations, preferences or other
special rights of such stock and the qualifications, limitations or
restrictions of such preferences and/or rights, if any; a statement or
summary of liens, if any; a conspicuous notice of restrictions upon transfer
or registration of transfer, if any; a statement as to any applicable voting
trust agreement; if the shares be assessable, or, if assessments are
collectible by personal action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment 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.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, how-ever, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
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8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall be
appointed at such times and places as the requirements of the corporation may
necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or the filing of the operative written consent(s) shall be
stated in said book.
9.2 SUPERMAJORITY VOTE
Notwithstanding anything to the contrary in the bylaws, neither
Section 2.3 (special meeting), Section 2.5 (advance notice of stockholder
nominees and stockholder business), nor this Section 9.2 (supermajority vote)
of the bylaws shall be repealed or amended, nor shall any provision
inconsistent with the aforementioned provisions be adopted and added to the
bylaws except upon the affirmative vote of not less than two-thirds of the
shares of the corporation issued and outstanding.
Amended and Restated Bylaws adopted by the Board of Directors of the
Corporation at Hayward, California, this day of March, 2000.
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KOSAN BIOSCIENCES INCORPORATED
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
DATED AS OF MARCH 30, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1 Restrictions on Transferability of Securities; Compliance with Securities Act...........................2
1.1 CERTAIN DEFINITIONS......................................................................................2
1.2 RESTRICTIONS ON TRANSFERABILITY..........................................................................3
1.3 RESTRICTIVE LEGENDS......................................................................................3
1.4 NOTICE OF PROPOSED TRANSFERS.............................................................................4
1.5 REQUESTED REGISTRATION...................................................................................5
1.6 COMPANY REGISTRATION.....................................................................................7
1.7 REGISTRATION ON FORM S-3.................................................................................8
1.8 EXPENSES OF REGISTRATION.................................................................................9
1.9 INDEMNIFICATION.........................................................................................10
1.10 Information of Holder; Copies of Prospectus.............................................................12
1.11 OBLIGATIONS OF THE COMPANY..............................................................................12
1.12 RULE 144 REPORTING......................................................................................13
1.13 TRANSFER OF REGISTRATION RIGHTS.........................................................................14
1.14 STANDOFF AGREEMENT......................................................................................14
Section 2 Miscellaneous..........................................................................................14
2.1 TRANSFER; SUCCESSORS AND ASSIGNS........................................................................14
2.2 GOVERNING LAW...........................................................................................15
2.3 COUNTERPARTS............................................................................................15
2.4 TITLES AND SUBTITLES....................................................................................15
2.5 NOTICES.................................................................................................15
2.6 TERMINATION.............................................................................................15
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TABLE OF CONTENTS
(CONTINUED)
PAGE
2.7 SEVERABILITY............................................................................................15
2.8 ENTIRE AGREEMENT........................................................................................15
2.9 MODIFICATIONS AND AMENDMENTS............................................................................15
2.10 ADDITIONAL REGISTRATION RIGHTS..........................................................................16
EXHIBIT A - HOLDERS
</TABLE>
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THIS THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made as of the 30th day of March, 2000 by and among Kosan
Biosciences Incorporated, a California corporation (the "Company") and the
persons and entities listed on EXHIBIT A attached hereto. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in
Section 1.1 hereof.
WHEREAS, concurrently with the execution and delivery of this
Agreement, certain of the Holders are acquiring shares of the Company's Series C
Preferred Stock pursuant to a Series C Preferred Stock Purchase Agreement of
even date herewith (the "Series C Purchase Agreement");
WHEREAS, the Company sold shares of its Series A Preferred Stock to
certain of the Holders pursuant to a Series A Preferred Stock Purchase Agreement
dated as of January 31, 1997 (the "Series A Purchase Agreement");
WHEREAS, in connection with the Series A Purchase Agreement, the
Company and certain of the Holders entered into an Amended and Restated
Registration Rights Agreement dated as of January 31, 1997, pursuant to which
the Company granted such Holders certain registration rights with respect to the
Company's Common Stock to be acquired upon the conversion of the Series A
Preferred Stock;
WHEREAS, the Company sold shares of its Series B Preferred Stock to
certain of the Holders pursuant to a Series B Preferred Stock Purchase Agreement
dated as of April 3, 1998 (the "Series B Purchase Agreement");
WHEREAS, in connection with the Series B Purchase Agreement, the
Company and certain of the Holders entered into a Second Amended and Restated
Registration Rights Agreement dated as of April 3, 1998 (the "Prior Registration
Rights Agreement"), pursuant to which the Company granted such Holders certain
registration rights with respect to the Company's Common Stock to be acquired
upon the conversion of the Series B Preferred Stock;
WHEREAS, the Company wishes to amend and restate the Prior Registration
Rights Agreement to grant to those persons and entities that are purchasing
Series C Preferred Stock pursuant to the Series C Purchase Agreement certain
registration rights with respect to the Company's Common Stock; and
WHEREAS, pursuant to Section 2.9 of the Prior Registration Rights
Agreement, the Prior Registration Rights Agreement may be modified or amended
only with the written consent of the Company and the Holders (as such term is
defined in the Prior Registration Rights Agreement) holding at least seventy
percent (70%) of the Registrable Securities (as such term is defined in the
Prior Registration Rights Agreement) then subject to the Prior Registration
Rights Agreement, and those persons and entities listed on the signature pages
hereof constitute the Holders of at least seventy percent (70%) of the
Registrable Securities now subject to the Prior Registration Rights Agreement.
<PAGE>
NOW, THEREFORE, the parties agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"AFFILIATE" shall mean any person controlling, controlled by or under
common control with another person. "Control" shall mean the right to direct the
management or policies of the person or to elect or appoint a majority of its
managerial body (such as the board of directors of a corporation, the managers
of a limited liability company, the general partners of a partnership, the
trustees of a trust, etc.), or the ownership of more than 50% of the equity
interests of the person. "Person" shall mean any individual, corporation,
company, partnership, trust, association or other legal entity.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"CONVERSION SHARES" shall mean the shares of the Company's Common Stock
issued or issuable upon the conversion of Shares that are convertible
securities.
"HOLDER" shall mean any holder of Registrable Securities listed on
EXHIBIT A, including any person holding Registrable Securities to whom the
rights under this Section 1 have been transferred in accordance with Section
1.13 hereof.
"INITIATING HOLDERS" shall mean any Holders of at least twenty-five
(25%) of the Registrable Securities.
"REGISTRABLE SECURITIES" means (i) Conversion Shares and (ii) any
Common Stock of the Company issued or issuable with respect to such Conversion
Shares upon any stock split, stock dividend, recapitalization or similar event
or any Common Stock otherwise issued with respect to the such shares; PROVIDED,
HOWEVER, that Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold (other than pursuant to Section 1.13 hereof)
after the Company's Common Stock is registered under the Securities Exchange Act
of 1934, as amended, in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Rule 144 thereof
(or any comparable exemption) so that all transfer restrictions and restrictive
legends with respect thereto, if any, are removed upon the consummation of such
sale.
"RESTRICTED SECURITIES" shall mean the Shares and the Conversion
Shares.
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The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Sections 1.5, 1.6 and 1.7 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
any of the Holders and all fees and disbursements of counsel for such Holders
(as limited by Section 1.8).
"SHARES" shall mean the shares of the Company's Common Stock, the
shares of the Company's Series A Preferred Stock, the shares of the Company's
Series B Preferred Stock and the shares of the Company's Series C Preferred
Stock, in each case listed opposite the name of each Holder on EXHIBIT A
attached hereto.
References in this Section 1 to the Company's "commercially reasonable
efforts" with respect to a registration shall not be construed so as to permit
the Company to delay or refuse to undertake a registration due to the (i)
expense to the Company of such registration, (ii) timing of such registration,
or (iii) involvement of the Company's management or other resources in such
registration.
1.2 RESTRICTIONS ON TRANSFERABILITY. The Restricted Securities shall
not be sold, assigned, transferred or pledged except upon the conditions
specified in this Section 1, which conditions are intended to ensure compliance
with the provisions of the Securities Act. Each Holder will cause any proposed
purchaser, assignee, transferee or pledgee of any of the Restricted Securities,
to agree to take and hold such Restricted Securities subject to the provisions
and upon the conditions specified in this Section 1, including without
limitation those imposed upon Holders under Section 1.13.
1.3 RESTRICTIVE LEGENDS.
(a) Each certificate representing (i) the Shares, (ii) the Conversion
Shares and (iii) any other securities issued in respect of the Shares or the
Conversion Shares upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend
in substantially the following form (in addition to any legend required under
applicable state securities laws):
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER
SUCH ACT UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT OR
UNLESS THE SALE IS OTHERWISE EXEMPT FROM REGISTRATION. UNLESS
SUCH SHARES ARE SOLD PURSUANT TO RULE 144 OF THE SECURITIES
ACT, THE COMPANY MAY REQUEST A WRITTEN OPINION OF COUNSEL,
WHICH OPINION AND COUNSEL ARE ACCEPTABLE TO THE COMPANY, TO
THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION
WITH ANY SUCH SALE, PLEDGE OR HYPOTHECATION OR OTHER TRANSFER.
THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS
TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE,
HYPOTHECATION OR OTHER TRANSFER OF ANY INTEREST IN ANY OF THE
SHARES REPRESENTED BY THIS CERTIFICATE.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER CONTAINED IN AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY.
(b) Each Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS. Each Holder by acceptance of
Restricted Securities agrees to comply in all respects with the provisions of
this Section 1.4. Prior to any proposed sale, assignment, transfer or pledge
of any Restricted Securities, unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the holder
thereof shall give written notice to the Company of such holder's intention
to effect such transfer, sale, assignment or pledge. Each such notice shall
describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail and, if the Company reasonably so
requests, shall be accompanied at such holder's expense by either (i) an
opinion of legal counsel which shall be reasonably satisfactory to the
Company, which opinion shall be addressed to the Company, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder
to the Company. Each certificate or other writing evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer
is made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 1.3 above, except that
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such certificate shall not bear such restrictive legend if in the opinion of
counsel for such holder and the Company such legend is not required in order
to establish compliance with any provisions of the Securities Act. It is
agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144. Notwithstanding the provisions of this Section
1.4, no such opinion of counsel shall be necessary for a transfer by a Holder
which is (A) a partnership to its partners or former partners in accordance
with partnership interests, (B) a corporation to its shareholders in
accordance with their interest in the corporation, (C) a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, or (D) to the Holder's or Affiliate's family
member or to a trust for the benefit of an individual Holder, provided, that
in all cases the transferee will be subject to the terms of this Section 1.4
to the same extent as if such transferee were an original Holder hereunder.
1.5 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to the Registrable Securities, the
anticipated aggregate offering price of which is at least $5,000,000, the
Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other holders of Registrable Securities; and
(ii) as soon as practicable, use its commercially reasonable
efforts to effect such registration, qualification or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder joining in such request as are specified in a written
request received by the Company within thirty (30) days after receipt of such
written notice from the Company; PROVIDED, HOWEVER, that the Company shall not
be obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Section 1.5:
(A) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(B) prior to the earlier of twelve (12)
months from the date of this Agreement or one hundred and eighty (180) days
immediately following the effective date of the registration statement
pertaining to a firm commitment underwritten initial public offering of
securities of the Company;
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(C) beginning at any time when the Company
delivers notice to the holders of Registrable Securities within thirty (30) days
of any registration request of its bona fide intention to file a registration
statement with the Commission pertaining to a firm commitment underwritten
initial public offering of securities of the Company within ninety (90) days of
such request and ending on the earlier of the abandonment or consummation of
such offering;
(D) during the one hundred and eighty (180)
days immediately following the effective date of the registration statement
pertaining to a firm commitment underwritten initial public offering of
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan);
(E) after the Company has effected three
such registrations pursuant to this subparagraph 1.5(a), such registrations have
been declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or
(F) if the Company shall furnish to Holders
a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, provided that the Company's obligation to use its best efforts to
register, qualify or comply under this Section 1.5 shall be deferred for a
period not to exceed ninety (90) days, and provided, further, that the Company
shall not exercise its right under this clause to defer such obligation more
than once in any twelve (12) month period.
Subject to the foregoing clauses (A) through (F), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) UNDERWRITING. In the event that the Initiating Holders
intend to distribute their Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as part of their
request made pursuant to this Section 1.5 and the Company shall so advise the
Holders as part of the notice given pursuant to Section 1.5(a)(i). In such
event, the right of any Holder to registration pursuant to Section 1.5 shall be
conditioned upon such Holder's participation in the underwriting arrangements
required by this Section 1.5(b) and the inclusion of such holder's Registrable
Securities in the underwriting to the extent requested and to the extent
provided herein.
The Company (together with all Holders proposing to distribute their
securities through such underwriting) shall, upon request by the managing
underwriter selected for such underwriting by a majority in interest of the
Initiating Holders (which managing underwriter shall be reasonably acceptable
to the Company), enter into any reasonable agreement requested by the
managing underwriter in connection with the offering including, but not
limited to, an underwriting agreement in customary form with the managing
underwriter. Notwithstanding any other provision of this Section 1.5, if the
managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, the managing underwriter may
limit or exclude the securities to be included in such registration by any
Holder exercising its rights pursuant to this Section 1.5; provided that if
any exclusion or limitation of securities is so required, the securities to
be included
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shall be apportioned as follows: first, among the Holders of Registrable
Securities participating in such registration pursuant to the exercise of
their rights in this Section 1.5 in proportion to the number of shares of
Registrable Securities held by such Holders, second, to the Company, and
third, to any other holders of securities of the Company entitled to
participate and participating in such registration ("Other Holders") in
proportion to the number of shares of the Company's Common Stock (or
equivalents thereof) held by such Other Holders. No securities or Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting, such person
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration, and such Registrable Securities shall
not be transferred in a public distribution prior to ninety (90) days after the
effective date of such registration; PROVIDED, HOWEVER, that, if by the
withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all Holders who have included Registrable Securi ties in the
registration the right to include additional Registrable Securities in the same
proportion used in determining the underwriter limitation in this Section
1.5(b).
1.6 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time the Company shall determine to register any of its securities in connection
with the sale thereof for cash, either for its own account or the account of a
security holder or holders exercising their respective demand registration
rights, other than (i) a registration relating solely to employee benefit plans,
or (ii) a registration relating solely to a Commission Rule 145 transaction, the
Company will:
(A) promptly give to each Holder written notice
thereof; and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company by any Holder.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company (or by the
holders who have demanded such registration). Notwithstanding any other
provision of this Section 1.6, if the managing underwriter determines that
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<PAGE>
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit or exclude the Registrable
Securities to be included in such registration prior to the exclusion from
such registration of any securities to be sold by the Company or any party
exercising demand registration rights with respect to such registration;
provided that if any exclusion or limitation of Registrable Securities is so
required, the securities to be included shall be apportioned as follows:
first, to the Company, second, among the Holders of Registrable Securities
participating in such registration in proportion to the number of shares of
Registrable Securities held by such Holders, and third, among any Other
Holders of securities of the Company entitled to participate and
participating in such registration in proportion to the number of shares of
the Company's Common Stock (or equivalents thereof) held by such Other
Holders. In no event will shares of any Other Holders be included in such
registration which would reduce the number of shares which may be included by
Holders without the written consent of Holders of not less than seventy
percent (70%) of the Registrable Securities proposed to be sold in the
offering. If any Holder or Other Holder dis approves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration. All
priorities with respect to demand registrations shall be governed by Section
1.5 hereof.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by the Company
under this Section 1.6 prior to the effectiveness of such registration whether
or not any Holder has elected to include securities in such registration.
1.7 REGISTRATION ON FORM S-3.
(a) If any Holder requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the anticipated
aggregate offering price of not less than $2,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its commercially reasonable efforts to
cause such Registrable Securities to be registered for the offering on such
form; PROVIDED, HOWEVER, that the Company shall not be required to effect more
than two such registration pursuant to this Section 1.7 in any twelve-month
period. The Company will (i) promptly give written notice of the proposed
registration to all other Holders and (ii) as soon as practicable, use its
commercially reasonable efforts to effect such registration (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within thirty (30) days after receipt of such written notice from
the Company. If the registration is for a public offering involving an
underwriting, the substantive provisions of Sec tion 1.5(b) shall be applicable
to each registration initiated under this Section 1.7.
-8-
<PAGE>
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.7: (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service
in such jurisdiction and except as may be required by the Securities Act;
(ii) beginning at any time when the Company delivers notice to the Holders of
the Company's bona fide intention to effect the filing of a registration
statement (other than with respect to a registration statement relating to a
Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities) with the Commission within ninety (90) days of such notice and
ending on the earlier of the abandonment or consummation of such offering;
(iii) during the period starting with the date forty-five (45) days prior to
the filing of, and ending on a date sixty (60) days following the effective
date of, a registration statement (other than with respect to a registration
statement relating to a Rule 145 transaction, an offering solely to employees
or any other registration which is not appropriate for the registration of
Registrable Securities), provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective; or (iv) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for registration statements to be filed in
the near future or for any disclosure to be made that, in the opinion of the
Board of Directors duly advised by counsel, is required to be made in
connection with the sale of Registrable Securities pursuant to such
registration, provided that the Company's obligation to use its commercially
reasonable efforts to file a registration statement shall be deferred for a
period not to exceed ninety (90) days from the receipt of the request to file
such registration by such Holder, and provided, further, that the Company
shall not exercise its right under this clause to defer such obligation more
than once in any twelve-month period.
1.8 EXPENSES OF REGISTRATION.
(a) All Registration Expenses incurred in connection with any
registration pursuant to Sections 1.5 or 1.6, and the reasonable cost of one
special legal counsel to represent all of the Holders together, shall be borne
by the Company. All Registration Expenses incurred in connection with the first
two registrations pursuant to Section 1.7, excluding the expense of counsel for
the Holders, shall be borne by the Company. The Company shall not be required to
pay the Registration Expenses of any registration proceeding begun pursuant to
Section 1.5 if the request for such registration has been subsequently withdrawn
by the Initiating Holders, unless the Holders of at least seventy percent (70%)
of the Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 1.5. Notwithstanding the foregoing, however, if
at the time of the withdrawal the Holders have learned of a material adverse
change in the condition, business or prospects of the Company from that known to
the Holders at the time of their request, of which the Company had knowledge at
the time of the request, then the Holders shall not be required to pay any of
said Registration Expenses or to forfeit the right to one demand registration.
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<PAGE>
(b) All Selling Expenses incurred in connection with a
registration pursuant to Section 1.7 shall be borne pro-rata by the Holder or
Holders requesting the registration on Form S-3 according to the number of
Registrable Securities in such registration.
(c) Notwithstanding the provisions of Section 1.8(a), if, as a
condition of registration or qualification of any offering in any state or
jurisdiction in which the Company or any underwriter determines in good faith
that it wishes to offer securities registered in an offering to which this
Agreement applies, it is required that offering expenses be allocated in a
manner different from that provided in Section 1.8(a), the offering expenses
shall be allocated in whatever permitted manner is most nearly in compliance
with the provisions of this Agreement, so long as such allocation does not
materially reduce the net proceeds received by any Holder.
1.9 INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers and directors and partners, and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation (or alleged violation) by the
Company of the Securities Act or any rule or regulation promulgated under the
Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse or pay
for the account of each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred (as and when incurred) in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the
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<PAGE>
Securities Act, and each other such Holder, each of its officers and
directors and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse or pay for the account of the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred (as
and when incurred) in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such-registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the liability of a Holder for indemnification under
this Section 1.9(b) shall not exceed the net proceeds from the offering
received by such Holder, unless such liability arises out of or is based on
willful misconduct of such Holder.
(c) Each party entitled to indemnification under this
Section 1.9 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (which approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense; PROVIDED, HOWEVER, that an Indemnified
Party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 1 except to the extent that the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such
action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement (i) that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation, or (ii) that contains or requires any
admission of fault on the part of an Indemnified Party. No Indemnifying Party
shall be liable for indemnification hereunder with respect to any settlement
or consent to judgment in connection with any claim or litigation to which
these indemnification provisions apply that has been entered into without the
prior consent of the Indemnifying Party (which consent will not be
unreasonably withheld).
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<PAGE>
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any losses, claims, damages or liabilities referred to
herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the untrue statement (or alleged untrue
statement) or omission (or alleged omission) that resulted in such loss, claim,
damage or liability, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by a court of law by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
provided, that in no event shall any contribution by a Holder hereunder exceed
the net proceeds from the offering received by such Holder.
(e) The obligations of the Company and the Holders under
this Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement pursuant to this Section 1.
1.10 INFORMATION OF HOLDER; COPIES OF PROSPECTUS. Each Holder of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder, the Registrable Securities held by such
Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be required and typically provided by
selling shareholders in a like situation in connection with any registration,
qualification or compliance referred to in this Section 1. In connection with
any such registration, the Company shall furnish to such Holder or Holders such
numbers of copies as may be reasonably requested in order to facilitate the
disposition of Registrable Securities owned by such Holder, of any prospectus or
preliminary prospectus prepared in conformity with the Securities Act.
1.11 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
soon as practicable:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its commercially
reasonable efforts to cause such registration statement to become effective, and
upon the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for a period
of up to one hundred twenty (120) days or until the distribution contemplated in
the Registration Statement has been completed.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
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<PAGE>
(c) Use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to file a general consent to
service of process in any such states or jurisdictions.
(d) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing.
(e) Furnish to the Holders participating in such registration
and, if applicable, to the underwriters of the securities being registered, such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus, accountant's comfort letters, opinions of counsel
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
(f) In the event of an underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(g) File such listing applications as may be reasonably
necessary in connection with the sale of such Registrable Securities.
1.12 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission, which may permit the sale of
the Restricted Securities to the public without registration, after such time as
a public market exists for the Common Stock of the Company, the Company agrees
to use its commercially reasonable effort to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act");
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act;
(c) So long as a Holder owns any Restricted Securities, to
furnish to the Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule
144, a copy of the most recent annual or quarterly report of the Company and
such other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as a Holder may
reasonably request in availing itself of any
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<PAGE>
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration; and
(d) Take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective.
1.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company
to register securities granted Holders under Sections 1.5, 1.6, and 1.7 may be
assigned or otherwise conveyed to a transferee or assignee in connection with
any transfer or assignment of Registrable Securities by a Holder (together with
any Affiliate) provided that such transfer may otherwise be effected in
accordance with applicable securities laws, the Holder effecting such transfer
shall comply with the requirements of Section 1.4 of this Agreement, the
transferee shall agree to be bound by all of the provisions of this Section 1,
such transfer does not violate any agreements by and among the Company and such
Holders or any agreements among such Holders, and such transferee or assignee is
a wholly owned subsidiary, constituent partner (including retired and limited
partners) or Affiliate of such Holder, is any family member of any individual
Holder, is a trust for the benefit of any individual Holder, or acquires from
such Holder at least 150,000 shares of the Company's Registrable Securities
subject to this Agreement (as adjusted for any stock split or combination), or a
lesser amount provided such transferee or assignee acquires all of the shares of
the Company's capital stock subject to this Agreement then held by such Holder,
provided in each case that the Company is given written notice by such
transferee at the time of said transfer stating the name and address of said
transferee and said transferee's agreement to be bound by this Agreement.
1.14 STANDOFF AGREEMENT. So long as the Company has complied in all
material respects with the terms of this Agreement, each Holder agrees in
connection with the firm commitment initial underwritten public offering of the
Company's securities, upon request of the Company or the underwriters managing
any underwritten offering of the Company's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of or otherwise dispose
of any Registrable Securities (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed one hundred eighty (180)
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters, provided that each of the Company's
officers, directors and holders of at least one percent (1%) of the Company's
voting securities shall have agreed to be bound by the same restrictions in
connection with the Company's initial public offering.
SECTION 2
MISCELLANEOUS
2.1 TRANSFER; SUCCESSORS AND ASSIGNS. Except as the transferability of
rights is expressly limited herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement,
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<PAGE>
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the state of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
2.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed
(a) if to a Holder, at such address as such Holder shall have furnished to the
Company in writing, or (b) if to the Company, at such address as the Company
shall have furnished in writing to the Holder to the attention of the President.
A notice shall be effective when actually delivered by hand or messenger, or, if
to a domestic addressee, five (5) business days after deposit in the mail as
aforesaid, or, if to an international addressee, sent by express messenger
specifying not more than three days' delivery.
2.6 TERMINATION. This Agreement shall terminate with respect to any
Holder when such Holder may sell all of its Registrable Securities under Rule
144 without limitation as to volume.
2.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as to reasonably effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
2.8 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
2.9 MODIFICATIONS AND AMENDMENTS. This Agreement may be modified or
amended only with the written consent of the Company and the Holders holding at
least seventy percent (70%) of the Registrable Securities then subject to this
Agreement. Any waiver by a party of its rights hereunder shall be effective only
if evidenced by a written instrument executed by such party. In no event shall
such waiver of any rights hereunder constitute the waiver of such rights in any
future instance unless the waiver so specifies in writing. Each Holder
acknowledges that by the operation of this Section 2.9 the Holders of seventy
percent (70%) of the Registrable Securities interests may
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<PAGE>
have the right and power to diminish or eliminate all rights of such Holder
under this Agreement. Each Holder agrees that its consent to amend this
Agreement shall not be required in the event the Company desires to amend
this Agreement to include in the definition of Holder suppliers, lessors or
commercial lending institutions that acquire Registrable Securities after the
date hereof, so long as the rights so granted are not inconsistent with or
superior to any rights granted to the Holders under this Agreement.
2.10 ADDITIONAL REGISTRATION RIGHTS. Without the prior written consent
of the Holders of at least seventy percent (70%) of the Registrable Securities,
the Company shall not grant registration rights other than in compliance with
Section 2.9 above and shall not enter into any agreement with respect to
registration rights that is inconsistent with the terms of this Agreement.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Third Amended and
Restated Registration Rights Agreement as of the date first above written.
"COMPANY" KOSAN BIOSCIENCES INCORPORATED
By: /s/ Daniel V. Santi
------------------------------
Title: Chief Executive Officer
------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
"HOLDERS" ALTA CALIFORNIA PARTNERS, L.P.
By: Alta California Management Partners, L.P.
By: /s/ Jean Deleage
------------------------------
Title: General Partner
ALTA EMBARCADERO PARTNERS, LLC
By: /s/ Jean Deleage
------------------------------
Title: Member
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
CV SOFINNOVA VENTURE PARTNERS III
By: Sofinnova Management L.P.
By: /s/ Michael F. Powell
------------------------------
Title: Managing Director
------------------------------
Sofinnova Management III, LLC
(General Partner)
SOFINNOVA CAPITAL II F.C.P.R.
By: /s/ Michael F. Powell
------------------------------
Title:
------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
WALDEN EDB PARTNERS, L.P.
By: Walden Management, L.P., General Partner
By: /s/ Lip Bu Tan
------------------------------
Title: General Partner
------------------------------
WALDEN TECHNOLOGY VENTURES II, L.P.
By: Walden Technology Partners, L.P.,
General Partner
By: [ILLEGIBLE]
------------------------------
Title: General Partner
------------------------------
WALDEN-SBIC, L.P.
By: [ILLEGIBLE]
------------------------------
Title: General Partner
------------------------------
WALDEN EDB PARTNERS II, L.P.
By: Walden Management LLC, General Partner
By: /s/ Lip Bu Tan
------------------------------
Title: General Partner
------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
THE GOLDMAN SACHS GROUP, INC.
By: /s/ Eric M. Mindich
------------------------------
By:
------------------------------
Title: Attorney-in-Fact
------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
LOMBARD ODIER & CIE
By: /s/ Carmela Gokok
------------------------------
Title: Assistant Vice President
------------------------------
By: /s/ Alexander Meyer
------------------------------
Title: Assistant Vice President
------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
S.R. ONE, LIMITED
By:
------------------------------
By: /s/ Raymond Whitaker
------------------------------
Title: Vice President
------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
/s/ Daniel V. Santi
------------------------------
DANIEL V. SANTI
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
AG-BIOTECH CAPITAL, LLC
By: Veridian Management, LLC
------------------------------
By: /s/ Helene S. Cohen
------------------------------
Title: President/Manager
------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
DEUTSCHE ASSET MANAGEMENT (NAVAP)
By: [ILLEGIBLE]
-------------------------------
Title:[ILLEGIBLE]
-------------------------------
DEUTSCHE ASSET MANAGEMENT
INVESTMENT GESELLSCHAFT mbtt
DEUTSCHE VERMOEGENSBILDUNGS
GESELLSCHAFT m.b.H.
By: /s/ Daniel Endrikat
-------------------------------
Daniel Endrikat
Title:
-------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
THE FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
By:
-------------------------------
By: /s/ Murray L. Simpson
-------------------------------
Title: Vice President
-------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
INVEMED FUND, L.P.
By:
-------------------------------
By: /s/ Cristina H. Kepner
-------------------------------
Title:Executive Vice President of Invemed
-------------------------------
Associates LLC and General Partner
of Invemed Fund, L.P.
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
CRISTINA H. KEPNER
/s/ Cristina H. Kepner
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
G. ALLEN MEBANE
/s/ G. Allen Mebane
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
THOMAS TEAGUE
/s/ Thomas Teague by [ILLEGIBLE]
-------------------------------------
Attorney-in-Fact
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
BRUCE M. LANGONE
/s/ Bruce M. Langone
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
JAMES MCGIBBON
/s/ James McGibbon
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
ED HERLIHY
/s/ Ed Herlihy
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
KENNETH LANGONE
/s/ Kenneth Langone
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
JOHN BARAN
/s/ John Baran
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
BALDWIN SMITH, JR.
/s/ Baldwin Smith, Jr.
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
ADAM CHIN
/s/ Adam Chin
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
ANDREW R. TAUSSIG
/s/ Andrew R. Taussig
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
VIREN MEHTA
/S/ Viren Mehta
-------------------------------------
(Signature Page to the Third Amended and Restated Registration Rights Agreement)
<PAGE>
EXHIBIT A
HOLDERS
<TABLE>
<CAPTION>
"HOLDER" "REGISTRABLE SECURITIES"
- ------------------------------------------------- ---------------------------------------------------------------------
SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alta California Partners, L.P. 52,263 462,968 237,009 23,654
Alta Embarcadero Partners, LLC 1,552 13,224 5,415 540
Chiron Corporation 35,877 238,096 0 0
Daniel V. Santi 216,498 229,761 24,244 0
Chaitan Khosla 22,857 7,413 0 0
Walden-SBIC, L.P. 0 178,572 24,793 5,499
Walden Technology Ventures II, L.P. 0 35,714 4,960 1,100
Walden EDB Partners, L.P. 0 47,619 6,611 1,466
CV Sofinnova Venture Partners III 0 190,476 24,242 0
Sofinnova Capital II F.C.P.R. 0 0 36,364 0
Parvin Anand 1,794 11,905 0 0
Joseph T. Fitzpatrick, Trustee of the Joseph T.
Fitzpatrick Trust U/A/D 9/8/88 717 4,762 0 0
Jeffrey A. Golden 538 3,572 0 0
John F. Hamilton and Carol Leonard,
as community property 538 3,572 0 0
Kathryn M. Ivanetich 179 1,191 0 0
<PAGE>
<CAPTION>
"HOLDER" "REGISTRABLE SECURITIES"
- ------------------------------------------------- ---------------------------------------------------------------------
SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Jacobson, Silverstein, Winslow Architects 359 2,381 0 0
George Robert Johnson 359 2,381 0 0
Deborah Kass 359 2,381 0 0
James Huger Richardson 538 3,572 0 0
Kathy Houser Richardson 359 2,381 0 0
Howard J. Schaeffer 359 2,381 0 0
Robert M. Stroud 359 2,381 0 0
WS Investment Company '96A 717 4,762 0 0
The Goldman Sachs Group, Inc.
One New York Plaza, 50th Floor
New York, NY 10004
Attn: Robert Granovsky
WITH A COPY TO:
The Goldman Sachs Group, Inc.
One New York Plaza, 37th Floor
New York, NY 10004
Attn: John Berton 0 0 303,030 0
Lombard Odier & Cie 0 0 363,636 58,065
S.R. One, Limited 0 0 303,030 16,129
Ag-Biotech Capital, LLC 0 0 484,848 16,129
Deutsche Asset Management 0 0 0 161,291
Deutsche Vermoegensbildungs Gesellschaft m.b.H. 96,774
The Franklin Biotechnology Discovery Fund 0 0 0 387,097
<PAGE>
<CAPTION>
"HOLDER" "REGISTRABLE SECURITIES"
- ------------------------------------------------- ---------------------------------------------------------------------
SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Invemed Fund, L.P. 0 0 0 12,904
Cristina H. Kepner 0 0 0 2,420
G. Allen Mebane 0 0 0 806
Thomas Teague 0 0 0 645
Bruce M. Langone 0 0 0 806
James McGibbon 0 0 0 968
Ed Herlihy 0 0 0 806
Kenneth Langone 0 0 0 8,873
John Baran 0 0 0 806
Baldwin Smith, Jr. 0 0 0 806
Adam Chin 0 0 0 806
Andrew R. Taussig 0 0 0 1,612
Viren Mehta 0 0 0 3,226
TOTAL 336,222 1,451,195 1,818,182 803,228
======= ========= ========= =======
</TABLE>
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this __ day
of ___________, 199__ by and between Kosan Biosciences Incorporated, a
California corporation (the "Company") and ____________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing
difficulty in obtaining directors' and officers' liability insurance, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available
as adequate under the present circumstances, and Indemnitee and other officers
and directors of the Company may not be willing to continue to serve as
officers and directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred
by Indemnitee in connection with such action or proceeding if Indemnitee acted
in good faith and in a manner Indemnitee believed to be in the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action or proceeding by judgment, order, settlement, conviction, or upon
a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presump-
<PAGE>
tion that (i) Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in the best interests of the Company, or
(ii) with respect to any criminal action or proceeding, Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement, in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense
or settlement of such action or proceeding if Indemnitee acted in good faith
and in a manner Indemnitee believed to be in the best interests of the Company
and its shareholders.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding referenced
in Section 1(a) or (b) hereof (but not amounts actually paid in settlement of
any such action or proceeding). Indemnitee hereby undertakes to repay such
amounts advanced only if, and to the extent that, it shall ultimately be
determined that Indemnitee is not entitled to be indemnified by the Company as
authorized hereby. The advances to be made hereunder shall be paid by the
Company to Indemnitee within twenty (20) days following delivery of a written
request therefor by Indemnitee to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered mail, properly
addressed; otherwise notice shall be deemed received when such notice shall
actually be received by the Company. In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification provided for in Section 1
shall be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute, or
under any provision of the Company's Articles of Incorporation or Bylaws
providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof has first been
received by the Company, Indemnitee may,
-2-
<PAGE>
but need not, at any time thereafter bring an action against the Company to
recover the unpaid amount of the claim and, subject to Section 13 of this
Agreement, Indemnitee shall also be entitled to be paid for the expenses
(including attorneys' fees) of bringing such action. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in connection with any action or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for
the amount claimed, and Indemnitee shall be entitled to receive interim
payments of expenses pursuant to Subsection 2(a) unless and until such defense
may be finally adjudicated by court order or judgment from which no further
right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
shareholders) to have made a determination that indemnification of Indemnitee
is proper in the circumstances because Indemnitee has met the applicable
standard of conduct required by applicable law, nor an actual determination by
the Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its shareholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 2(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume
the defense of such proceeding, with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice,
approval of such counsel by Indemnitee and the retention of such counsel by the
Company, the Company will not be liable to Indemnitee under this Agreement for
any fees of counsel subsequently incurred by Indemnitee with respect to the
same proceeding, provided that (i) Indemnitee shall have the right to employ
his counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Company, (B) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
-3-
<PAGE>
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the
Company's Articles of Incorporation, the Company's Bylaws or by statute. In the
event of any change, after the date of this Agreement, in any applicable law,
statute or rule which expands the right of a California corporation to
indemnify a member of its board of directors, an officer or other corporate
agent, such changes shall be, IPSO FACTO, within the purview of Indemnitee's
rights and Company's obligations, under this Agreement. In the event of any
change in any applicable law, statute or rule which narrows the right of a
California corporation to indemnify a member of its Board of Directors, an
officer or other corporate agent, such changes, to the extent required by such
law, statute or rule to be applied to this Agreement, shall have the effect on
this Agreement and the parties' rights and obligations hereunder as is required
by such law, statute or rule.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may
be entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested directors, the California
General Corporation Law, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time
of any action or other covered proceeding.
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any
civil or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors and officers under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of indemnification to
a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
6. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other
-4-
<PAGE>
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
directors' and officers' liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees,
if Indemnitee is not an officer or director but is a key employee.
Notwithstanding the foregoing, the Company shall have no obligation to obtain
or maintain such insurance if the Company determines in good faith that such
insurance is not reasonably available, if the premium costs for such insurance
are disproportionate to the amount of coverage provided, if the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company.
7. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach
of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 7. If this Agreement or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee to the full extent permitted by
any applicable portion of this Agreement that shall not have been invalidated,
and the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of
liability under the California General Corporation Law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise
as required under Section 317 of the California General Corporation Law, but
such indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors has approved the initiation or
bringing of such suit; or
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted
by Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
-5-
<PAGE>
(d) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company; or
(e) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. EFFECTIVENESS OF AGREEMENT. To the extent that the
indemnification permitted under the terms of certain provisions of this
Agreement exceeds the scope of the indemnification expressly permitted by
Section 317 of the California General Corporation Law, such provisions shall
not be effective unless and until the Company's Articles of Incorporation
authorize such additional rights of indemnification. In all other respects, the
balance of this Agreement shall be effective as of the date set forth on the
first page and may apply to acts or omissions of Indemnitee which occurred
prior to such date if Indemnitee was an officer, director, employee or other
agent of the Company, or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, at the time such act or omission occurred.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall also include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had
continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants,
or beneficiaries.
11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.
-6-
<PAGE>
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms
hereof, Indemnitee shall be entitled to be paid all costs and expenses,
including reasonable attorneys' fees, incurred by Indemnitee with respect to
such action, unless as a part of such action, a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee as a basis
for such action were not made in good faith or were frivolous. In the event of
an action instituted by or in the name of the Company under this Agreement or
to enforce or interpret any of the terms of this Agreement, Indemnitee shall be
entitled to be paid all costs and expenses, including reasonable attorneys'
fees, incurred by Indemnitee in defense of such action (including with respect
to Indemnitee's counterclaims and cross-claims made in such action), unless as
a part of such action the court determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this
Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
California.
16. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California as
applied to contracts between California residents entered into and to be
performed entirely within California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
KOSAN BIOSCIENCES INCORPORATED
By:_________________________________
Daniel V. Santi, President
AGREED TO AND ACCEPTED:
INDEMNITEE:
___________________________
-7-
<PAGE>
KOSAN BIOSCIENCES INCORPORATED
1996 STOCK OPTION PLAN AMENDED AS OF OCTOBER 1998, OCTOBER 1999 AND MARCH 2000
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or nonstatutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to
the administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code and the applicable laws of any
foreign country or jurisdiction.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" means a Committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Kosan Biosciences Incorporated
(h) "CONSULTANT" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services
and is compensated for such services, and any director of the Company whether
compensated for such services or not.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means
that the employment or consulting relationship with the Company, any Parent, or
Subsidiary is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such
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leave is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option
and shall be treated for tax purposes as a Nonstatutory Stock Option.
(j) "EMPLOYEE" means any person, including Officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination,
or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the
Plan.
(q) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(r) "OPTIONEE" means an Employee or Consultant who receives an
Option.
(s) "PARENT" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
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(t) "PLAN" means this 1996 Stock Option Plan.
(u) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
(v) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 11 below.
(w) "SUBSIDIARY" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,700,000, Shares, plus an annual increase to be added on
January 1 of each year (beginning in 2001), equal to the lesser of (i) 375,000
Shares, (ii) 5% of the outstanding Shares on such date or (iii) such lesser
number of Shares as approved by the Board of Directors. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an option exchange program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); PROVIDED,
however, that Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares are repurchased by the Company at
their original purchase price, and the original purchaser of such Shares did not
receive any benefits of ownership of such Shares, such Shares shall become
available for future grant under the Plan. For purposes of the preceding
sentence, voting rights shall not be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) INITIAL PLAN PROCEDURE. Prior to the date, if any, upon
which the Company becomes subject to the Exchange Act, the Plan shall be
administered by the Board or a committee appointed by the Board.
(b) PLAN PROCEDURE AFTER THE DATE, IF ANY, UPON WHICH THE
COMPANY BECOMES SUBJECT TO THE EXCHANGE ACT.
(i) ADMINISTRATION WITH RESPECT TO DIRECTORS AND
OFFICERS. With respect to grants of Options to Employees who are also Officers
or directors of the Company, the Plan shall be administered by (A) the Board if
the Board may administer the Plan in compliance with the rules under Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3")
relating to the disinterested administration of employee benefit plans under
which Section 16(b) exempt discretionary grants and awards of equity securities
are to be made, or (B) a Committee designated by the Board to administer the
Plan, which Committee shall be constituted to comply with the rules under Rule
16b-3 relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the
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Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of
employee benefit plans under which Section 16(b) exempt discretionary grants
and awards of equity securities are to be made.
(ii) MULTIPLE ADMINISTRATIVE BODIES. If permitted by
Rule 16b-3, the Plan may be administered by different bodies with respect to
directors, non-director Officers and Employees who are neither directors nor
Officers.
(iii) ADMINISTRATION WITH RESPECT TO CONSULTANTS AND
OTHER EMPLOYEES. With respect to grants of Options to Employees or Consultants
who are neither directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a committee designated by the Board, which
committee shall be constituted in such a manner as to satisfy Applicable Laws.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any stock exchange upon
which the Common Stock is listed, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions of any
award granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(f) instead of
Common Stock;
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(viii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan.
(d) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by
the Board of Directors. It shall continue in effect for a term of ten (10) years
unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
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8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of
the grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of the grant.
(B) granted to any person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of surrender and (y) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and
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as shall be permissible under the terms of the Plan, but in no case at a rate
of less than 20% per year over five(5) years from the date the Option is
granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In
the event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day from the date of such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator and set forth in the Notice of Grant, of at
least thirty (30) days, with such determination in the case of an Incentive
Stock Option not exceeding three (3) months after the date of such termination
(but in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), exercise his or her Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, Optionee may, but only within six (6) months from the date of
such termination (and in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise the Option to the
extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option one day following the end of the exercise period determined
pursuant to Section 9(b) of the Plan. To the extent that Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time
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specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an
Optionee, the Option may be exercised at any time within six (6) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall immediately revert to the Plan. If,
after death, the Optionee's estate or a person who acquired the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) RULE 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
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(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen(15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option will terminate immediately
prior to the consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or
into another corporation, the Option may be assumed or an equivalent option may
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option for
each Share of Optioned Stock subject to the Option to be solely common stock of
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such
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Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. AGREEMENTS. Options shall be evidenced by written agreements in
such form as the Administrator shall approve from time to time.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws and the rules of any
stock exchange upon which the Common Stock is listed.
18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee, not less frequently than annually, copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires Shares pursuant to the Plan while such individual owns such Shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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KOSAN BIOSCIENCES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Plan is to provide employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the
Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "COMMON STOCK" shall mean the Common Stock of the
Company.
(d) "COMPANY" shall mean Kosan Biosciences, Inc., a
Delaware corporation, and any Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time
gross earnings and commissions, exclusive of payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary
that has been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an
Employee of the Company for tax purposes whose customary employment with the
Company is at least twenty (20) hours per week and more than five (5) months in
any calendar year. For purposes of the Plan, the employment relationship shall
be treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last day of each
Offering Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the
value of Common Stock determined as follows:
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(1) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) For purposes of the Enrollment Date of the
first Offering Period under the Plan, the Fair Market Value shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "OFFERING PERIOD" shall mean a period of
approximately six (6) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after June 1 and
terminating on the last Trading Day in the period ending the following November
30, or commencing on the first Trading Day on or after December 1 and
terminating on the last Trading Day in the period ending the following May 31;
provided, however, that the first Offering Period under the Plan shall commence
with the first Trading Day on or after the date on which the Securities and
Exchange Commission declares the Company's Registration Statement effective and
ending on the last Trading Day on or before November 1. The duration of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this Employee Stock Purchase Plan.
(m) "PURCHASE PRICE" shall mean an amount equal to 85% of
the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever is lower; provided, however, that the Purchase
Price may be adjusted by the Board pursuant to Section 20.
(n) "RESERVES" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
(o) "SUBSIDIARY" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(p) "TRADING DAY" shall mean a day on which national
stock exchanges and the Nasdaq System are open for trading.
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3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on
a given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after June 1 and December 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before November 1, 2000. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in
the Plan by completing a subscription agreement authorizing payroll
deductions in the form of Exhibit A to this Plan and filing it with the
Company's payroll office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on
the first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is applicable,
unless sooner terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll deductions made on
each pay day during the Offering Period in an amount not exceeding fifteen
percent (15%) of the Compensation which he or she receives on each pay day
during the Offering Period.
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<PAGE>
(b) All payroll deductions made for a participant shall
be credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her
participation in the Plan as provided in Section 10 hereof, or may increase or
decrease the rate of his or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription agreement authorizing a
change in payroll deduction rate. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period. The change in
rate shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof,
a participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than 5,000
shares (subject to any adjustment pursuant to Section 19), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her
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<PAGE>
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided
in Section 10 hereof. Any other monies left over in a participant's account
after the Exercise Date shall be returned to the participant. During a
participant's lifetime, a participant's option to purchase shares hereunder
is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all
the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) A participant's withdrawal from an Offering Period
shall not have any effect upon his or her eligibility to participate in any
similar plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering Period
from which the participant withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be
an Employee for any reason, he or she shall be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the option shall
be returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 15 hereof, and such
participant's option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions
of a participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization
of the Company as provided in Section 19 hereof, the maximum number of shares of
the Company's Common Stock which shall be made available for sale under the Plan
shall be 100,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in 2001 equal to the
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<PAGE>
lesser of (i) 50,000 shares, (ii) .75% of the outstanding shares on such
date, or (iii) a lesser amount determined by the Board. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available
for purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting
right in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the
Plan shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or
a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
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<PAGE>
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the Reserves, the maximum number of
shares each participant may purchase per Offering Period (pursuant to Section
7), as well as the price per share and the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the Board. The
New Exercise Date shall be before the date of the Company's proposed dissolution
or liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger
of the Company with or into another corporation, each outstanding option
shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
option, the Offering Period then in progress shall be shortened by setting a
new Exercise Date (the "New Exercise Date"). The New Exercise Date shall be
before the date of the Company's proposed sale or merger. The Board shall
notify each participant in writing, at least ten (10) business days prior to
the New Exercise Date, that the Exercise Date for the
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<PAGE>
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise
Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and Section 20 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:
(1) altering the Purchase Price for any Offering
Period including an Offering Period underway at the time of the change in
Purchase Price;
(2) shortening any Offering Period so that
Offering Period ends on a new Exercise Date, including an Offering Period
underway at the time of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder approval
or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form
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<PAGE>
specified by the Company at the location, or by the person, designated by the
Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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EXHIBIT A
KOSAN BIOSCIENCES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Original Application Enrollment Date:
- ---------- ---------
Change in Payroll Deduction Rate
- ----------
Change of Beneficiary(ies)
- ----------
1. hereby elects to participate in
the Kosan Biosciences, Inc. 2000 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of % of my Compensation on each payday (from 0 to %) during
the Offering Period in accordance with the Employee Stock Purchase
Plan. (Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only):
.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I HEREBY
AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF
ANY DISPOSITION OF SHARES AND I WILL MAKE ADEQUATE PROVISION FOR
FEDERAL, STATE OR OTHER TAX WITHHOLDING OBLIGATIONS, IF ANY, WHICH
ARISE UPON THE DISPOSITION OF THE COMMON STOCK. The Company may, but
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary
<PAGE>
to make available to the Company any tax deductions or benefits
attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year
holding period, I understand that I will be treated for federal
income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income
only to the extent of an amount equal to the lesser of (1) the excess
of the fair market value of the shares at the time of such disposition
over the purchase price which I paid for the shares, or (2) 15% of
the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) --------------------------------------
(First) (Middle) (Last)
--------------------------- --------------------------------------
Relationship
--------------------------------------
(Address)
Employee's Social
Security Number:
--------------------------------------
Employee's Address:
--------------------------------------
--------------------------------------
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I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
-----------------------------
-------------------------------------
Signature of Employee
-------------------------------------
Spouse's Signature (If beneficiary
other than spouse)
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EXHIBIT B
KOSAN BIOSCIENCES, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Kosan
Biosciences, Inc. 2000 Employee Stock Purchase Plan which began on ,
(the "Enrollment Date") hereby notifies the Company that he or she
hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering
Period. The undersigned understands and agrees that his or her option for
such Offering Period will be automatically terminated. The undersigned
understands further that no further payroll deductions will be made for the
purchase of shares in the current Offering Period and the undersigned shall
be eligible to participate in succeeding Offering Periods only by delivering
to the Company a new Subscription Agreement.
Name and Address of Participant:
-------------------------------------
-------------------------------------
-------------------------------------
Signature:
-------------------------------------
Date:
--------------------------------
<PAGE>
KOSAN BIOSCIENCES, INC.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 2000 Non-Employee
Director Stock Option Plan are to attract and retain the best available
personnel for service as Outside Directors (as defined herein) of the Company,
to provide additional incentive to the Outside Directors of the Company to serve
as Directors, and to encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" means the common stock of the Company.
(d) "COMPANY" means Kosan Biosciences, Inc., a Delaware
corporation.
(e) "DIRECTOR" means a member of the Board.
(f) "DISABILITY" means total and permanent disability as
defined in section 22(e)(3) of the Code.
(g) "EMPLOYEE" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(i) "FAIR MARKET VALUE" means, as of any date, the
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on
such exchange or system for the last market trading day prior to the time of
grant as reported in THE WALL STREET JOURNAL or such other source as the
Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock for the last market
<PAGE>
trading day prior to the time of grant, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(j) "INSIDE DIRECTOR" means a Director who is an
Employee.
(k) "IPO EFFECTIVE DATE" means the date upon with the
Securities and Exchange Commission declares the initial public offering of the
Company's common stock as effective.
(l) "OPTION" means a stock option granted pursuant to the
Plan.
(m) "OPTIONED STOCK" means the Common Stock subject to an
Option.
(n) "OPTIONEE" means a Director who holds an Option.
(o) "OUTSIDE DIRECTOR" means a Director who is not an
Employee.
(p) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(q) "PLAN" means this 2000 Non-Employee Director Stock
Option Plan.
(r) "SHARE" means a share of the Common Stock, as
adjusted in accordance with Section 10 of the Plan.
(s) "SUBSIDIARY" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Internal
Revenue Code of 1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 100,000 Shares (the "Pool"), plus an annual
increase to be added on January 1 of each year, beginning in 2001, equal to the
lesser of (i) 50,000 shares, (ii) .75% of the outstanding shares on such date,
or (iii) a lesser amount determined by the Board. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
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<PAGE>
4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) PROCEDURE FOR GRANTS. All grants of Options to
Outside Directors under this Plan shall be automatic and nondiscretionary and
shall be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to
select which Outside Directors shall be granted Options or to determine the
number of Shares to be covered by Options.
(ii) Each Outside Director shall be automatically
granted an Option to purchase 2,500 Shares (the "First Option") on the date on
which the later of the following events occurs: (A) the IPO Effective Date, or
(B) the date on which such person first becomes an Outside Director, whether
through election by the shareholders of the Company or appointment by the Board
to fill a vacancy; provided, however, that an Inside Director who ceases to be
an Inside Director but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically
granted an Option to purchase 1,250 Shares (a "Subsequent Option") on the date
of the annual stockholders meeting of each year provided he or she is then an
Outside Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of
subsections (ii) and (iii) hereof, any exercise of an Option granted before the
Company has obtained shareholder approval of the Plan in accordance with Section
16 hereof shall be conditioned upon obtaining such shareholder approval of the
Plan in accordance with Section 16 hereof.
(v) The terms of a First Option granted
hereunder shall be as follows:
(A) the term of the First Option shall
be ten (10) years.
(B) the First Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall
be 100% of the Fair Market Value per Share on the date of grant of the First
Option.
(D) subject to Section 10 hereof, the
First Option shall become exercisable as to 25% percent of the Shares subject to
the First Option on each anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted
hereunder shall be as follows:
(A) the term of the Subsequent Option
shall be ten (10) years.
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<PAGE>
(B) the Subsequent Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof
(C) the exercise price per Share shall
be 100% of the Fair Market Value per Share on the date of grant of the
Subsequent Option.
(D) subject to Section 10 hereof, the
Subsequent Option shall become exercisable as to 100% percent of the Shares
subject to the Subsequent Option on the anniversary of its date of grant,
provided that the Optionee continues to serve as a Director on such date.
(vii) In the event that any Option granted under
the Plan would cause the number of Shares subject to outstanding Options plus
the number of Shares previously purchased under Options to exceed the Pool, then
the remaining Shares available for Option grant shall be granted under Options
to the Outside Directors on a pro rata basis. No further grants shall be made
until such time, if any, as additional Shares become available for grant under
the Plan through action of the Board or the shareholders to increase the number
of Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
5. ELIGIBILITY. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. FORM OF CONSIDERATION. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case
of Shares acquired upon exercise of an option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (v) any combination of the foregoing
methods of payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no
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<PAGE>
Options shall be exercisable until shareholder approval of the Plan in
accordance with Section 16 hereof has been obtained.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment shall be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR.
Subject to Section 10 hereof, in the event an Optionee's status as a Director
terminates (other than upon the Optionee's death or Disability), the Optionee
may exercise his or her Option, but only within three (3) months following the
date of such termination, and only to the extent that the Optionee was entitled
to exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of such termination, and to the
extent that the Optionee does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's
status as a Director terminates as a result of Disability, the Optionee may
exercise his or her Option, but only within twelve (12) months following the
date of such termination, and only to the extent that the Optionee was entitled
to exercise it on the date of such termination (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of termination, or if he or she does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's
death, the Optionee's estate or a person who acquired the right to exercise the
Option by bequest or inheritance may exercise the Option, but only within twelve
(12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it on the date of death (but in no event later
than the expiration of its ten (10) year term). To the extent that the Optionee
was not entitled to exercise an Option on the date of death, and to the extent
that the Optionee's estate or a person who acquired the right to
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<PAGE>
exercise such Option does not exercise such Option (to the extent otherwise
so entitled) within the time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, to the extent that an Option
has not been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or substituted
for, the Option or equivalent option shall continue to be exercisable as
provided in Section 4 hereof for so long as the Optionee serves as a Director or
a director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a voluntary
resignation by the Optionee, the Option or option shall become fully
exercisable, including as to Shares for which it would not otherwise be
exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
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<PAGE>
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such
amendment or termination of the Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if this Plan had not
been amended or terminated.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date determined in accordance with Section 4
hereof.
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful
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<PAGE>
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
14. RESERVATION OF SHARES. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law and any stock exchange
rules.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
EXHIBIT 10.8
LICENSE AGREEMENT
Effective as of March 11, 1996 (the "Effective Date"), THE BOARD OF
TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate
powers under the laws of the State of California ("STANFORD"), and KOSAN
Biosciences, Inc., a California corporation having a principal place of business
at 211 Belgrave Avenue, San Francisco, California 94117 ("LICENSEE"), agree as
follows:
1 BACKGROUND
1.1 STANFORD has an assignment of "Recombinant Production of Novel
Polyketides" from the laboratory of Dr. Chaitan Khosla ("Invention(s)"), as
described in STANFORD Docket S93-098 and any Licensed Patent(s), as hereinafter
defined, which may issue on such Invention(s).
1.2 STANFORD desires to have the Invention(s) perfected and
marketed at the earliest possible time in order that products resulting
therefrom may be available for public use and benefit.
1.3 LICENSEE desires a license under said Invention(s), Licensed
Patent(s) and Licensed Materials to develop, manufacture, have made, use, and
sell Licensed Product(s) in the Licensed Field of Use.
1.4 The Invention(s) were made in the course of research supported
by the National Institutes of Health.
1.5 STANFORD has entered into agreements with John Innes Institute
and Brown University Research Foundation ("BURF") which provide STANFORD the
exclusive right to act on behalf of such parties in connection with the
licensing of their entire right, title and interest with respect to the
Inventions and Licensed Patents.
1.6 LICENSEE and STANFORD have entered into an Option Agreement
effective as of April 1, 1995 pursuant to which STANFORD granted KOSAN an
exclusive option to acquire an exclusive license to the Inventions and Licensed
Patents.
2 DEFINITIONS
2.1 "Affiliate" means any corporation or other entity that is
directly or indirectly controlling, controlled by or under common control with
LICENSEE. For the purpose of this definition, "control" shall mean the direct or
indirect beneficial ownership of at least forty-nine percent (49%) in the income
or stock of such corporation or business.
2.2 "Exclusive" means that, subject to Article 4, STANFORD shall
not grant further licenses to the Invention(s), Licensed Materials, and Licensed
Patent(s) in the Licensed Territory.
<PAGE>
2.3 "Licensed Materials" shall mean the biological materials
listed on Exhibit A hereto, and such other agreed materials as STANFORD may
provide to LICENSEE during the term of this Agreement, which shall be added to
Exhibit A.
2.4 "Licensed Patent(s)" means (i) the U.S. and foreign patent
applications listed on Exhibit B hereto, (ii) all U.S. or foreign patent
applications filed after the Effective Date which name Chaitan Khosla as an
inventor and which claim one or more inventions which would be dominated by any
patent issuing on a patent application within the Licensed Patents pending as of
the Effective Date (or a division, substitution or continuation of such a
pending application), (iii) all divisions, substitutions and continuations of
any of the preceding, (iv) all foreign patent applications corresponding to or
claiming priority from any of the preceding, and (v) all U.S. and foreign
patents issuing on any of the preceding, including patents of addition,
reexaminations, reissues and extensions.
2.5 "Licensed Product" will mean any product (i) the manufacture
or sale of which is within a Valid Claim within the Licensed Patents in the
country which the product is made or sold; or (ii) containing a composition of
matter that was first invented using a method within the scope of a Valid Claim
within the Licensed Patents in the country in which such use occurred.
2.6 "Licensed Territory" means worldwide.
2.7 "LICENSEE" shall mean KOSAN Biosciences, Inc. and its
Affiliates.
2.8 "Net Sales" means the gross revenue received by LICENSEE
and/or sublicensee(s) from sales of Licensed Product(s), less the following
items but only insofar as they are included in such gross revenue and are
separately stated on the invoice:
(a) Import, export, value added, excise and sales taxes,
tariffs, and custom duties;
(b) Credit for returns, damaged goods, allowances, or
trades;
(c) Charges for packaging, shipping and insurance; and
(d) Customary rebates, cash and trade discounts, actually
taken.
2.9 "Valid Claim" means a claim of (i) an issued, unexpired patent
which has not been held unenforceable of invalid by a court or other
governmental entity of competent jurisdiction, and which has not been
disclaimed, or rejected or found invalid or unenforceable in a reissue
application or re-examination proceeding; or (ii) a patent application, provided
that not more than five (5) years have elapsed from the date the claim takes
priority for filing purposes.
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<PAGE>
3 GRANT
3.1 STANFORD hereby grants and LICENSEE hereby accepts an
Exclusive license under the Inventions, Licensed Patents and Licensed Materials
to make, have made, import, use, lease, sell and offer for sale and otherwise
commercialize and exploit Licensed Products and Licensed Materials, and practice
any method, process or procedure within the Licensed Patents in the Licensed
Territory.
3.2 The license granted in Section 3.1 shall be Exclusive, and
include the right to grant sublicenses pursuant to Article 14 during the period
that LICENSEE holds an Exclusive license, for a term commencing as of the
Effective Date, and ending upon the expiration of the last to expire of the
issued Licensed Patent(s), on a country-by-country basis, or if no patent within
the Licensed Patent(s) issues in a country, shall terminate on the tenth
anniversary of the first sale of a Licensed Product in such country.
Notwithstanding the above, (i) the parties may with written agreement convert
the exclusive license to a non-exclusive license, on a country-by-country basis,
or (ii) at any time prior to two (2) years before the expiration of the last to
expire of the Licensed Patents in a particular country, on a country-by-country
basis, LICENSEE may elect to convert the exclusive license granted herein to a
non-exclusive license in such country with notice to STANFORD.
3.3 Notwithstanding Sections 3.1 and 3.2 above, STANFORD shall
retain the nontransferable right to practice the Licensed Patents and use the
Licensed Materials for its internal, academic, non-commercial research. STANFORD
agrees not to provide or grant any third party any of the Licensed Materials or
any rights to any compound developed in Dr. Chaitan Khosla's laboratory with the
use of the Licensed Materials.
3.4 Upon execution of this Agreement, STANFORD shall transfer
to LICENSEE a sufficient quantity of the Licensed Materials as is necessary
for LICENSEE to establish a viable culture of such Licensed Materials.
LICENSEE agrees to reimburse Stanford for its out-of-pocket costs of
preparing such Licensed Materials for LICENSEE, up to a maximum of [**]
($[**]). LICENSEE agrees to make such Licensed Materials available for academic
not-for-profit research to researchers at academic and not-for-profit
institutions which enter into a Material Transfer Agreement with LICENSEE in
substantially the form attached hereto as Exhibit C.
4 GOVERNMENT RIGHTS
This Agreement is subject to all of the terms and conditions of
Title 35 United States Code Sections 200 through 204, including an obligation
that products within the scope of a claim of an issued U.S. Licensed Patent
sold in the United States be "manufactured substantially in the United
States," and LICENSEE agrees to take all reasonable action necessary on its
part as licensee to enable STANFORD to satisfy its obligation thereunder,
relating to Invention(s), provided that STANFORD has provided LICENSEE with
written notice of each such obligation STANFORD must meet and a description
of each act LICENSEE must take to comply with such obligation at least 90
days in advance of any required act. STANFORD acknowledges that Licensed
Products are
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TO THE OMITTED PORTIONS.
<PAGE>
anticipated to be comprised of multiple technologies and agrees that only those
components within the scope of the Licensed Patent(s) need be manufactured
substantially in the United States.
5 DILIGENCE
5.1 LICENSEE agrees to use reasonable efforts and diligence to
proceed with the development, manufacture, or sale of Licensed Product(s) and
shall endeavor to achieve the following:
(a) receive financing of at least [**] dollars
($[**]) within [**] following the Effective Date;
(b) establish a facility at which it will practice the
Licensed Patents within [**] following the
Effective Date;
(c) sequence at least [**] base pairs of DNA from one
or more [**] within [**] from the Effective Date;
(d) generate a polyketide library of at least [**]
polyketide compounds within [**] of the
Effective Date;
(e) generate a polyketide library of at least [**]
polyketide compounds within [**] of the
Effective Date; and
(f) file an IND for a Licensed Product within [**]
from the Effective Date.
For purposes of determining whether LICENSEE has met its diligence obligations,
Sections 5.1 (c)-(f) above may be satisfied by LICENSEE or its sublicensees. In
the event that LICENSEE has not achieved any one or more of the foregoing
milestones but has exercised reasonable efforts to accomplish the same, STANFORD
and LICENSEE shall negotiate in good faith an extension of time in which
LICENSEE may accomplish such milestone and all subsequent milestones.
5.2 STANFORD may terminate LICENSEE's rights under this Agreement
with respect to a particular Licensed Product if, after final FDA approval of a
NDA for such Licensed Product, LICENSEE has not sold the Licensed Product for a
continuous period of [**] after such final approval.
5.3 On or before [**] of each year during the term of this
Agreement until LICENSEE markets a Licensed Product, LICENSEE shall make a
written annual report to STANFORD covering the preceding year ending [**],
regarding the progress of LICENSEE toward commercialization of Licensed
Product(s). Such report shall include, as a minimum,
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
information sufficient to enable STANFORD to satisfy reporting requirements of
the U.S. Government and for STANFORD to ascertain progress by LICENSEE toward
meeting the diligence requirements of this Article 5.
6 PAYMENTS
6.1 LICENSEE agrees to pay to STANFORD a nonrefundable, license
issue fee of [**] Dollars ($[**]) within [**] days of the Effective Date. [**]
($[**]) of the option fee paid by KOSAN to STANFORD pursuant to the Option
Agreement shall be credited against such license issue fee.
6.2 Within thirty (30) days of the Effective Date, LICENSEE
shall reimburse STANFORD for legal fees in the amount of [**]Dollars ($[**]),
and for patent-related expenses in the amount of [**] Dollars ($[**])
incurred by STANFORD prior to the Effective Date with respect to the Licensed
Patents. The amount paid by LICENSEE for legal fees shall be fully creditable
against the first annual maintenance fee due pursuant to Section 6.3, and the
amount paid by LICENSEE for patent-related expenses shall be fully creditable
against royalties due pursuant to Section 6.5.
6.3 During the term of the Agreement, LICENSEE shall pay to
STANFORD an annual maintenance fee on the anniversary of the Effective Date, in
accordance with the following schedule:
$[**]
$[**]
$[**]
Such annual maintenance fees shall be fully creditable against earned royalties
up to [**] percent ([**]%) of such royalties due STANFORD in any year.
6.4 Unless the Agreement is terminated earlier, within thirty (30)
days following the first achievement by LICENSEE or a sublicensee of the
following milestones, LICENSEE shall pay STANFORD one-time milestone payments
according to the following schedule:
<TABLE>
<CAPTION>
EVENT PAYMENT
----- -------
<S> <C>
[**] $ [**]
[**] $ [**]
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TO THE OMITTED PORTIONS.
<PAGE>
[**] $[**]
[**] $[**]
$[**]
[**]
[**] $[**]
[**] $[**]
</TABLE>
All such payments shall be fully creditable against royalties due STANFORD
hereunder.
6.5 In addition to the payments of Sections 6.2 and 6.3, LICENSEE
shall pay STANFORD royalties on annual Net Sales as follows:
(a) on Net Sales by LICENSEE:
(i) a royalty of [**] percent ([**]%) of Net Sales
of a Licensed Product containing a polyketide compound [**], which compound
has not been modified further;
(ii) a royalty of [**] percent ([**]%) of Net
Sales of a Licensed Product containing a polyketide compound [**], but not
structurally characterized in such laboratory, which compound has not been
modified further;
(iii) a royalty of [**] percent ([**]%) of Net
Sales of a Licensed Product containing a compound derived from a polyketide
compound [**], which polyketide compound has been modified through medicinal
chemistry or otherwise;
(iv) a royalty of [**] percent ([**]%) of Net Sales
of a Licensed Product containing a compound derived from a polyketide
compound [expressed, but not structurally characterized in Dr. Khosla's
laboratory at STANFORD], which polyketide compound has been modified through
medicinal chemistry; and
(v) a royalty of [**] percent ([**]%) of Net Sales
of all other Licensed Products sold by LICENSEE.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(b) on Net Sales by sublicensees:
(i) a royalty of [**] percent ([**]%) of Net Sales
of a Licensed Product containing a polyketide compound [**], which compound
has not been modified further;
(ii) a royalty of [**] percent ([**]%) of Net
Sales of a Licensed Product containing a polyketide compound [**], but not
structurally characterized in such laboratory, which compound has not been
modified further;
(iii) a royalty of [**] percent ([**]%) of Net
Sales of a Licensed Product containing a compound derived from a polyketide
compound [**], which polyketide compound is modified through medicinal
chemistry or otherwise; and
(iv) a royalty of [**] percent ([**]%) of Net
Sales of all other Licensed Products sold by a sublicensee.
(c) The royalties due STANFORD pursuant to Subsections
6.5(a) (i)-(iii) and (b) (i)-(iii) above shall be reduced by [**] percent
([**]%) in the event that the pertinent polyketide compound was [**] in the
course of sponsored research conducted with funds provided by LICENSEE or a
sublicensee.
(d) As used in this Section 6.5, "structurally
characterized" means the determination of the complete structure of the compound
(e.g., by nuclear magnetic resonance and mass spectroscopy), such that
sufficient information has been obtained that a patent disclosure can be made
which would fully enable a patent claim with respect to the pertinent
composition of matter.
6.6 The above royalty rates will be reduced by [**] percent
([**]%) if the Licensed Product is not within the scope of an issued Valid
Claim but is within the scope of a pending Valid Claim.
6.7 The royalty rates set forth in Sections 6.5 and 6.6 above take
into account that LICENSEE may become obligated to pay royalties to third
parties on sales of Licensed Products. Consequently, no reduction shall be made
to the royalties due to STANFORD, except if the royalty or other amount is paid
in respect of a valid claim of a patent that would dominate the practice of the
Licensed Patents, such royalty or other amount may be offset against the
royalties due to STANFORD hereunder. However, in such event the royalty paid to
STANFORD be reduced to less than [**] percent ([**]%) of the amount that would
otherwise be due to STANFORD; provided, in no event shall the royalty due
STANFORD pursuant to this Section be less than [**] percent ([**]%).
6.8 In the event that a Licensed Product under this Agreement is
sold in a combination product containing other active components, then subject
to Sections 6.5 and 6.6, Net Sales on the combination product shall be
calculated using one of the following methods:
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(a) By multiplying the net selling price of the
combination product by the fraction A/A+B, where A is
the gross selling price, during the royalty-paying
period being considered, of the Licensed Product sold
separately, and B is the gross selling price, during
the royalty period in question, of the other active
components sold separately; or
(b) In the event that no such separate sales are made of
the Licensed Product, Net Sales on the combination
product for royalty determination shall be as
reasonably allocated between such Licensed Product
and the other active components, based on their
relative importance and proprietary protection, as
agreed by the parties. If the parties fail to reach
agreement such allocation shall be submitted to
binding arbitration.
6.9 In the event that in any country all the Valid Claims within
the Licensed Patent(s) which cover a particular Licensed Product are held
invalid or unenforceable, then LICENSEE's obligation to pay royalties on Net
Sales with respect to such Licensed Product shall terminate in such country.
LICENSEE's obligation to pay royalties on Net Sales shall terminate on a
country-by-country basis upon the expiration of the last to expire of any issued
Licensed Patent(s) in each country; provided, in the event that LICENSEE elects
to maintain exclusivity for the life of the issued patents within the Licensed
Patents in any country, then until [**] ([**]) years following the expiration of
the Licensed Patents in such country, LICENSEE shall pay to STANFORD royalties
equivalent to the amount of royalties due on Net Sales of Licensed Products in
such country at the royalty rate set forth in Section 6.6, subject to the other
provisions of this Article 6. The parties agree that for the convenience of the
parties such royalty shall be paid in consideration for the use of the Licensed
Materials.
6.10 The royalty on Net Sales made in currencies other than U.S.
Dollars shall be calculated using the appropriate foreign exchange rate for such
currency quoted by the Bank of America (San Francisco) foreign exchange desk, on
the close of business on the last banking day of each calendar quarter.
Royalties and payments to STANFORD shall be made in U.S. Dollars. All non-U.S.
taxes related to royalty payments shall be paid by LICENSEE and are not
deductible from the payments due STANFORD.
6.11 In addition to the foregoing, LICENSEE shall pay to STANFORD:
(a) [**] percent ([**]%) of any amounts (excluding
royalties) received by LICENSEE from sublicensees
with respect to a sublicense to make [**]
compounds using methods claimed in the Licensed
Patents; and
(b) the lesser of (i) [**] dollars ($[**]), or
(ii) [**] percent ([**]%) of any amounts (excluding
royalties) received by LICENSEE from sublicensees
with respect to a sublicense to screen [**]
compound libraries made by LICENSEE using methods
claimed in the Licensed Patents.
-8-
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
It is understood and agreed that LICENSEE shall have no obligation to pay
STANFORD any amount with respect to payments received by LICENSEE from a
sublicensee for the purchase of equity, debt financing, research and
development, library generation and preparation, the license of intellectual
property or technology other than the Licensed Patents, or reimbursement for
patent or other expenses. LICENSEE's obligation under subsection (b) above shall
only apply to amounts received in excess of the reasonably fully burdened
(direct and indirect) costs incurred by LICENSEE in developing such polyketide
compound libraries, and shall not apply to any payments received by LICENSEE
with respect to the first sublicenses granted by LICENSEE of rights to screen
polyketide compound libraries made by LICENSEE and the second such sublicense if
it is entered within [**] of the Effective Date of the first such
sublicense.
6.12 In the event that LICENSEE's rights under this Agreement
become non-exclusive in any country, the amounts due STANFORD pursuant to the
provisions of this Article 6 shall be reduced by [**].
6.13 In the event that LICENSEE sells any Licensed Material which
has not been materially altered or modified by or on behalf of LICENSEE to any
third party, LICENSEE shall pay to STANFORD [**] percent ([**]%) of all amounts
received from such third party therefore, excluding any amounts paid for the
preparation, packaging and shipping of such Licensed Material.
7 ROYALTY REPORTS, PAYMENTS AND ACCOUNTING
7.1 Beginning with the first sale of a Licensed Product,
LICENSEE shall make written reports (even if there are no further sales) of
royalty payments due, if any, to STANFORD within [**] ([**]) days after the
end of each [**]. This report shall state the number, description, and
aggregate Net Sales of Licensed Product(s) during such completed [**], and
resulting calculations of earned royalty payments due STANFORD pursuant to
Sections 6.5 through 6.8 for such completed [**]. Concurrent with the
submission of each such report, LICENSEE shall pay STANFORD any royalties due
for the [**] covered by such report.
7.2 LICENSEE agrees to keep and maintain records for a period
of [**] ([**]) years showing the manufacture, sale, use and other disposition
of products sold or otherwise disposed of under the license herein granted.
Such records will include sufficient detail to enable the royalties payable
hereunder by LICENSEE to be determined. LICENSEE further agrees to permit its
books and records to be examined by an independent certified public
accountant selected by STANFORD and acceptable to LICENSEE once per [**]
during the term of this Agreement, for the sole purpose of verifying the
reports and royalty payments made by LICENSEE. Such examination shall be made
at LICENSEE'S place of business during ordinary business hours with at least
thirty (30) days prior written notice. The accountant shall report to
STANFORD only whether there has been a royalty underpayment and, if so, the
amount thereof. Such examination is to be at the expense of STANFORD except
in the event that the results of the audit reveal an under reporting of
royalties
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
due STANFORD of [**] percent ([**]%) or more, then the audit costs shall be
paid by LICENSEE within [**] ([**]) days of notice by STANFORD to LICENSEE.
8 NEGATION OF WARRANTIES
8.1 Nothing in this Agreement is or shall be construed as:
(a) A warranty or representation by STANFORD as to the
validity or scope of any Licensed Patent(s);
(b) A warranty or representation that anything made,
used, sold, or otherwise disposed of under any
license granted in this Agreement is or will be free
from infringement of patents, copyrights, and other
rights of third parties;
(c) An obligation to bring or prosecute actions or suits
against third parties for infringement, except to the
external and in the circumstances described in
Article 13;
(d) Granting by implication, estoppel, or otherwise any
licenses or rights under patents or other rights of
STANFORD or other persons other than to the
Invention(s) and Licensed Patent(s), regardless of
whether such patents or other rights are dominant or
subordinate to any Licensed Patent(s); or
(e) An obligation to furnish any technology or
technological information, except as expressly set
forth in this Agreement.
8.2 Except as expressly set forth in this Agreement, STANFORD AND
BURF MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE
LICENSED PRODUCT(S) WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER
RIGHTS OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.
8.3 LICENSEE agrees that nothing in this Agreement grants LICENSEE
any express or implied license or right under or to:
(a) U.S. Patent No. 4,237,224, "Process for Producing
Biologically Functional Molecular Chimeras"; U.S.
Patent No. 4,468,464 and U.S. Patent No. 4,740,470,
both entitled, "Biologically Functional Molecular
Chimeras" (collectively known as the Cohen/Boyer
patents), or reissues thereof; or
-10-
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(b) U.S. Patent No. 4,656,134 "Amplification of
Eukaryotic Genes" or any patent application
corresponding thereto.
9 REPRESENTATIONS AND WARRANTIES
9.1 STANFORD represents and warrants that it has the power to
enter into this Agreement and to the best of its knowledge has the right to
grant the rights granted herein to LICENSEE.
9.2 LICENSEE represents and warrants that it has the power to
enter into this Agreement and meet its obligations under this Agreement.
10 INDEMNITY
10.1 LICENSEE agrees to indemnify, hold harmless, and defend
STANDFORD, STANFORD Health Services, Brown University and BURF and their
respective trustees, officers, employees, students, and agents (the
"Indemnitees") against any and all liability, damage, loss or expense incurred
by or imposed on the Indemnittees or any one of them, arising out of third party
claims for death, illness, personal injury, property damage, and fraudulent
business practices arising out of the manufacture, use, sale, or other
disposition of Invention(s), Licensed Patent(s), Licensed Materials or Licensed
Product(s) by LICENSEE or its sublicensee(s), or the exercise of the license
granted herein.
10.2 STANFORD, STANFORD Health Services and Brown University and
BURF shall not be liable for any indirect, special, consequential, or other
damages whatsoever, whether grounded in tort (including negligence), strict
liability, contract or otherwise. STANFORD, STANFORD Health Services, Brown
University and BURF shall not have any responsibilities or liabilities
whatsoever with respect to Licensed Product(s).
10.3 In addition to the foregoing, LICENSEE (or its sublicensee)
shall maintain, during the term of this Agreement after the commencement of
clinical trials, Comprehensive General Liability Insurance, including if
appropriate, Products Liability Insurance, to cover the activities of LICENSEE
and its sublicensee(s). Such insurance shall provide minimum limits of liability
of:
(a) [**] Dollars ($[**]) per occurrence
during Phase I clinical trials;
(b) [**] Dollars ($[**]) per occurrence
during Phase II clinical trials;
(c) [**] Dollars ($[**]) per occurrence
during Phase III clinical trials; and
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(d) [**] Dollars ($[**]) per occurrence
during marketing of Licensed Product(s) to the
public
10.4 In order to meet the obligations of Section 10.3, insurance
shall be procured and maintained with a reputable and financially secure
insurance carrier. Such insurance shall include STANFORD, STANFORD Health
Services, Brown University, BURF and their respective trustees, directors,
officers, employees, students, and agents as additional insureds. Such insurance
shall be written to cover claims incurred, discovered, manifested, or made
during the term of this Agreement. At STANFORD's request, LICENSEE shall furnish
a Certificate of Insurance evidencing primary coverage and requiring thirty (30)
days prior written notice of cancellation or material change to STANFORD. All
such insurance of LICENSEE shall be primary coverage; insurance of STANFORD or
STANFORD Health Services shall be excess and noncontributory.
11 MARKING
Prior to the issuance of patents on the Invention(s), LICENSEE agrees
to mark Licensed Product(s) (or their containers or labels) made, sold, or
otherwise disposed of by it under the license granted in this Agreement with the
words "Patent Pending," and following the issuance of one or more patents, with
the numbers of any applicable Licensed Patent(s).
12 STANFORD NAMES AND MARKS
12.1 LICENSEE agrees not to identify STANFORD in any promotional
advertising or other promotional materials to be disseminated to the public to
use the name of any STANFORD faculty member, employee, or student or any
trademark, service mark, trade name, or symbol of STANFORD or the STANFORD
Health Services, or that is associated with either of them, without STANFORD's
prior written consent, which consent shall not be unreasonably withheld.
12.2 Notwithstanding Section 12.1, LICENSEE may issue a press
release containing mention of STANFORD, subject to STANFORD's prior written
consent, which consent shall not be unreasonably withheld. LICENSEE may also
later issue press releases containing information previously approved for
release by STANFORD.
12.3 STANFORD and LICENSEE agree that reports in scientific
literature and presentations of research and development work are not considered
promotional materials. Promotional materials shall also not include disclosures
required under any laws or government regulations or by the rules of any stock
exchange of any country.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
13 PATENT PROSECUTION AND INFRINGEMENT
13.1 LICENSEE shall have the primary responsibility for the
prosecution, filing and maintenance of all Licensed Patents, including the
conduct of all interference, opposition, nullity and revocation proceedings,
using counsel of its choice; provided, however, that STANFORD shall have
reasonable opportunity to advise and consult with LICENSEE on such matters and
may instruct LICENSEE to take such action as STANFORD reasonably believes
necessary to protect the Licensed Patent(s). Counsel shall concurrently provide
STANFORD and LICENSEE with copies of all material correspondence related to the
prosecution of the patent applications within the Licensed Patent(s). Invoices
for legal services incurred in connection with the prosecution, filing and
maintenance of all Licensed Patents shall be sent directly to STANFORD with a
copy directed to LICENSEE. Should LICENSEE elect to abandon any patent or patent
application in any country, it shall give timely notice to STANFORD, who may
continue prosecution or maintenance, at its sole expense and LICENSEE shall have
no further rights with respect to such patent application or patent in such
country. In the event that a conflict arises with respect to patent counsel
selected by LICENSEE, STANFORD may, with just cause and after consulting with
LICENSEE, select new patent counsel reasonably acceptable to LICENSEE.
13.2 Payment of all reasonable fees and costs relating to the
filing, prosecution and maintenance of all patent applications and patents with
the Licensed Patent(s), including interference and/or opposition, nullity and
revocation proceedings, shall be the responsibility of LICENSEE. STANFORD shall
direct the patent counsel to send invoices for such fees and costs directly to
LICENSEE, with a copy to STANFORD, and LICENSEE shall pay such patent counsel
directly amounts due. All patent-related expenses paid by LICENSEE pursuant to
this Agreement shall be fully creditable against earned royalties due under
Section 6.5.
13.3 STANFORD shall promptly inform LICENSEE of any suspected
infringement of any Licensed Patent by a third party and any declaratory
judgment filed with respect to any Licensed Patent. LICENSEE shall have the
initial right but not the obligation, at its expense, to initiate and control
any proceeding relating to any infringement by a third parry of any Licensed
Patents, any declaratory action alleging invalidity or noninfringement of any
Licensed Patents, or any interference, opposition, nullity or revocation
proceeding relating to any Licensed Patents ("a Protective Action"). In
pursuing any such Protective Action, LICENSEE shall provide STANFORD with
material information related to the Protective Action and shall have the
right, but not the obligation, to join STANFORD as a party to the Protective
Action, at LICENSEE'S expense. STANFORD shall have the right to participate
in the Protective Action with its own counsel at its own expense. If LICENSEE
brings a Protective Action it may enter into a settlement, consent judgment
or other voluntary final disposition of such Protective Action, at its sole
option, and any damages recovered by a Protective Action shall be used first
to reimburse LICENSEE for the costs (including attorney's and expert fees) of
such Protective Action actually paid by LICENSEE, and the remainder, if any,
shall be retained by LICENSEE, except LICENSEE shall pay STANFORD [**]
percent ([**]%) of said remainder; provided, if STANFORD joins in any
Protective Action at its inception and shares equally in the costs (including
attorneys and expert fees) incurred in its conduct, in the event of any
recovery
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
each party shall be reimbursed for its expenses incurred in such Protective
Action and STANFORD and LICENSEE shall equally share any remainder.
13.4 If LICENSEE, or its sublicensee pursuant to Section 14.4,
decides not to bring a Protective Action after LICENSEE receives notice from
STANFORD pursuant to Section 13.3, LICENSEE shall inform STANFORD and STANFORD
may institute a Protective Action. In such event, STANFORD shall control such
Protective Action, including any settlement, consent judgment or other voluntary
final disposition thereof at its sole option, and shall bear the entire cost of
such Protective Action and shall be entitled to retain the entire amount of any
recovery or settlement. STANFORD may, at its expense, join LICENSEE as a party
to such a Protective Action and LICENSEE shall cooperate reasonably with
STANFORD in any such Protective Action, at STANFORD'S expense.
13.5 Should either party commence a Protective Action under this
Section 13 and thereafter elect to abandon the same, it shall give timely notice
to the other party who may continue prosecution of such Protective Action;
provided, however, that the sharing of past and future expenses and any recovery
in such Protective Action shall be as mutually agreed by the parties.
13.6 In any Protective Action under this Section 13, the other
party hereto shall, at the request and expense of the party initiating such
Protective Action, cooperate in all respects and, to the extent possible, have
its employees testify when requested and make available relevant records,
papers, information, samples and the like.
14 SUBLICENSES
14.1 LICENSEE may grant sublicenses under the Invention(s) and
Licensed Patent(s) to make, have made, use, and sell Licensed Product(s) in the
Licensed Territory.
14.2 If LICENSEE is unable or unwilling to serve or develop a
potential market or market territory, STANFORD may notify LICENSEE of potential
sublicensee(s) of the Invention(s) and Licensed Patent(s), and LICENSEE, at
STANFORD's request, will in good faith discuss granting a sublicense(s) to such
a third party on reasonable terms acceptable to LICENSEE.
14.3 Any sublicense(s) granted by LICENSEE under this Agreement
shall be subject and subordinate to the terms and conditions of this Agreement,
except:
(a) Sublicense terms and conditions shall reflect that
any sublicensee(s) shall not further sublicense
without the written consent of STANFORD, which
consent shall not be unreasonably withheld;
(b) The earned royalty rate specified in the
sublicense(s) may be at higher rates than the rates
in this Agreement; and
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<PAGE>
(c) All reports required by sublicensee(s) shall be made
to LICENSEE.
Any such sublicense(s) also shall expressly include the provisions of Articles 8
and 10 for the benefit of STANFORD. Such sublicenses shall remain in effect in
the event of any termination of this Agreement and provide for the assignment of
such sublicenses to STANFORD or its designee, in the event that this Agreement
is terminated.
14.4 With the prior consent of LICENSEE, and the prior consent of
STANFORD, which consent shall not be unreasonably withheld, a sublicensee may
bring a Protective Action, subject to the provisions of Section 13.3.
14.5 LICENSEE agrees to provide to STANFORD copies of the portions
of any sublicenses granted under this Agreement which relate to royalty
reporting, confidentiality, diligence obligations and indemnification
obligations.
15 TERMINATION
15.1 LICENSEE may terminate this Agreement with respect to any
country or any Licensed Patent by giving STANFORD notice in writing at least
[**] ([**]) days in advance of the effective date of termination selected by
LICENSEE.
15.2 STANFORD may terminate this Agreement if LICENSEE:
(a) Is in default in payment of royalty or providing of
reports;
(b) Is in material breach of any provision hereof; or
(c) Provides any materially incorrect report;
and LICENSEE fails to remedy any such default, breach, or materially incorrect
report, or fails to act reasonably to remedy any default, breach, or materially
incorrect report within [**] ([**]) days after receipt of written notice thereof
by STANFORD.
15.3 Surviving any termination are:
(a) LICENSEE'S obligation to pay royalties accrued;
(b) Any cause of action or claim of LICENSEE or STANFORD,
accrued, because of any breach or default by the
other party; and
(c) The provisions of Articles 7, 8, 9, 17 and 19.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
16 ASSIGNMENT
Neither party may assign this Agreement or any part hereof without the
express written consent of the other, which consent shall not be unreasonably
withheld; provided, however, LICENSEE may assign this Agreement or any portion
hereof to an Affiliate or to a successor of all or substantially all its
business relating to the Licensed Patent(s) without the written consent of
STANFORD and shall provide STANFORD notice of any such assignment. Assignees of
this Agreement may also assign this Agreement or any portion hereof to an
Affiliate or to a successor of all or substantially all its business relating to
the Licensed Patent(s) without the written consent of STANFORD, and shall
provide STANFORD notice of any such assignment.
17 ARBITRATION
17.1 Any controversy arising under or related to this Agreement,
and any disputed claim by either party against the other under this Agreement
excluding any dispute relating to patent validity or infringement arising under
this Agreement, shall be settled by arbitration in accordance with the Rules of
Commercial Arbitration of the American Arbitration Association.
17.2 Upon request by either party, arbitration will be initiated
by a third party arbitrator mutually agreed upon in writing by LICENSEE and
STANFORD within [**] ([**]) days of such arbitration request. Judgment upon the
award rendered by the arbitrator shall be final and nonappealable and may be
entered in a court having jurisdiction thereof. The parties agree that any
provision of applicable law notwithstanding, they will not request and the
arbitrators shall have no authority to award punitive or exemplary damages
against any party. The costs of the arbitration, including administrative fees
and fees of the arbitrators shall be shared equally by the parties. Each party
shall bear the cost of its own attorneys' fees and expert fees.
17.3 The parties shall be entitled to discovery in like manner as
if the arbitration were a civil suit in the California Superior Court; provided,
however, the arbitrator may limit the scope, time and/or issues involved in
discovery.
17.4 Any arbitration shall be held at STANFORD, California, unless
the parties hereto mutually agree in writing to another place.
18 NOTICES
All notices under this Agreement shall be deemed to have been fully
given when done in writing and deposited in the United States mail, registered
or certified, or overnight deliver service (e.g., DHL, Federal Express) and
addressed as follows:
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TO THE OMITTED PORTIONS.
<PAGE>
To STANFORD: Office of Technology Licensing
Stanford University 900 Welch Road, Suite 350
Palo Alto, California 94304-1850
Attention: Director
To LICENSEE: KOSAN Biosciences, Inc.
211 Belgrave Avenue
San Francisco, California 94117
Attention: President
Either party may change its address upon written notice to the other party.
19 CONFIDENTIALITY
STANFORD shall maintain this Agreement and the reports and any
information provided by LICENSEE to STANFORD pursuant to Sections 5.3, 7 and
14.5 in confidence and not disclose such information or reports to any third
party, except as required by law and disclosed after notice to LICENSEE and
after requesting confidential treatment and a protective order, if available.
STANFORD may, however, disclose to third parties total annual royalty payments
and general statistical information regarding payments made hereunder in the
context of disclosing statistical information pertaining to the performance of
the STANFORD Office of Technology Licensing.
20 WAIVER
None of the terms of this Agreement can be waived except by the written
consent of the party waiving compliance.
21 APPLICABLE LAW
This Agreement shall be governed by the laws of the State of
California, without reference to principles of conflicts of laws.
22 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between LICENSEE and
STANFORD and supersedes all prior communications, understandings and agreements
with respect to the subject
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<PAGE>
matter of this Agreement. This Agreement may not be amended except with a
written agreement signed by LICENSEE and STANFORD.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the Effective Date set forth above.
BOARD OF TRUSTEES OF THE LELAND KOSAN BIOSCIENCES, INC.
STANFORD JUNIOR UNIVERSITY ("LICENSEE")
("STANFORD")
By: /s/ KATHARINE KU By: /s/ DANIEL V. SANTI
-------------------------------------- -------------------------------
Katharine Ku, Director of Technology Daniel V. Santi, President
Licensing 3/12/96
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<PAGE>
EXHIBIT A
LICENSED MATERIALS
-19-
<PAGE>
<TABLE>
<S> <C> <C>
[**] [**] [**]
</TABLE>
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<S> <C> <C>
[**] [**] [**]
</TABLE>
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
<TABLE>
<S> <C>
[**] [**]
</TABLE>
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT B
LICENSED PATENTS
U.S. Patent Application Serial No. 8/238,811
08/486,645
60/003,338
PCT/US94/10643
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<PAGE>
EXHIBIT C
MATERIAL TRANSFER AGREEMENT
-21-
<PAGE>
MATERIAL TRANSFER AGREEMENT
This Material Transfer Agreement (the "Agreement") effective as
of _____________ , 199_ (the "Effective Date") is made by and between KOSAN
Biosciences, Inc., with an address at 211 Belgrave Avenue, San Francisco,
California 94117 (the "Company") and ___________________, with an address at
___________________ (the "Recipient") and sets forth the terms and conditions on
which the Company will transfer biological materials to Recipient and Scientist
and Recipient's and Scientist's use thereof.
1. MATERIALS. The Company is willing to transfer to Recipient and
Scientist the biological materials specified on Exhibit A hereto ("Materials"),
for the sole purpose of conducting the research described on Exhibit B hereto
("Research") in the laboratory of ___________________ (the "Scientist") at
____________________. Materials include the original biological materials
transferred to Recipient, as well as any derivatives, progeny, or improvements
developed by Recipient or Scientist therefrom.
2. LIMITATION OF USE. The Materials may be used only for Research
solely by the Scientist in Scientist's laboratory, at Recipient under suitable
containment conditions. The Materials shall not be used for commercial or other
purposes.
3. CONFIDENTIALITY. All oral or written communications received
by Recipient and Scientist relating to the Materials are, and shall remain,
proprietary and confidential information of the Company. The Recipient and
Scientist agree to hold all such information in confidence and not to disclose
such information to any third party or use it for any, purpose except the
conduct of the Research, except that the Recipient and Scientist shall not be
required to keep confidential information that (i) is already known to the
Recipient or Scientist at time of disclosure by the Company, as evidenced by
written records of the Recipient and Scientist, (ii) has become publicly known
and generally available through no wrongful act of Recipient or Scientist or
(iii) has been received by the Recipient or Scientist from a third party
authorized to make such disclosure.
4. CONTROL OF MATERIALS. Recipient and Scientist agree to retain
control over the Materials and not to transfer the Materials to any person or
entity without the prior written approval of the Company. The Company reserves
the right to distribute similar Materials to others and to use such Materials
for its own purposes. Recipient and Scientist agree to return any remaining
Materials and products or materials derived from such Materials, to the Company
upon completion of the Research or at any earlier time that the Company may
request.
5. NO WARRANTY. The Materials are being made available in order
to further research concerning it. THE MATERIALS ARE BEING SUPPLIED TO RECIPIENT
"AS IS" WITH NO WARRANTIES, EXPRESS OR IMPLIED, AND THE COMPANY EXPRESSLY
DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
The Company makes no representations that the use of the Materials will not
infringe any patent or other proprietary right of any third party. Recipient and
Scientist agree that the Materials will not be used in humans under any
circumstances.
6. REPORTS. Recipient and Scientist will supply to the Company a
written report detailing the results obtained in its study within thirty (30)
days after the Research is concluded. The final report may be in the form of a
manuscript, abstract, or other publication submission. Recipient and Scientist
agree to not disclose these results, their underlying data and/or any
conclusions drawn from the study, orally or in writing (e.g., by submission of a
manuscript, abstract, patent application, etc.), unless the Company has had
<PAGE>
thirty (30) days in which to review the intended disclosure and make
recommendations or comments. The Company will treat information disclosed by
Recipient and Scientist as confidential, upon request, by entering into a
Confidentiality Agreement to be negotiated by the parties.
7. OPTION. In consideration for the rights granted herein, the
Recipient and Scientists hereby grant to the Company an exclusive option to
acquire an exclusive worldwide license, with the right to grant and authorize
sublicenses, under all intellectual property conceived, reduced to practice or
otherwise developed by the Recipient or Scientist with the use of the
Materials, on reasonable and customary terms to be negotiated in good faith
by the parties.
8. NO CONFLICT. The Materials will not be used in any research
that is subject to consulting, licensing or similar obligations to any third
party, unless written permission is first obtained from the Company. The rights
and obligations provided by Recipient herein do not, and during the term of the
Agreement, will not conflict with any other right or obligation provided under
any other agreement that Recipient or Scientist has with any third party,
including any sponsor or government entity.
9. CARE IN USE OF MATERIALS. Recipient and Scientist acknowledge
that the Materials are experimental in nature and may have unknown
characteristics and therefore agrees to use prudence and reasonable care in the
use, handling, storage, transportation and disposition and containment of the
Materials and all derivatives thereof.
10. HOLD HARMLESS. Recipient shall indemnify the Company and hold
the Company harmless from any claims, liabilities and/or expenses which arise
out of or in connection with a result of Scientist's or Recipient's use of the
Materials.
11. COMPLIANCE WITH LAWS. Recipient and Scientists shall use the
Materials in compliance with all applicable national, state and local laws and
regulations, including all applicable National Institutes of Health guideline.
12. MISCELLANEOUS. This Agreement including its Exhibits sets
forth the entire agreement between the parties with respect to the subject
matter contained herein and supersedes any previous understandings, commitments
or agreements, oral or written. This Agreement may only be amended with a
writing signed by authorized representatives of the parties hereto. This
Agreement shall be governed by and construed under California law as applied to
agreements entered into and performed in California by California residents.
RECIPIENT KOSAN BIOSCIENCES, INC.
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
Acknowledged and Agreed to:
- ----------------------------------
[Scientist's Signature]
- ----------------------------------
[Print Name]
-2-
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
EXHIBIT 10.9
AMENDMENT NO. 1 TO LICENSE AGREEMENT
This Amendment No. 1 to License Agreement (the "Amendment") is
effective as of March ___, 1996 between KOSAN Biosciences, Inc. ("Licensee") and
THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY ("STANFORD")
concerning the License Agreement between Licensee and STANFORD effective March
11, 1996 (the "Agreement").
1. Section 1.3 is hereby amended to provide in its entirety as follows:
LICENSEE desires a license under said Invention(s), Licensed
Patent(s)and Licensed Materials to develop, manufacture, have made,
use, and sell Licensed Product(s).
2. Section 14.l is hereby amended to provide in its entirety as follows:
Licensee may grant sublicenses under the Invention(s), Licensed
Materials and Licensed Patent(s) to make, have made, import, use, lease, sell
and offer for sale and otherwise commercialize and exploit Licensed Products and
Licensed Materials, and practice any method, process or procedure within the
Licensed Patents in the Licensed Territory.
3. Section 14.3 (a) is hereby amended to provide in its entirety as
follows:
(a) Sublicense terms and conditions shall reflect that any
sublicensee(s) shall not further sublicense without the written consent
of STANFORD, which consent shall not be unreasonably withheld;
provided, however, sublicensees may grant further sublicenses with
respect to any Licensed Product within the scope of Section 2.5 (ii)
without the consent of STANFORD;
4. The last sentence of Section 14.3 is amended to provide in its entirety
as follows:
Such sublicenses (including, without limitation, any non-exclusive
sublicenses) shall remain in effect in the event of any conversion of
the exclusive license granted herein to a non-exclusive license
pursuant to Section 3.2 or any termination of this Agreement and shall
provide for the assignment of such sublicenses to STANFORD or its
designee, in the event that the Agreement is terminated; provided, the
financial obligations of each sublicensee to STANFORD shall be limited
to the amounts Licensee shall be obligated to pay to STANFORD for the
activities of such sublicensee pursuant to this Agreement.
5. Except as specifically modified or amended hereby, the License Agreement
shall remain in full force and effect and, as so modified or amended, is hereby
ratified, confirmed and approved. No provision of this Amendment may be modified
or amended except expressly in a writing signed by both parties nor shall any
terms be waived except expressly in a writing signed by the party charged
therewith. This Amendment shall be governed in accordance with the laws of the
State of California, without reference to principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of
the date shown above.
THIE BOARD OF TRUSTEES OF THE KOSAN BIOSCIENCES, INC.
THE LELAND STANFORD JUNIOR
UNIVERSITY
By: /s/ Katharine Ku By: /s/ Daniel V. Santi
---------------------------------- -------------------------
Print Name: Katharine Ku Print Name: Daniel V. Santi
--------------------------- -----------------
Title: DIRECTOR, TECHNOLOGY LICENSING Title: PRESIDENTE
------------------------------- ----------------------
<PAGE>
KOSAN BIOSCIENCES, INC.
1450 Rollins Road
Burlingame, CA 94010
Tel: 650-343-8673, ext. 207
Fax: 650-343-2931
E-Mail: [email protected]
- --------------------------------------------------------------------------------
September 21, 1998
Ms. Mona Wan
Stanford University
Office of Technology Licensing
900 Welch Road, Suite 3500
Palo Alto, CA 94304
Dear Mona:
This letter will confirm the agreement of Kosan Biosciences, Inc. ("Kosan") and
the Board of Trustees of the Leland Stanford Jr. University ("Stanford") that
Article 11 of the License Agreement entered by Kosan and Stanford effective
March 11, 1996, shall be amended to read in its entirety as follows:
Prior to the issuance of patents on the Invention(s), LICENSEE agrees
to use reasonable efforts to mark Licensed Product(s) (or their
containers or labels) made, sold, or otherwise disposed of by it under
the license granted in this Agreement with the words "Patent Pending"
and following the issuance of one or more patents, with the numbers of
any applicable Licensed Patent(s).
Except as expressly provided above, the Agreement, as amended, shall remain in
full force and effect.
<PAGE>
MS. MONA WAN
SEPTEMBER 21, 1998
PAGE 2
Please indicate Stanford's agreement to the foregoing by having this letter
countersigned below.
Yours sincerely,
/s/ Michael S. Ostrach
Michael S. Ostrach
Vice President, Corporate Development
UNDERSTOOD AND AGREED:
TRUSTEES OF THE LELAND
STANFORD UNIVERSITY
By: /s/ Katharine Ku
----------------------------------------
Name: KATHARINE KU
---------------------------------------
Title: DIRECTOR TECHNOLOGY LICENSING
--------------------------------------
Date: Sept. 24, 1998
--------------------------------------
<PAGE>
AMENDMENT NO. 3 TO LICENSE AGREEMENT
This Amendment No. 3 to License Agreement (the "Amendment") is effective as of
March 10, 2000 (the "Effective Date"), between Kosan Biosciences, Inc.
("Licensee") and The Board of Trustees of the Leland Stanford Junior University
("Stanford") and amends the license agreement between Licensee and Stanford
effective March 11,1996, as amended pursuant to that certain Amendment No. 1
effective March 11, 1996, and that certain Amendment No. 2 effective September
21, 1998 (together the "Agreement") for "Recombinant Production of Novel
Polyketides" as described in Stanford Docket S93-098.
WHEREAS,
Licensee has acquired an Exclusive license to the Licensed Patents listed in
Appendix A pursuant to the Agreement;
Stanford owns patent applications claiming technology related to Licensed
Patents, listed in Appendix B;
Both parties anticipate that there may be future inventions from the laboratory
of Dr. Chaitan Khosla that Stanford may offer to add to Appendix B and that
Licensee may wish to license;
Both parties desire to determine the conditions under which the future
inventions may be added to Appendix B and subsequently licensed; and
Stanford and Licensee believe that both parties and the public will benefit by
licensing patent applications listed in Appendix B to Licensee and entering into
this Amendment;
NOW, THEREFORE, Stanford and Licensee agree as follows:
SECTION 1 DEFINITIONS
A. "Proposed Invention" means a patent application or invention
disclosure that Stanford offers to Licensee for inclusion in Appendix B.
B. "Optioned Patent" means a Proposed Invention that Licensee agrees to
include in Appendix B, any patent application filed on an invention disclosure
that is a Proposed Invention, and any divisions, continuations, reissues and
foreign counterparts claiming priority to the Proposed Invention.
C. "New Licensed Patent" means an Optioned Patent for which Licensee
chooses to take an Exclusive license.
D. "New Non-Exclusive Patent" means an Optioned Patent for which
Licensee chooses to take a non-exclusive license.
Page 1 of 5
<PAGE>
SECTION 2. GRANT OF OPTION FOR EXCLUSIVE OR NON-EXCLUSIVE LICENSE
Stanford hereby grants Licensee and Licensee hereby accepts an Exclusive option
to acquire an Exclusive or non-exclusive license to Optioned Patents on the
terms and conditions set forth herein If a future patent application or an
invention disclosure: a) names Dr. Chaitan Khosla as an inventor; and b)
describes technology relating to polyketides or the production thereof by
recombinant DNA technology or technology disclosed in Licensed Patents, Stanford
will determine if that patent application or invention disclosure will become a
Proposed Invention. If Stanford decides that a patent application or invention
disclosure will be a Proposed Invention, then Stanford shall provide notice
thereto to Licensee. The Proposed Invention shall be subject to this Amendment
SECTION 3 OPTION TERM
The "Option Term" shall begin when Stanford provides notice in writing to
Licensee of the Proposed Invention and shall end EARLIER of:
a) [**] years after the date Stanford offers the Proposed Invention to
Licensee in writing; or
b) [**] after Stanford notifies Licensee in writing that either:
i) it has received a Notice of Allowance from the US. Patent
and Trademark Office for an Optioned Patent; or ii) a third
party has offered or requested licensing terms for the
Optioned Patent.
SECTION 4 EXERCISE OF OPTION
Licensee may exercise its option at any time during the Option Term by providing
Stanford Written notice of its determination to acquire an Exclusive or
non-exclusive license to the Optioned Patent set forth in such notice. Upon such
notification, the Optioned Patent will become either a New Licensed Patent or a
New Non-Exclusive Patent as appropriate. A New Licensed Patent will be subject
to the terms and conditions of this Amendment and those of any Licensed Patent
in the Agreement. A New Non-Exclusive Patent will be subject to the terms and
conditions of this Amendment and those of any Licensed Patent in the Agreement,
except that:
a.) the grant is not Exclusive; and
b.) New Non-Exclusive Patent may not be sublicensed.
SECTION 5 PAYMENTS
A. AMENDMENT OF ISSUE FEE. Within [**] of the Effective Date of this
Amendment No. 3, Licensee shall [**].
B. OPTION FEE. within [**] of the Effective Date of this Amendment
No. 3, Licensee shall pay Stanford [**] dollars ($[**]) as an option fee for
the patent applications listed in Appendix B. To include future
Page 2 of 5
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
Proposed Inventions in Appendix B, Licensee shall pay Stanford [**] dollars
($[**]) as the option fee for each Proposed Invention. If a
patent application is filed on a Proposed Invention the option fee shah be paid
by the LATER of: (i) [**] from Stanford's notifying Licensee of a Proposed
Invention; and (ii) [**] from the date a provisional patent application is
filed on a Proposed Invention. If no patent application is filed on a Proposed
Invention the option fee shall be paid by [**] from Stanford's notifying
Licensee of a Proposed Invention. After the option fee is received a Proposed
Invention will become an Optioned Patent. If Licensee does not pay the option
fee, it relinquishes all rights to such Proposed Invention under the Agreement.
Only one such option fee is due for each Proposed Invention.
C. NON-EXCLUSIVE LICENSE FEE. If Licensee exercises its option by
acquiring a non-exclusive license to an Optioned Patent, then Licensee shall
pay Stanford a non-exclusive license fee of [**] dollars ($[**]) within [**]
of the issuance of the first patent claiming priority to an Optioned Patent.
The non-exclusive license fee is due only one time for each New Non-Exclusive
Patent.
D. EXCLUSIVE LICENSE FEE. If Licensee decides to exercise its option
to acquire an Exclusive license to an Optioned Patent, then Licensee shall
pay Stanford an Exclusive license fee of [**]dollars ($[**]) within [**] of
the issuance of the first patent claiming priority to such New Licensed
Patent. The amount of the Exclusive license fee shall be determined by
Stanford. Stanford agrees that reductions in the Exclusive license fee (to
not less than [**] dollars ($[**])) may be appropriate when (i) third party
technology licensed to Licensee is used in conjunction with the invention
claimed in the patent; or (ii) the claims of the patent are method claims or
are composition of matter claims that do not encompass the product to be sold
or its method of manufacture. The Exclusive license fee is due only once for
each New Licensed Patent. Licensee may convert a New Licensed Patent to a New
Non-Exclusive Patent upon written notice to Stanford at any time.
E. ANNUAL FEE FOR PATENTS SUBJECT TO DILIGENCE PLAN. For each New
Licensed Patent subject to a Diligence Plan, as defined in Ss.6, Licensee
shall pay an annual fee of [**] dollars ($[**]). The annual fee is due
beginning on the first [**] after such Diligence Plan is accepted in writing
and every [**] thereafter, for so long as such Diligence Plan is effective.
The amount of the annual fee shall be determined by Stanford. Stanford agrees
that reductions in the fee (to not less than [**] dollars ($[**]) per New
Licensed Patent) may be appropriate when (i) third party technology licensed
to Licensee is used in conjunction with the invention claimed in the patent;
or (ii) the claims of the patent are method claims or are composition of
matter claims that do not encompass the product to be sold or its method of
manufacture. In no event shall the cumulative amount of annual fees due under
this Amendment and annual maintenance fees due under paragraph 6.3 of the
Agreement exceed: [**].
F. ROYALTIES. For all Optioned Patents, New Non-Exclusive Patents, and
New Licensed Patents, royalties shall be due and payable as set forth in
paragraphs 6.5
Page 3 of 5
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
through 6.13 of the Agreement. If a Licensed Product is encompassed by claims
from multiple Licensed Patents, Optioned Patents, New Licensed Patents or New
Non-Exclusive patents, as mended hereby, then Licensee shall pay only one
royalty.
G. PATENT EXPENSES. Licensee shall pay all patent costs for Optioned
Patents, New Licensed Patents and New Non-Exclusive Patents. Patent costs paid
by Licensee for New Non-Exclusive Patents shall be reimbursable as follows:
i) If Stanford licenses the patent to a third party and Licensee
submits a written request to Stanford, then Stanford shall
reimburse Licensee for [**]% of the past patent costs paid by
Licensee.
ii) Patent expenses that are not reimbursed are creditable against
royalties due under paragraph 6.5 of the Agreement.
iii) If Licensee chooses to convert a New Licensed Patent to a New
Non-Exclusive Patent, then patent expenses incurred prior to
conversion are not reimbursable or creditable.
SECTION 6 DILIGENCE PLAN
Licensee shall submit to Stanford a plan (the "Diligence Plan"), acceptable
to Stanford, for developing a New Licensed Patent; such Diligence Plan will
be submitted within [**] of the date Stanford offers a Proposed Invention to
the Licensee in writing. If Licensee does not submit a Diligence Plan or
notifies Stanford in writing that it will no longer adhere to a Diligence
Plan accepted by Stanford, then the New Licensed Patent will be converted to
a New Non-Exclusive Patent.
SECTION 7 MISCELLANEOUS
A. GOOD-STANDING. Stanford and Licensee agree that neither party is
known to be in breach of the Agreement and that both parties are in
good-standing with one another. Both parties agree that prior to this Amendment,
the patents and patent applications licensed to Licensee pursuant to the
Agreement are listed on Appendix A.
B. LICENSES TO THIRD PARTIES. In the event Stanford licenses a New
Non-Exclusive Patent to a third party, then Stanford shall make good faith
efforts to notify Licensee and to include in such license a statement that the
license does not include rights to Licensed Patents or New Licensed Patents.
C. RELEASE OF OPTION OR LICENSE. Licensee may release its option or
license rights to a Proposed Invention, Optioned Patent, New Licensed Patent or
New Non-Exclusive Patent at any time by giving Stanford [**] written notice
of the release. Upon such release, Licensee shall have neither further payment
obligations pursuant to such license other than those previously incurred nor
any rights in such Proposed Invention, Optioned Patent, New Licensed Patent, or
New Non-Exclusive Patent.
Page 4 of 5
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
D. AGREEMENT IN FULL FORCE AND EFFECT. Except as specifically amended
hereby, the Agreement shall remain in full force and effect and as so amended is
hereby ratified, confirmed, and approved. No provision of this Amendment may be
amended except expressly in writing signed by both parties nor shall any terms
be waived except expressly in writing signed by the party charged therewith.
This Amendment shall be governed in accordance with the laws of the State of
California without reference to principles of conflicts of laws.
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the
Effective Date shown above.
<TABLE>
<S> <C>
By: /s/ Katherine Ku By: /s/ DANIEL V. SANTI
------------------------------------ -----------------------------------------
Name: KATHERINE KU Daniel V. Santi
---------------------------------- President & CEO
Title: DIRECTOR TECHNOLOGY LICENSING Date: 15 MAR 00
--------------------------------- --------------------------------------
Date: Mar 10, 2000
----------------------------------
</TABLE>
Page 5 of 5
<PAGE>
APPENDIX A
PATENTS LICENSED
<TABLE>
<CAPTION>
<S> <C> <C>
[**] [**] [**]
</TABLE>
Confidential Information
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
<TABLE>
<S> <C> <C>
[**] [**] [**]
</TABLE>
Confidential Information
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
APPENDIX B
PATENTS OPTIONED
<TABLE>
<S> <C> <C>
[**] [**] [**]
</TABLE>
Confidential Information
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
EXHIBIT 10.10
LICENSE AGREEMENT
BETWEEN
PRESIDENT AND FELLOWS OF HARVARD COLLEGE
AND
KOSAN BIOSCIENCES, INC.
Effective as of December, 1998
Re: Harvard Case No 1185-95
In consideration of the mutual promises and covenants set forth below, the
parties hereto agrees as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 AFFILIATE: any company, corporation, or business in which LICENSEE owns
or controls at least fifty percent (50%) of the voting stock or other
ownership. Unless otherwise specified, the term LICENSEE includes
AFFILIATES.
1.2 FIELD: polyketide production, drug discovery and screening of
polyketides and [**], manufacture of compounds
developed as a result of such activities, and commercialization of such
compounds for any and all purposes.
1.3 HARVARD: President and Fellows of Harvard College, a nonprofit
Massachusetts educational corporation having offices at the Office for
Technology and Trademark Licensing, 124 Mt. Auburn Street, Suite 410
South, Cambridge, Massachusetts 02138.
1.4 LICENSED PROCESSES: the processes covered by a VALID CLAIM in the
country where such process is used, or in the country where the
resulting product is manufactured or sold.
1.5 LICENSED PRODUCTS: products covered by a VALID CLAIM in the country of
manufacture, use or sale, or products made or services provided in
accordance with or by the practice of LICENSED PROCESSES.
1.6 LICENSEE: Kosan Biosciences, Inc. (Kosan) a corporation organized under
the laws of California having its principal offices at 1450 Rollins
Road, Burlingame, CA 94010.
1.7 NET SALES: the amount billed, invoiced, or received (whichever occurs
first) by LICENSEE or its sublicensees, for sales, leases, or other
transfers of LICENSED PRODUCTS, less:
(a) customary trade, quantity or cash discounts and non-affiliated
brokers' or agents' commissions actually allowed and taken;
(b) amounts repaid or credited by reason of rejection or return;
and
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(c) to the extent separately stated on purchase orders, invoices,
or other documents of sale, duties, taxes levied on and/or
other governmental charges made as to production, sale,
transportation, delivery or use and paid by or on behalf of
LICENSEE or sublicensees.
(d) reasonable charges for delivery or transportation provided by
third parties, if separately stated.
NET SALES also includes the fair market value of any non-cash
consideration received by LICENSEE or sublicensees for the sale, lease,
or transfer of LICENSED PRODUCTS. In the event LICENSEE negotiates in
good faith a sublicense with a definition of NET SALES which differs
from the above, and provided the negotiated definition does not cause
material changes in the royalties due HARVARD, such negotiated
definition shall control royalties due HARVARD hereunder for such
sublicense, provided that HARVARD shall have thirty (30) days to review
and approve the proposed negotiated definition, which approval shall
not be unreasonably withheld.
1.8 ACADEMIC RESEARCH PURPOSES: use of PATENT RIGHTS for academic research
or other not-for-profit scholarly purposes which are undertaken at a
non-profit or governmental institution, that does not use the PATENT
RIGHTS in the production or manufacture of products for sale or the
performance of services for a fee, or in the performance of research
sponsored by another for-profit entity. LICENSEE acknowledges that
HARVARD is currently receiving research support from a foundation
entity for cloning the biosynthetic genes for a particular natural
product and for the expression of genes once cloned to test for
activity, and such research shall be deemed to be for ACADEMIC RESEARCH
PURPOSES hereunder, and HARVARD represents that the foundation sponsor
has no right to manufacture or commercialize products under the PATENT
RIGHTS.
1.9 NON-ROYALTY SUBLICENSE INCOME: Sublicense issue fees, sublicense
maintenance fees, sublicense milestone payments, and similar
non-royalty payments made by sublicensees to LICENSEE on account of
sublicenses pursuant to this Agreement, including any initial option or
license fees for any sublicense which includes the PATENT RIGHTS, and
rights to the LICENSED PROCESSES or LICENSED PRODUCTS. Notwithstanding
the above, it is understood and agreed that NON-ROYALTY SUBLICENSEE
INCOME shall not include any amounts received by LICENSEE from
sublicensees for: the purchase of equity in LICENSEE, debt financing,
research and development, the license or sublicense of any intellectual
property other than the PATENT RIGHTS, products other than LICENSED
PRODUCTS, reimbursement for patent or other expenses, or sublicense
milestone payments and other payments for milestones achieved or other
events that did not result from the use of LICENSED PROCESSES or are
not for LICENSED PRODUCTS.
1.10 PATENT RIGHTS: United States patent application [**], the inventions
described and claimed therein, and any divisions, substitutions,
continuations thereof, and continuations-in-part thereof to the extent
the claims are directed to subject matter specifically described in
[**], patents issuing on any of the preceding, and reexaminations,
reissues and extensions thereof, and any and all foreign patent
applications and patents corresponding thereto, or corresponding to PCT
patent application No. US96/16202, all to the extent owned or
controlled by HARVARD.
1.11 TERRITORY: Worldwide.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
1.12 VALID CLAIM: means an issued claim of any unexpired patent or a claim
of any pending patent application within the PATENT RIGHTS which has
not been held unenforceable, unpatentable or invalid by a decision of a
court or governmental body of competent jurisdiction, in a ruling that
is unappealable or unappealed within the time allowed for appeal, which
has not been rendered unenforceable through disclaimer or otherwise,
and which has not been lost through an interference proceeding.
Notwithstanding the foregoing, a claim of a pending patent application
shall cease to be a VALID CLAIM if no patent has issued on such claim
on or prior to the seventh anniversary of the date of filing of the
corresponding parent patent application, provided that such claim shall
once again become a VALID CLAIM on the issue date of a patent that
subsequently issues and covers such claim.
1.13 The terms 'Public Law 96-517" and 'Public Law 98-620" include all
amendments to those statutes.
1.14 The terms 'sold' and 'sell' include, without limitation, leases and
other transfers and similar transactions.
ARTICLE II
REPRESENTATIONS
2.1 HARVARD and the Regents of the University of California ('The Regents')
are joint owners by assignment from Ralph H. Lambalot, Amy M. Gehring
and Christopher T. Walsh (to HARVARD) and Ralph Reid (to The Regents)of
certain rights, title and interest in United States Patent Application
[**] entitled 'Acyl Carrier Protein Synthases and Uses Thereof'
(H.U. Case $$1185-95), in the foreign patent applications corresponding
thereto, and in the inventions described and claimed therein.
The Regents have authorized HARVARD to act as their sole patent and
licensing agent for said patent applications under a letter of
Agreement dated April 10, 1997, a copy of which is included in Appendix
A.
2.2 HARVARD represents and warrants that: (i) the execution, delivery and
performance of this Agreement have been duly authorized by all
necessary institutional action on the part of HARVARD and The Regents;
(ii)the PATENT RIGHTS are free and clear of any lien, encumbrance,
security interest or restriction on license, other than those specified
in Article III of this Agreement; (iii) it has not previously granted,
and will not grant during the term of this Agreement, any right,
license or interest in or to the PATENT RIGHTS, or any portion thereof,
inconsistent with the license granted to LICENSEE herein; and (iv)there
are no threatened or pending actions, suits, investigations, claims or
proceedings in any way relating to the PATENT RIGHTS.
2.3 HARVARD has the authority to issue licenses under PATENT RIGHTS with
respect to the entire interest of The Regents and HARVARD therein.
2.4 HARVARD is committed to the policy that ideas or creative works
produced at HARVARD should be used for the greatest possible public
benefit, and believes that every reasonable incentive should be
provided for the prompt introduction of such ideas into public use, all
in a manner consistent with the public interest.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
2.5 LICENSEE intends to diligently develop the invention and to bring
LICENSED PRODUCTS to market which are subject to this Agreement.
2.6 LICENSEE is desirous of obtaining an exclusive license in the TERRITORY
in order to practice the above-referenced invention covered by PATENT
RIGHTS in the United States and in certain foreign countries, and to
manufacture, use and sell in the commercial market the LICENSED
PRODUCTS made in accordance therewith, and HARVARD is desirous of
granting such a license to LICENSEE in accordance with the terms of
this Agreement.
ARTICLE III
GRANT OF RIGHTS
3.1 HARVARD hereby grants to LICENSEE and LICENSEE accepts, subject to the
terms and conditions hereof, in the TERRITORY and in the FIELD:
an exclusive commercial license under PATENT RIGHTS to make and have
made, to import, have imported, to use and have used, to offer for
sale, to sell and have sold the LICENSED PRODUCTS, and to practice the
LICENSED PROCESSES, for the life of the PATENT RIGHTS. Such licenses
shall include the right to grant sublicenses under the terms outlined
in this Agreement. In order to provide LICENSEE with commercial
exclusivity for so long as the license under PATENT RIGHTS remains
exclusive, HARVARD agrees that it will not grant licenses under PATENT
RIGHTS to others except as required by HARVARD's obligations in
paragraph 3.2(a) or as permitted in paragraph 3.2(b).
3.2 The granting and exercise of this license is subject to the
following conditions:
(a) HARVARD's "Statement of Policy in Regard to Inventions,
Patents and Copyrights," dated August 10, 1998, Public Law
96-517, Public Law 98-620, and HARVARD's obligations under
agreements with other non-profit sponsors of research. Any
right granted in this Agreement greater than that permitted
under Public Law 96-517, or Public Law 98-620, shall be
subject to modification as may be required to conform to the
provisions of those statutes.
(b) HARVARD reserves the right to make and use, and grant to
others researchers at non-profit or governmental institutions
non-exclusive licenses to make and use for ACADEMIC RESEARCH
PURPOSES only the subject matter described and claimed in
PATENT RIGHTS.
(c) LICENSEE shall use diligent efforts to effect introduction of
the LICENSED PRODUCTS into the commercial market as soon as
practicable, consistent with sound and reasonable business
practice and judgment; thereafter, until the expiration of
this Agreement, LICENSEE shall endeavor to keep LICENSED
PRODUCTS reasonably available to the public.
(d) At any time after three (3) years from the effective date of
this Agreement, HARVARD may terminate or render this license
non-exclusive if, in HARVARD's reasonable judgment, the
Progress Reports furnished by LICENSEE do not demonstrate that
LICENSEE:
<PAGE>
(i) has put the PATENT RIGHTS into commercial use in the
country or countries hereby licensed, directly or
through a sublicense, and is keeping products
resulting from the use of the PATENT RIGHTS
reasonably available to the public, or
(ii) is engaged in research, development, manufacturing,
marketing or sublicensing activity reasonably
appropriate to achieving the objectives of 3.2(d)(i).
Such activity shall include, but not necessarily be
limited to, achievement of the following milestones
by LICENSEE:
(i) within twelve (12) months from the effective date
of this Agreement, initiate or sponsor experiments
designed to demonstrate heterologous expression of an
[**] polyketide, using a LICENSED PROCESS or
LICENSED PRODUCT;
(ii) within eighteen (18) months from the effective
date of this Agreement, initiate or sponsor
experiments designed to demonstrate heterologous
expression of a [**] polyketide, using a LICENSED
PROCESS or LICENSED PRODUCT;
(iii) within eight (8) years from the effective date
of this Agreement, file or have a sublicensee file an
IND or other regulatory permit for a LICENSED PROCESS
or LICENSED PRODUCT;
(e) In all sublicenses granted by LICENSEE hereunder, LICENSEE
shall include a requirement that the sublicensee use
reasonable efforts to bring the subject matter of the
sublicense into commercial use in a timely manner. LICENSEE
shall further provide in such sublicenses that such
sublicenses are subject and subordinate to the terms and
conditions of this Agreement, except (i): the sublicensee may
not further sublicense, except to its agents, AFFILIATES, and
distributors; and (ii) the rate of royalty on NET SALES paid
by the sublicensee to the LICENSEE. Copies of all sublicense
agreements shall be provided promptly to HARVARD; such copies
shall be treated as confidential consistent with the
provisions of Article 5.4(d).
(f) If LICENSEE is unable or unreasonably unwilling to grant
sublicenses, either as suggested by HARVARD or by a potential
sublicensee or otherwise, and LICENSEE has not previously
granted an exclusive license to a third party, then HARVARD
may directly license such potential sublicensee unless, in
HARVARD's reasonable judgment, such license would be contrary
to sound and reasonable business practice, and the granting of
such license would not materially increase the availability to
the public of LICENSED PRODUCTS. In making any such
determination, HARVARD agrees to take into serious
consideration LICENSEE's reasons for being unwilling to grant
the sublicense, including LICENSEE's belief that the
sublicense would have a material adverse impact on LICENSEE's
business. In any such event LICENSEE shall have the right of
last refusal, to be exercised within sixty (60) days after
notice in writing from Harvard, to sublicense such rights to
such sublicensee(s) on terms no less favorable to such
sublicensee(s) than those negotiated by Harvard.
(g) A license in any other territory or field of use in addition
to the TERRITORY and/or FIELD shall be the subject of a
separate agreement and shall require LICENSEE's submission of
evidence, satisfactory to HARVARD, demonstrating LICENSEE's
willingness and ability to develop and commercialize in such
other territory and/or field
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
of use the kinds of products or processes likely to be
encompassed in such other territory and/or field.
(h) During the period of exclusivity of this license in the United
States, LICENSEE shall cause any LICENSED PRODUCT produced for
sale by LICENSEE in the United States to be manufactured
substantially in the United States. In the event that LICENSEE
cannot obtain this guarantee from a sublicensee, HARVARD
agrees to cooperate with LICENSEE in requesting the
appropriate exemption from the United States Government.
3.3 All rights reserved to the United States Government and others under
Public Law 96-517, and Public Law 98-620, shall remain and shall in no
way be affected by this Agreement.
ARTICLE IV
ROYALTIES
4.1 LICENSEE shall pay to HARVARD a non-refundable license issue fee of
[**] dollars ($[**]). [**] of this sum ($[**]) shall be payable upon
execution of this Agreement and the balance of the sum ($[**])
on the first anniversary of the date of execution.
4.2 (a) LICENSEE shall pay to HARVARD during the term of this
Agreement with respect to LICENSED PRODUCTS within the scope
of an issued VALID CLAIM in the country of manufacture, use or
sale, a royalty of [**] percent ([**]%) of NET SALES made
by LICENSEE. In the case of sublicenses, LICENSEE shall pay to
HARVARD a royalty of [**] percent ([**]%) of NET SALES
made by sublicensees with respect to LICENSED PRODUCTS within
the scope of an issued VALID CLAIM in the country of
manufacture use or sale. In the case of sublicenses, LICENSEE
shall also pay to HARVARD a royalty of [**] percent ([**]%)of
NON-ROYALTY SUBLICENSE INCOME, provided however, that this sum
shall not exceed [**] dollars ($[**]) for any given
sublicense.
(b) The royalty rates set forth in Paragraph 4.2(a) above shall be
reduced by [**] percent ([**]%) if the applicable LICENSED
PRODUCTS are not within the scope of an issued VALID CLAIM of
a patent within the PATENT RIGHTS in the country such LICENSED
PRODUCTS are manufactured, used or sold, but are within the
scope of a pending VALID CLAIM of a patent application within
the PATENT RIGHTS in the country such LICENSED PRODUCTS are
manufactured used or sold. However, this provision shall not
apply to NON-ROYALTY SUBLICENSE INCOME payable under Paragraph
4.2 (a) above.
(c) on sales between LICENSEE and its AFFILIATES or sublicensees
for resale, the royalty shall be paid on the NET SALES of the
AFFILIATE or sublicensee.
(d) In the event that a LICENSED PRODUCT is sold in combination as
a single product with another product, active component or
service whose sale and use are not covered by a VALID CLAIM of
the LICENSED PRODUCT in the country for which the combination
product is sold, NET SALES from such sales for purposes of
calculating the amounts due under Paragraph 4.2(a) and (b)
above shall be calculated by
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
multiplying the NET SALES of that combination by the fraction
A/(A + B), where A is the gross selling price of the LICENSED
PRODUCT sold separately and B is the gross selling price of
the other product, active component or service sold
separately; provided that pursuant to this adjustment
provision the applicable percentage royalty (based on NET
SALES or NON-ROYALTY SUBLICENSE INCOME) shall not be reduced
to below [**] ([**]%) of the original rate specified.
In the event that no such separate sales are made by LICENSEE
or its sublicensee, NET SALES for royalty determination shall
be as reasonably allocated by agreement of HARVARD and
LICENSEE between such LICENSED PRODUCT and such other product,
active component or service, based upon their relative
importance and proprietary protection.
(e) No more than one royalty payment shall be due with respect to
a sale of a particular LICENSED PRODUCT. No multiple royalties
shall be payable because any LICENSED PRODUCT, or its
manufacture, sale or use is covered by more than one VALID
CLAIM. No royalty shall be payable under this Paragraph 4.2
with respect to LICENSED PRODUCTS distributed for use in
research and/or development, or in clinical trials.
(f) Royalties due under this Paragraph 4.2 shall be payable on a
country-by-country and LICENSED PRODUCT-by-LICENSED PRODUCT
basis until the expiration of the last-to-expire issued VALID
CLAIM covering such LICENSED PRODUCT in such country.
4.3 No later than January 1 of each calendar year after the first
commercial sale of a LICENSED PRODUCT, LICENSEE shall pay to HARVARD a
minimum annual royalty of [**] dollars ($[**]). This minimum royalty
payment shall be included in the Royalty Reports under Paragraph 5.4
and credited against earned royalties for that calendar year only.
4.4 No later than January 1 of each calendar year after the effective date
of this Agreement, and until the first commercial sale of a LICENSED
PRODUCT, LICENSEE shall pay to HARVARD the following non-refundable
license maintenance royalty and/or advance on royalties. [**]
percent ([**]%) Of such payments may be credited against royalties on
sales due for that calendar year or any subsequent calendar year and
Royalty Reports shall reflect such a credit. However, such credits
shall not reduce the amount of minimum royalties, royalties on sales or
other payments due in any calendar year by more than [**] percent
([**]%) in any one year.
<TABLE>
<S> <C>
[**] [**] dollars ($[**])
[**] [**] dollars ($[**])
[**] [**] dollars ($[**])
[**] [**] dollars ($[**])
</TABLE>
4.5 No later than January 1 of the calendar year following achievement of
the following milestones LICENSEE shall pay to HARVARD the following
non-refundable milestone payments:
[**] $[**]
No second milestone payment for an IND filing shall be made if the
LICENSED PRODUCT for which the second IND filing is made contains an
active ingredient that was a component of
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
another LICENSED PRODUCT for which a previous IND filing was made and
the milestone payment therefor paid.
[**] $[**]
Such payments shall be fully credited against royalties on sales due
for any subsequent calendar year or running royalties due for that
calendar year and Royalty Reports shall reflect such a credit. However,
such credits shall not reduce the amount of minimum royalties,
royalties on sales or other payments due in any calendar year by more
than [**] percent ([**]%) in any one year.
4.6 LICENSEE shall be responsible for the payment of any amounts due to
third parties to obtain and practice any rights necessary to exploit
the PATENT RIGHTS. Up to [**] percent ([**]%) of any such payments by
LICENSEE may be credited against any amounts due to HARVARD, except
that such credits shall not reduce the amount of minimum royalties,
royalties on sales or other payments due in any calendar year by more
than [**] percent ([**]%) in any one year.
4.7 The total of all credits against minimum royalties, royalties on sales
or other payments under Article IV shall not reduce the total amount of
minimum royalties, royalties on sales or other payments due to HARVARD
in any calendar year by more than [**] percent ([**]%) in any one year.
Any credit which is unexpended may be carried forward until applied.
ARTICLE V
REPORTING
5.1 Prior to signing this Agreement, LICENSEE has provided to HARVARD a
written research and development plan under which LICENSEE intends to
bring the subject matter of the licenses granted hereunder into
commercial use upon execution of this Agreement. Such plan includes
projections of sales and proposed marketing efforts.
5.2 No later than [**] after June 30 of each calendar year, LICENSEE shall
provide to HARVARD a written annual Progress Report describing progress
on research and development, regulatory approvals, manufacturing,
sublicensing, marketing and sales during the most recent twelve (12)
month period ending June 30 and plans for the forthcoming year. This
Progress Report may be combined with the Royalty Report due under
Paragraph 5.4 (a). If progress differs from that anticipated in the
plan required under Paragraph 5.1, LICENSEE shall explain the reasons
for the difference and propose a modified research and development plan
for HARVARD's review. LICENSEE shall also provide any reasonable
additional data HARVARD requires to evaluate LICENSEE's performance.
5.3 LICENSEE shall report to HARVARD the date of first sale of LICENSED
PRODUCTS (or results of LICENSED PROCESSES) in each country within [**]
of occurrence.
5.4 (a) LICENSEE shall submit to HARVARD within [**] after each [**], a
Royalty Report setting forth for such [**] at least the
following information:
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(i) the number of LICENSED PRODUCTS sold by LICENSEE, its
AFFILIATES and sublicensees in each country, as
reported to LICENSEE, and any subsequent corrections
to the initial report to LICENSEE;
(ii) total billings for such LICENSED PRODUCTS;
(iii) an accounting for all LICENSED PROCESSES used or
sold;
(iv) deductions applicable to determine the NET SALES
thereof;
(v) the amount of NON-ROYALTY SUBLICENSE INCOME received
by LICENSEE, until the amount due under Paragraph 4.2
(a) has been paid; and
(vi) the amount of royalty due thereon, or the amount of
license maintenance or milestone payments due. If no
royalties or other payments are due to HARVARD for
any reporting period, the Royalty Report shall
include the statement that no royalties are due.
Such report shall be certified as correct by an officer of
LICENSEE and shall include a detailed listing of all
deductions from royalties.
(b) LICENSEE shall pay to HARVARD with each such Royalty Report
the amount of royalty due with respect to such half year. If
multiple technologies are covered by the license granted
hereunder, LICENSEE shall specify which PATENT RIGHTS are
utilized for each LICENSED PRODUCT and LICENSED PROCESS
included in the Royalty Report.
(c) All payments due hereunder shall be deemed received when funds
are credited to HARVARD's bank account and shall be payable by
check or wire transfer in United States dollars. Conversion of
foreign currency to U.S. dollars shall be made at the
conversion rate existing in the United States (as reported in
the New York Times or the Wall Street Journal) on the last
working day of each royalty period. No transfer, exchange,
collection or other charges shall be deducted from such
payments.
(d) All such royalty reports and other reports containing
LICENSEE'S business terms and information shall be maintained
in confidence by HARVARD except as required by law, or by
specific reporting requirements to the Federal Government;
however, HARVARD may include in its usual reports annual
amounts of royalties paid.
(e) Late payments shall be subject to a charge of [**] percent
([**]) per month, or [**] dollars ($[**]), whichever is
greater.
ARTICLE VI
RECORD KEEPING
6.1 LICENSEE shall keep, and shall require its AFFILIATES and sublicensees
to keep, accurate records (together with supporting documentation) of
LICENSED PRODUCTS made, used or sold under this Agreement, appropriate
to determine the amount of royalties due to HARVARD
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
hereunder. Such records shall be retained for at least [**]
following the end of the reporting period to which they relate. They
shall be available during normal business hours for examination by an
accountant selected by HARVARD, reasonably acceptable to LICENSEE for
the sole purpose of verifying reports and payments hereunder. In
conducting examinations pursuant to this paragraph, HARVARD's
accountant shall have access to all records which HARVARD reasonably
believes to be relevant to the calculation of royalties under Article
IV.
6.2 HARVARD's accountant shall not disclose to HARVARD any information
other than information relating to the accuracy of reports and payments
made hereunder.
6.3 Such examination by HARVARD's accountant shall be at HARVARD's expense,
except that if such examination shows an underreporting or underpayment
in excess of [**] percent ([**]%) for any [**] period, then
LICENSEE shall pay the cost of such examination as well as any
additional sum that would have been payable to HARVARD had the LICENSEE
reported correctly, plus interest on said sum at the rate of
[**] percent ([**] %) per month.
ARTICLE VII
DOMESTIC AND FOREIGN PATENT FILING AND MAINTENANCE
7.1 Upon execution of this Agreement, LICENSEE shall reimburse HARVARD for
all reasonable expenses HARVARD has incurred for the preparation,
filing, prosecution and maintenance of PATENT RIGHTS. Thereafter,
subject to Paragraph 7.4, LICENSEE shall reimburse HARVARD, within
forty five (45) days from receipt of an invoice, for all reasonable
amounts for such future expenses agreed upon by the parties under this
Article VII, which invoice shall not precede the accrual of such future
expenses by more than sixty (60) days. Late payment of these invoices
shall be subject to interest charges of [**] percent ([**]%) per
month. HARVARD shall, in its sole discretion, using patent counsel
reasonably acceptable to LICENSEE, be responsible for the preparation,
filing, prosecution and maintenance of any and all patent applications
and patents included in PATENT RIGHTS. HARVARD shall consult with
LICENSEE as to the preparation, filing, prosecution and maintenance
of such patent applications and patents and any interference or
opposition relating thereto and shall furnish to LICENSEE copies of
documents relevant to any such preparation, filing, prosecution or
maintenance.
7.2 HARVARD shall promptly provide to LICENSEE copies of any and all patent
applications within the PATENT RIGHTS filed by HARVARD during the term
of this Agreement and all material documents received from or sent to
any patent office relating thereto which relate to the scope, term,
maintenance, validity, or enforceability of any of the PATENT RIGHTS,
or any challenge to or change to any of the preceding.
7.3 HARVARD and LICENSEE shall cooperate fully in the preparation, filing,
prosecution and maintenance of PATENT RIGHTS and of all patents and
patent applications licensed to LICENSEE hereunder, executing all
papers and instruments or requiring members of HARVARD to execute such
papers and instruments so as to enable HARVARD to apply for, to
prosecute and to maintain patent applications and patents in HARVARD's
name in any country. Each party shall provide to the other prompt
notice as to all matters which come to its attention and which may
affect the preparation, filing, prosecution or maintenance of any such
patent applications or patents.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
7.4 LICENSEE may elect to surrender its PATENT RIGHTS in any country upon
[**] written notice to HARVARD. Such notice shall not relieve LICENSEE
from responsibility to reimburse HARVARD for patent-related expenses
incurred prior to the expiration of the [**] notice. However, LICENSEE
shall not have responsibility to reimburse HARVARD for patent-related
expenses incurred subsequent to expiration of the notice, and HARVARD
shall make an effort to minimize patent-related expenses during the
[**] notice period.
ARTICLE VIII
INFRINGEMENT
8.1 With respect to any PATENT RIGHTS that are exclusively licensed to
LICENSEE pursuant to this Agreement, LICENSEE shall have the right but
not the obligation to prosecute in its own name and at its own expense
any suit relating to the infringement of such patent, so long as such
license is exclusive at the time of the commencement of such action.
LICENSEE shall have the right to authorize sublicensees to conduct such
actions. HARVARD agrees to notify LICENSEE promptly of each
infringement of such patents of which HARVARD is or becomes aware,
providing all available details relating thereto. Before LICENSEE
commences an action with respect to any infringement of such patents,
LICENSEE shall give careful consideration to the views of HARVARD and
to potential effects on the public interest in making its decision
whether or not to sue.
8.2 (a) If LICENSEE elects to commence an action as described
above, HARVARD may, to the extent permitted by law, elect to
join as a party in that action. Regardless of whether HARVARD
elects to join as a party, HARVARD shall cooperate fully with
LICENSEE in connection with any such action.
(b) If HARVARD elects to join as a party pursuant to subparagraph
(a), HARVARD shall jointly control the action with LICENSEE.
(c) If HARVARD is required to join LICENSEE as a party pursuant to
subparagraph (a) for LICENSEE to maintain such activity,
HARVARD shall join and LICENSEE shall reimburse HARVARD for
any costs HARVARD incurs, including reasonable attorneys'
fees, as part of an action brought by LICENSEE, irrespective
of whether HARVARD becomes a co-plaintiff.
8.3 No settlement, consent judgment or other voluntary final disposition of
the suit which imposes any obligations or costs on HARVARD may be
entered into without the prior written consent of HARVARD, which
consent shall not be unreasonably withheld.
8.4 Recoveries or reimbursements from actions commenced pursuant to this
Article shall first be applied to reimburse LICENSEE and HARVARD for
any costs of the action not previously reimbursed under Paragraph
8.2(c) above. Any remaining recoveries or reimbursements which are paid
in replacement of lost or forfeited sales by LICENSEE or a sublicensee
shall be retained by LICENSEE and treated as NET SALES of LICENSED
PRODUCTS, subject to the royalty obligations to HARVARD outlined in
Paragraph 4.2 above. Any additional recoveries or reimbursements which
are payments for wilful infringement or punitive damages shall be
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
shared by LICENSEE and HARVARD in proportion to the expenses each,
without reimbursement from the other, incurred in conducting the suit.
8.5 If LICENSEE elects not to exercise its right to prosecute an
infringement of the PATENT RIGHTS pursuant to this Article, HARVARD
may do so at its own expense, controlling such action and retaining all
recoveries therefrom. LICENSEE shall cooperate fully with HARVARD in
connection with any such action, and subsequent to determination of
recoveries or reimbursements, costs incurred by LICENSEE shall be
reimbursed by HARVARD.
8.6 In the event the recoveries or reimbursements are not sufficient to
cover the parties' costs, reimbursements shall be allocated in
proportion to the expenses LICENSEE and HARVARD incurred in conducting
the suit.
8.7 Without limiting the generality of Paragraph 8.5, HARVARD may, at its
election and by notice to LICENSEE, establish a time limit of one
hundred and twenty (120) days for LICENSEE to decide whether to
prosecute any infringement of which HARVARD is or becomes aware. If, by
the end of such period, LICENSEE has not commenced such an action,
HARVARD may prosecute such an infringement at its own expense,
controlling such action and retaining all recoveries therefrom. With
respect to any such infringement action prosecuted by HARVARD in good
faith, LICENSEE shall pay over to HARVARD any payments (whether or not
designated as 'royalties') made by the alleged infringer to LICENSEE
under any existing sublicense, where sublicensee has been notified that
they are in default under the terms of the sublicense, or future
sublicense entered into as a result of such infringement action
authorizing LICENSED PRODUCTS, up to the amount of HARVARD's
unreimbursed litigation expenses (including, but not limited to,
reasonable attorneys' fees).
8.8 If a declaratory judgment action is brought naming LICENSEE as a
defendant and alleging invalidity of any of the PATENT RIGHTS, and
requiring LICENSEE to respond within [**], HARVARD may, with notice
to LICENSEE within [**] of the commencement of such an action, elect
to take over the sole defense of the action at its own expense.
LICENSEE shall cooperate fully with HARVARD in connection with any
such action. Otherwise, LICENSEE shall have the right to conduct such
action, subject to Paragraph 8.1 above.
ARTICLE IX
TERMINATION OF AGREEMENT
9.1 This Agreement, unless terminated as provided herein, shall remain in
effect until the last patent or patent application in PATENT RIGHTS has
expired or been abandoned.
9.2 HARVARD may terminate this Agreement with [**] notice and without
cure by LICENSEE or within such other period expressly provided
in this Paragraph 9.2, as follows:
(a) If LICENSEE does not make a payment due hereunder and fails to
cure such non-payment (including the payment of interest in
accordance with Paragraph 5.4(e)) within [**] days after
the date of notice in writing of such non-payment by HARVARD.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(b) If LICENSEE defaults in its obligations under Paragraph
10.4(c) and (d) to procure and maintain insurance.
(c) If, at any time after [**] from the date of this
Agreement, HARVARD determines that the Agreement should be
terminated pursuant to Paragraph 3.2(d).
(d) If LICENSEE shall become insolvent, shall make an assignment
for the benefit of creditors, or shall have a petition in
bankruptcy filed for or against it. Such termination shall be
effective immediately upon HARVARD giving written notice to
LICENSEE.
(e) If an examination by HARVARD's accountant pursuant to Article
VI shows an underreporting or underpayment by LICENSEE in
excess of [**] percent ([**]%) for any [**] period, and
LICENSEE fails to cure such non-payment within [**] after
the date of notice in writing of such non-payment by HARVARD.
(f) If LICENSEE is convicted of a felony relating to the
manufacture, use, or sale of LICENSED PRODUCTS.
(g) Except as provided in subparagraphs (a), (b), (c), (d), (e)
and (f) above, if LICENSEE defaults in the performance of any
obligations under this Agreement and the default has not been
remedied within ninety (90) days after the date of notice
in writing of such default by HARVARD.
9.3 Notwithstanding Paragraph 9.2 above, if either party materially
breaches this Agreement, the other party may elect to give the
breaching party written notice describing the alleged breach. If the
breaching party has not cured such breach after receipt of such notice
within the applicable period specific above, the notifying party will
be entitled, in addition to any other rights it may have under this
Agreement, to terminate this Agreement effective immediately; provided,
however, if either party receives notification from the other of a
material breach and if the party alleged to be in default notifies the
other party in writing within [**] of receipt of such default
notice that it disputes the asserted default, the matter will
be submitted to binding arbitration as provided in Paragraph 11.15 of
this Agreement. In such event, the nonbreaching party shall not have
the right to terminate this Agreement until it has been determined in
such arbitration proceeding that the other party materially breached
this Agreement, and the breaching party fails to cure such breach
within [**] after the conclusion of such arbitration proceeding.
9.4 (a) Termination of this Agreement for any reason shall not release
any party hereto from any liability which, at the time of such
termination, has already accrued to the other party or which
is attributable to a period prior to such termination, nor
preclude either party from pursuing any rights and remedies it
may have hereunder or at law or in equity which accrued or are
based upon any event occurring prior to such termination.
(b) In the event this Agreement is terminated for any reason,
LICENSEE and sublicensees, shall for a period not to exceed
[**] or [**], have the right to sell or otherwise dispose of
the stock of any LICENSED PRODUCTS then on hand, subject to
Article III.
(c) LICENSEE may terminate this Agreement by giving [**]
advance written notice of termination to HARVARD, and
paying a termination fee of [**] dollars ($[**]). Upon
termination, LICENSEE shall submit a final Royalty Report
to
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
HARVARD and any royalty payments and unreimbursed patent
expenses invoiced by HARVARD shall become immediately payable.
(d) In the event of any termination of this Agreement any
sublicenses granted by LICENSEE shall remain in force and
effect and shall be assigned by LICENSEE to HARVARD, provided,
that such sublicensee is currently in good standing with
regard to its obligations under the sublicense or has cured
any default or breach within the period provided in such
sublicense, and further provided, that the financial
obligations of each such sublicensee shall be limited to those
due HARVARD hereunder for the practice of such a sublicense,
and further provided that no added obligations are imposed on
HARVARD as a result of this assignment.
9.5 Article X and Paragraphs 6.1, 6.2, 6.3, 8.4, 8.5, 9.4 and 9.5
of this Agreement shall survive termination.
ARTICLE X
GENERAL
10.1 HARVARD does not warrant the validity of the PATENT RIGHTS licensed
hereunder and makes no representations whatsoever with regard to the
scope of the licensed PATENT RIGHTS or that such PATENT RIGHTS may be
exploited by LICENSEE, an AFFILIATE, or sublicensee without infringing
other patents.
10.2 HARVARD EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR EXPRESS WARRANTIES
AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF THE PATENT RIGHTS OR INFORMATION
SUPPLIED BY HARVARD, LICENSED PROCESSES OR LICENSED PRODUCTS
CONTEMPLATED BY THIS AGREEMENT.
10.3 (a) LICENSEE shall indemnify, defend and hold harmless HARVARD and
The Regents and their current or former directors, governing
board members, trustees, officers, faculty, medical and
professional staff, employees, students, and agents and their
respective successors, heirs and assigns (collectively, the
'Indemnitees'), against any liability, damage, loss or
expenses (including reasonable attorneys' fees and expenses of
litigation) incurred by or imposed upon the Indemnitees or any
of them in connection with any claims, suits, actions, demands
or judgments arising out of any theory of product liability
(including, but not limited to, actions in the form of tort,
warranty, or strict liability) concerning any product, process
or service made, used or sold pursuant to any right or license
granted under this Agreement.
(b) LICENSEE shall, at its own expense, provide attorneys
reasonably acceptable to HARVARD to defend against any actions
brought or filed against any Indemnitee hereunder with respect
to the subject of indemnity contained herein, whether or not
such actions are rightfully brought.
(c) Beginning at the time any such product, process or service is
being commercially distributed or sold (other than for the
purpose of obtaining regulatory approvals) by LICENSEE or by a
sublicensee, AFFILIATE or agent of LICENSEE, LICENSEE shall,
at its sole cost and expense, procure and maintain commercial
general liability
<PAGE>
insurance in amounts not less than [**] dollars
($[**]) per incident and [**] dollars ($[**])
annual aggregate and naming the Indemnitees as additional
insureds. During clinical trials of any such product, process
or service, LICENSEE shall, at its sole cost and expense,
procure and maintain commercial general liability insurance in
such equal or lesser amount as HARVARD shall reasonably
require, naming the Indemnitees as additional insureds. Such
commercial general liability insurance shall provide (i)
product liability coverage and (ii) broad form contractual
liability coverage for LICENSEE's indemnification under this
Agreement. If LICENSEE elects to self-insure all or part of
the limits described above (including deductibles or
retentions which are in excess of [**] dollars ($[**]) annual
aggregate) such self-insurance program must be acceptable to
HARVARD and the Risk Management Foundation of the Harvard
Medical Institutions, Inc. in their sole discretion. The
minimum amounts of insurance coverage required shall not be
construed to create a limit of LICENSEE's liability with
respect to its indemnification under this Agreement.
(d) LICENSEE shall provide HARVARD with written evidence of such
insurance upon request of HARVARD. LICENSEE shall provide
HARVARD with written notice at least [**] prior to the
cancellation, non-renewal or material change in such
insurance; if LICENSEE does not obtain replacement insurance
providing comparable coverage within such [**] period,
HARVARD shall have the right to terminate this Agreement
effective at the end of [**] period without notice or any
additional waiting periods.
(e) LICENSEE shall maintain such commercial general liability
insurance beyond the expiration or termination of this
Agreement during (i) the period that any product, process, or
service, relating to, or developed pursuant to, this Agreement
is being commercially distributed or sold by LICENSEE or by a
sublicensee, AFFILIATE or agent of LICENSEE and (ii) a
reasonable period after the period referred to in (e)(i) above
which in no event shall be less than fifteen (15) years.
10.4 LICENSEE shall not use HARVARD's or The Regents' name or insignia, or
any adaptation of them, or the name of any of HARVARD's or The Regents'
inventors in any advertising, promotional or sales literature without
the prior written approval of HARVARD.
10.5 Without the prior written approval of HARVARD in each instance, which
approval shall not be unreasonably withheld, neither this Agreement nor
the rights granted hereunder shall be assigned in whole or in part by
LICENSEE to any person whether voluntarily or involuntarily, by
operation of law or otherwise, except that LICENSEE may assign this
Agreement and the rights granted hereunder, in whole or in part,
without such consent, to a successor to substantially all of the
business or assets relating to the LICENSED PRODUCTS, and such
succession may include but not be limited to one by acquisition,
merger, change of corporate name or change in make-up, organization,
state of incorporation, or identity. Any such assignment shall occur
without any further consideration to HARVARD. This Agreement shall be
binding upon the respective successors, legal representatives and
assignees of HARVARD and LICENSEE.
10.6 The interpretation and application of the provisions of this Agreement
shall be governed by the laws of the Commonwealth of Massachusetts.
10.7 LICENSEE shall comply with all applicable laws and regulations. In
particular, it is understood and acknowledged that the transfer of
certain commodities and technical data is
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
subject to United States laws and regulations controlling the export of
such commodities and technical data, including all Export
Administration Regulations of the United States Department of Commerce.
These laws and regulations among other things, prohibit or require a
license for the export of certain types of technical data to certain
specified countries. LICENSEE hereby agrees and gives written assurance
that it will comply with all United States laws and regulations
controlling the export of commodities and technical data, that it will
be solely responsible for any violation of such by LICENSEE or its
AFFILIATES or sublicensees, and that it will defend and hold HARVARD
and The Regents harmless in the event of any legal action of any nature
occasioned by such violation.
10.8 LICENSEE agrees (i) to use reasonable efforts to obtain all regulatory
approvals required for the manufacture and sale of LICENSED PRODUCTS
and LICENSED PROCESSES and (ii) to utilize appropriate patent marking
on such LICENSED PRODUCTS, as required by applicable law. LICENSEE also
agrees to register or record this Agreement as is required by law or
regulation in any country where the license is in effect.
10.9 Any notices to be given hereunder shall be sufficient if signed by the
party (or party's attorney) giving same and either (a) delivered in
person, or (b) mailed certified mail return receipt requested, or (c)
faxed to the other party if the sender has evidence of successful
transmission and if the sender promptly sends the original by ordinary
mail, in any event to the following addresses:
If to LICENSEE:
KOSAN Biosciences, Inc.
1450 Rollins Road
Burlingame, CA 94010
Attention: Chief Executive Officer
Fax No.: 650-343-2931
If to Harvard to:
Office for Technology and
Trademark Licensing
Harvard University
124 Mt. Auburn Street, Suite 410 South
Cambridge, MA 02138
Fax No.: 617-495-9568
and to:
Harvard Medical School
Office of Technology Licensing and
Industry-Sponsored Research
220 Longwood Avenue
Room 159
Boston, MA 02115
Fax No.: 617-432-2788
<PAGE>
By such notice either party may change their address for future
notices.
Notices delivered in person shall be deemed given on the date
delivered. Notices sent by fax shall be deemed given on the date faxed.
Notices mailed shall be deemed given on the date postmarked on the
envelope.
10.10 Should a court of competent jurisdiction later hold any provision of
this Agreement to be invalid, illegal, or unenforceable, and such
holding is not reversed on appeal, it shall be considered severed from
this Agreement. All other provisions, rights and obligations shall
continue without regard to the severed provision, provided that the
remaining provisions of this Agreement are in accordance with the
intention of the parties.
10.11 Neither party shall lose any rights hereunder or be liable to the other
party for damages or losses (except for payment obligations) on account
of failure of performance by the defaulting party if the failure is
occasioned by war, strike, fire, Act of God, earthquake, flood,
lockout, embargo, governmental acts or orders or restrictions, failure
of suppliers, or any other reason where failure to perform is beyond
the reasonable control and not caused by the negligence, intentional
conduct or misconduct of the nonperforming party and the nonperforming
party has exerted all reasonable efforts to avoid or remedy such force
majeure; provided, however, that in no event shall a party be required
to settle any labor dispute or disturbance.
10.12 Each party shall furnish to the other party any information related to
the subject matter of this Agreement requested or required by that
party during the term of this Agreement or any extensions hereof to
enable that party to comply with the requirements of any U.S. or
foreign federal, state and/or government agency.
10.13 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT OF THE
PERFORMANCE OF THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF
LIABILITY.
10.14 In the event of any controversy or claim arising out of or relating to
any provision of this Agreement or the breach thereof, the parties
shall try to settle such conflict amicably between themselves. Subject
to the limitation stated in the final sentence of this section, any
such conflict which the parties are unable to resolve promptly shall be
settled through arbitration conducted in accordance with the rules of
the American Arbitration Association. The demand for arbitration shall
be filed within a reasonable time after the controversy or claim has
arisen, 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. Such arbitration shall be held in
Boston, Massachusetts. 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.
10.15 This Agreement constitutes the entire understanding between the parties
and neither party shall be obligated by any condition or representation
other than those expressly stated herein or as may be subsequently
agreed to by the parties hereto in writing.
<PAGE>
10.16 At any time or from time to time on and after the date of this
Agreement, HARVARD shall at the written request of LICENSEE (i) deliver
to LICENSEE such records, data or other documents consistent with the
provisions of this Agreement, (ii) execute, and deliver or cause to be
delivered, all such consents, documents or further instruments of
transfer or license, and (iii) take or cause to be taken all such
actions, as LICENSEE may reasonably deem necessary or desirable in
order for LICENSEE to obtain the full benefits of this Agreement and
the transactions contemplated hereby.
10.17 This Agreement may be executed in two (2) counterparts, each of which
shall be deemed an original and which together shall constitute one
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives.
PRESIDENT AND FELLOWS OF
HARVARD COLLEGE
Signature: /s/ Joyce Brinton 11/20/98
---------------------------------------------------
Name: Joyce Brinton
Title: Director
Office for Technology and
Trademark Licensing
Date: 11/20/98
--------------------------------------------------------
LICENSEE
Signature: /s/ Michael Ostrach
---------------------------------------------------
Name: Michael Ostrach
Title: Chief Operating Officer
KOSAN Biosciences Inc
Date: 12/2/98
--------------------------------------------------------
<PAGE>
APPENDIX A
INTERINSTITUTIONAL ADMINISTRATION AGREEMENT
HARVARD CASE # 1185
U.C. CASE # SF-97-133
N.D. 4/18/97
Effective this 10TH day of APRIL 1997, (the "Effective Date") the President and
Fellows of Harvard College, a charitable corporation of the Commonwealth of
Massachusetts, having an address at University Place, Fourth Floor South, 124
Mt. Auburn Street, Cambridge, MA 02138, hereinafter referred to as "Harvard,"
and The Regents of the University of California, a California corporation having
its corporate offices located at 300 Lakeside Drive, 22nd floor, Oakland, CA
94612 acting through its offices located at Office of Technology Management,
University of California San Francisco, 745 Parnassus Ave. Box 1209, San
Francisco, CA 94143-1209, hereinafter referred to as "The Regents" agree as
follows:
1. BACKGROUND
1.1 Harvard and The Regents, with support from the National Institutes of
Health, have conducted certain research in the field of isolated and
purified natural and recombinant phosphopantethenyl transferases. Such
research resulted in an invention, generally characterized as
"Phosphopantethenyl Transferases and Uses Thereof", (hereinafter the
"Invention"), and is covered by Patent Rights, as defined below.
1.2 The Invention was invented jointly by Ralph H. Lambalot, Amy M. Gehring
and Christopher T. Walsh of Harvard and Ralph Reid of The Regents,
hereinafter referred to as the "Inventors." Lambalot, Gehring and Walsh
have assigned or will assign their undivided Patent Rights and interest
in the Invention to Harvard, and Reid has assigned or will assign his
undivided Patent Rights and interest in the Invention to The Regents.
1.3 It is the mutual desire of the parties to this Agreement that the
Patent Rights be administered by Harvard, subject to any overriding
obligations to the aforesaid sponsors of the research, and that Harvard
manage the marketing and licensing efforts of said Patent Rights.
2. DEFINITIONS
2.1 "Patent Rights" means the subject matter of a United States patent
application filed October 11, 1996 entitled "Phosphopantethenyl
Transferases and Uses Thereof" (Serial No. to be determined), assigned
to The Regents (Case No. SF 97-133) and to Harvard (Harvard Case No.
1185); any continuations, divisions or extensions; any patents issuing
on said applications including reissues and reexaminations; any
continuations-in-part for which Inventors are legally listed among the
legal inventors on the U.S. patent application and any foreign
<PAGE>
(non-U.S.) counterparts including continuations, divisions or
extensions and all patents which issue therefrom in any country; all of
which will be automatically incorporated in and added to this Agreement
from time to time, and to the extent now existing are identified in
Appendix A attached to the Agreement and made a part thereof.
2.2 "Sponsor" means NIH under Grant Nos. HL-43821 awarded to The Regents
and the National Institutes of Health under Grant Nos. GM 20011 and GM
16583 awarded to Harvard.
2.3 "Revenues" mean every receipt, royalty, commission, fee or
reimbursement of patent prosecution costs (previously split with The
Regents) by licensees arising from the ownership or licensing of Patent
Rights, but excludes recoveries resulting from infringement litigation,
less any direct expenses incurred by Harvard or The Regents in the
licensing or marketing of Patent Rights.
2.4 "Patent Costs" mean all reasonable and actual out-of-pocket past,
present and future costs incurred for the preparation, filing,
prosecution, maintenance and litigation (other than infringement
litigation) of Patent Rights, exclusive of any salaries, administrative
or other indirect costs.
3. PATENT PROSECUTION AND PROTECTION
3.1 Upon execution of this Agreement, Harvard shall assume responsibility
for the prosecution and maintenance of the Patent Rights. Such Patent
Rights shall be held in the names of Harvard and The Regents and shall
be obtained with counsel of Harvard's choice. Harvard shall promptly
provide to The Regents all serial numbers and filing dates, together
with copies of all such applications or patents, including copies of
all Office Actions, Responses and all other Patent Office
communications to allow The Regents to comment on such prior to filing.
Any comments or suggestions by The Regents shall be given due
consideration by Harvard.
3.2 Notwithstanding any other provision of this Agreement, Harvard shall
not abandon the prosecution of any patent application (except for
purposes of filing continuation or continuation-in-part applications)
or the maintenance of any patent contemplated by this Agreement without
sixty (60) days prior written notice to The Regents. Within thirty (30)
days of receipt of notice of proposed abandonment, The Regents must, in
writing, either (a) concur in the abandonment or (b) elect to assume
responsibility for the prosecution and maintenance of all Patent Rights
that Harvard proposes to abandon. Lack of written response to Harvard
within thirty (30) days shall be deemed to constitute concurrence.
3.3 All Patent Costs shall be shared on a [**] proprtionate basis by The
Regents and Harvard, respectively. Harvard shall submit quarterly
itemized statements
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
to The Regents of Patent Costs incurred by Harvard. The Regents shall
reimburse Harvard for [**] percent ([**]%) of the incurred Patent Costs
within [**] of receipt of such itemized statements.
3.4 Upon execution of this Agreement, Harvard shall submit statements of
itemized Patent Costs incurred by Harvard (and not previously
reimbursed by an optionee or licensee) prior to the Effective Date. The
Regents shall reimburse Harvard for [**] percent ([**]%) of the Patent
Costs within [**] of receipt of such itemized statements.
3.5 If The Regents should fail to reimburse Harvard for its share of Patent
Costs according to Paragraph 3.3 or 3.4, Harvard may give written
notice of default to The Regents pursuant to Article 7 (Governing Laws,
Settling Disputes) of this Agreement. If The Regents should fail to
repair such default within thirty (30) days from the receipt of such
notice, Harvard may construe such default as termination pursuant to
Article 13 (Termination by Harvard), provided that in the case where
The Regents has identified discrepancies in billing, payment for the
contested item(s) may be delayed pending resolution. All such disputes
shall be resolved by good faith negotiation between the parties and, if
that fails, then by arbitration in accordance with Article 7 (Governing
Laws, Settling Disputes).
3.6 In the event that Harvard anticipates the possibility of any
extraordinary expenditures arising from the preparation, filing,
prosecution, licensing or defense of any patent application or patent
contemplated by this Agreement, Harvard shall provide The Regents with
full particulars and shall discuss with The Regents a mutually
acceptable course of action prior to incurrence of such expenditures.
4. LICENSING
4.1 Harvard shall use reasonable efforts to seek licensee(s) for the
commercial development of the Patent Rights and shall administer the
Patent Rights for the mutual benefit of the parties and in the best
public interest. The parties shall consult and mutually agree prior to
the granting of any licenses, which shall be signed by Harvard on
behalf of Institution. Harvard shall promptly provide copies of all
fully executed licenses issued on said Patent Rights to The Regents.
4.2 Harvard shall not negotiate any paid-up licenses, other than pursuant
to the patent provisions of Sponsor's grant as cited in Paragraph 1.1
or unless restricted to research use only. Further, Harvard shall not
assign patent rights to any third party, notwithstanding any other
provision of this Agreement or Sponsor consent, without prior written
notice to The Regents.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
4.3 Harvard shall distribute Revenues on the basis of [**] percent ([**]%)
to the Regents and [**] percent ([**]%) to Harvard not later than [**]
for Revenues received in the preceding calendar year.
4.4 Each party shall be solely responsible for calculating and distributing
to its respective Inventors a share of Revenues in accordance with its
respective patent policy.
5. RECORDS AND REPORTS
5.1 Harvard shall keep complete, true and accurate accounts of all Patent
Costs and of all Revenues received by it from each licensee and, at the
request of The Regents, shall permit a reasonably acceptable certified
public accounting firm to examine its books and records in order to
verify the payments due or owing under this Agreement.
6. INFRINGEMENT
6.1 In the event Harvard or The Regents learns of the substantial
infringement of any patent contemplated by this Agreement, the party
who learned of the infringement shall promptly inform the other party
in writing and shall provide the other party with evidence of such
infringement. Harvard, in cooperation with The Regents and any
licensee(s), shall attempt to terminate such infringement without
litigation. If the efforts of Harvard are not successful in abating the
infringement within ninety (90) days after the infringer has been
formally notified of the infringement, the parties shall confer among
themselves regarding mutually acceptable possible courses of action,
with or without any licensee(s), at the discretion of Harvard. Harvard
shall not be obligated to bring any infringement action; however, The
Regents may not unilaterally prevent Harvard from bringing such an
action. Any recovery resulting from a settlement or judgment on such an
infringement action shall be divided between Harvard and The Regents
based on the percentage of involvement by the respective parties. Both
parties agree to do all things reasonably necessary to assist with
litigation. In the event the terms of a license agreement conflict with
this clause, the terms of the license agreement will prevail.
7. GOVERNING LAWS, SETTLING DISPUTES
7.1 This Agreement shall be governed and interpreted according to the laws
of the Commonwealth of Massachusetts, but the scope and validity of any
patent or patent application shall be governed by the applicable laws
of the country of such patent or patent application.
7.2 Any controversy or any disputed claim by either party against the other
arising under or related to this Agreement shall be settled by
arbitration, upon the
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
request of either party, in accordance with the then current Licensing
Agreement Arbitration Rules of the American Arbitration Association.
Judgment upon the award rendered by the Arbitrator(s) shall be binding
on the parties.
Any arbitration under Paragraph 7.2 shall be held at a place chosen by
the party receiving the request for arbitration, and judgment upon the
award rendered by the arbitration may be entered by any court having
jurisdiction thereof. The costs of such arbitration shall be shared by
the parties.
8. NOTICES
8.1 Any notice required or permitted to be given to the parties shall be
deemed to have been properly given if delivered, in writing, in person
or by facsimile, airmail or air express delivery to the following
addresses:
To Harvard:
Office for Technology and Trademark Licensing
University Plase, Fourth Floor South
124 Mt. Auburn Street
Cambridge, MA 02138
ATTENTION: Director
with a copy to:
Office of Technology Licensing
and Industry-Sponsored Research
Harvard Medical School
333 Longwood Avenue, Suite 640
Boston, MA 02115
ATTENTION: Nan Doyle
To The Regents:
Office of Technology Management
University of California, San Francisco
745 Parnassus Ave., Box 1209
San Francisco, CA 94143-1209
ATTENTION: Director
<PAGE>
9. WAIVER
9.1 It is agreed that no waiver by any party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
10. ASSIGNABILITY
10.1 This Agreement is binding upon and shall inure to the benefit of the
parties hereto, their successors or assigns, but this Agreement may not
be assigned by any party without the prior notification of the other
parties and the Sponsor.
11. TERM OF AGREEMENT
11.1 This Agreement shall be in full force and effect from the Effective
Date and shall remain in effect for the life of the last-to-expire
patent contemplated by this Agreement, unless otherwise terminated by
operation of law or by acts of the parties in accordance with the terms
of this Agreement or Sponsor's requirements.
12. USE OF NAMES
12.1 No party may use the name of the other party in any way for advertising
or publicity without the express written consent of the other party,
provided, however, that Harvard has the right to use The Regents' name
within the context of a licensing agreement.
13. TERMINATION BY HARVARD
13.1 Harvard may terminate this Agreement upon at least [**] written
notice to The Regents, but in any event not less than [**] prior to
the date on which action upon any pending Patent Office action needs
to be taken to preserve Patent Rights.
13.2 If Harvard terminates this Agreement, The Regents may elect to assume
responsibility for administration of Patent Rights and any licenses.
The Regents shall advise Harvard in writing of its election within
[**] after receipt of notice of termination; Harvard shall thereupon
convey to The Regents any licenses and shall do all things necessary
to transfer the wrappers and other files related to the Patent Rights
and licenses. In the event The Regents elects not to assume
responsibility for administration of Patent Rights and any licenses,
then Harvard shall be free to dispose of said Patent Rights in
accordance with any obligations to the Sponsor, and this Agreement
shall terminate, with Harvard having no further obligation to The
Regents.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
13.3 Upon termination of this Agreement, Harvard shall have no further
rights or obligations under this Agreement, except that The Regents
shall reimburse Harvard, pursuant to Paragraph 3.3, for The Regents'
twenty-percent share of Patent Costs incurred prior to the termination
date and for which Harvard has not yet received reimbursement.
14. TERMINATION BY THE REGENTS
14.1 The Regents may terminate this Agreement for any reason upon [**]
written notice to Harvard. Thereafter, The Regents shall have no
further rights or obligations under this Agreement, except that The
Regents shall be obligated to reimburse Harvard for The Regents' share
of Patent Costs incurred prior to the termination date, and for which
The Regents has not yet made reimbursement, and to make any necessary
assignments of patent and/or license rights to Harvard.
15. COMPLETE AGREEMENT
15.1 It is understood and agreed by Harvard and The Regents that this
Agreement embodies the entire understanding of the parties and shall
supersede all previous communications, representations or
understanding, either oral or written, between the parties relating to
the subject matter hereof. This Agreement shall not be amended except
by written consent of both parties in the form of an Addendum to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate
originals by their respective officers.
<TABLE>
<S> <C>
PRESIDENT AND FELLOWS THE REGENTS
OF HARVARD COLLEGE
/s/ Joyce Brinton /s/ Jeffrey Labovitz
- ---------------------------------------------- -----------------------------------
Joyce Brinton, Director Signature
Office for Technology and Trademark Licensing
Jeffrey Labovitz
-----------------------------------
Name
Senior Licensing Officer OTM. UCSF
-----------------------------------
Title
3/7/97 4/10/97
------------------------------------- -----------------------------------
Date Date
</TABLE>
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
EXHIBIT 10.11
RESEARCH AND LICENSE AGREEMENT
BETWEEN
KOSAN BIOSCIENCES, INC.
AND
ORTHO-MCNEIL PHARMACEUTICAL CORPORATION
AND
THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE
September 28, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 -- DEFINITIONS -2-
ARTICLE 2 -- RESEARCH -11-
ARTICLE 3 -- SCREENING BY LICENSEE -19-
ARTICLE 4 -- LICENSES -24-
ARTICLE 5 -- DEVELOPMENT AND COMMERCIALIZATION -29-
ARTICLE 6 -- LICENSE FEES AND MILESTONE PAYMENTS -32-
ARTICLE 7 -- ROYALTIES, RECORDS AND REPORTS -34-
ARTICLE 8 -- SUPPLY OF PRODUCTS -37-
ARTICLE 9 -- CONFIDENTIALITY -38-
ARTICLE 10 -- REGULATORY MATTERS -40-
ARTICLE 11 -- PATENT INFRINGEMENT -41-
ARTICLE 12 -- INTELLECTUAL PROPERTY -42-
ARTICLE 13 -- PUBLICITY -45-
ARTICLE 14 -- WARRANTIES AND REPRESENTATIONS -45-
ARTICLE 15 -- STANFORD LICENSE -47-
ARTICLE 16 -- TRADEMARKS -47-
ARTICLE 17 -- INDEMNIFICATION -48-
<PAGE>
ARTICLE 18 -- BANKRUPTCY -49-
ARTICLE 19 -- TERM AND TERMINATION -49-
ARTICLE 20 -- ASSIGNMENT -53-
ARTICLE 21 -- DISPUTE RESOLUTION -54-
ARTICLE 22 -- MISCELLANEOUS -57-
</TABLE>
<PAGE>
RESEARCH AND LICENSE AGREEMENT
This RESEARCH AND LICENSE AGREEMENT (hereinafter called the
"AGREEMENT"), made as of September 28, 1998 by and between KOSAN BIOSCIENCES,
INC., a corporation organized under California law having its principal office
at 1450 Rollins Road, Burlingame, California 94010 (hereinafter called "KOSAN");
ON THE ONE HAND, AND:
ORTHO-MCNEIL PHARMACEUTICAL, INCORPORATED (hereinafter called "ORTHO"),
a company organized under Delaware law, having its principal office at U.S.
Route 202, Raritan, New Jersey 08869; and
the R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE (hereinafter called
"RWJPRI"), a division of Ortho-McNeil Pharmaceutical, Incorporated, having its
principal office at U.S. Route 202, Raritan, New Jersey 08869 (ORTHO and RWJPRI
hereinafter collectively called "LICENSEE")
ON THE OTHER HAND,
WITNESSETH:
A. WHEREAS, KOSAN has an on-going RESEARCH PROGRAM in the FIELD (as
defined below) and has developed certain technology useful in the FIELD to which
it has the right to grant licenses;
B. WHEREAS, patent applications have been filed in the name of KOSAN in
the United States and other territories for the granting of letters patent
relating to certain polyketides which may have activity within the FIELD;
C. WHEREAS, LICENSEE has been engaged in research efforts focused on
the development of new antibacterials and has certain research, development and
commercialization capabilities in the FIELD;
D. WHEREAS, KOSAN and RWJPRI desire to engage in collaborative research
to conduct a drug discovery program as generally described in the RESEARCH PLAN
attached hereto as Exhibit A;
<PAGE>
E. WHEREAS, LICENSEE is prepared to undertake a program for the
development, manufacture and sale of PRODUCTS developed from the collaborative
research, provided that LICENSEE is able to obtain a license under the KOSAN
PATENT RIGHTS and KOSAN KNOW-HOW (as hereinafter defined) with exclusivity to
protect its investment in such program;
F. WHEREAS, KOSAN recognizes that LICENSEE requires such a license in
order to justify the investment in funding and personnel needed to develop and
market products developed from the collaborative research and is willing to
grant such rights.
NOW, THEREFORE, in consideration of the premises and the performance of
the covenants herein contained, IT IS AGREED AS FOLLOWS:
ARTICLE 1 -- DEFINITIONS
For the purposes of this AGREEMENT and solely for such purposes, the
terms hereinafter set forth shall have the following respective meanings:
1.1 "AFFILIATE" or "AFFILIATES" shall mean any corporation(s) or
organization(s) which directly or indirectly CONTROLS, is (are) CONTROLLED by,
or is (are) under common CONTROL with LICENSEE or KOSAN.
1.2 "ANTIBIOTIC ACTIVITY" shall mean [**].
1.3 "ANTI-INFLAMMATORY ACTIVITY" shall mean [**].
1.4 "AROMATIC POLYKETIDE" shall mean [**].
1.5 "BULK PRODUCT" shall mean the purified active ingredient, or
purified intermediate for manufacture of any PRODUCT, as the case may be, in
bulk form.
1.6 "CLOSE STRUCTURAL ANALOG" shall mean, with respect to a [**]
which is designated a LICENSED COMPOUND pursuant to Section 3.5, another [**]
, as the case may be, which (i) is claimed in a patent application or patent
within the PATENT RIGHTS which claims the applicable LICENSED COMPOUND, and
is in the same chemical genus as the applicable LICENSED COMPOUND and (ii)
has activity against the same molecular target as the LICENSED COMPOUND,
which activity shall be (x) if activity other than [**], at a level agreed by
the parties at the time the corresponding [**]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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[**] is designated a LICENSED COMPOUND, or (y) if [**], shall be at the level
specified in the RESEARCH PLAN, at the time the corresponding [**] is
designated a LICENSED COMPOUND.
1.7 "COMMITTED FTEs" shall mean, with respect to a particular PROJECT,
those KOSAN FTEs for which LICENSEE will provide RESEARCH FUNDING as set forth
in the RESEARCH PLAN to conduct such PROJECT until the applicable DECISION POINT
for such PROJECT as set forth in Section 2.6.
1.8 "CONTINGENT FTEs" shall mean, with respect to a particular PROJECT,
those KOSAN FTEs for which LICENSEE will provide RESEARCH FUNDING as set forth
in the RESEARCH PLAN to conduct CONTINGENT WORK for such PROJECT if the LICENSEE
makes a GO DECISION at the applicable DECISION POINT(s), or otherwise elects to
proceed with the CONTINGENT WORK for such PROJECT as set forth in Section 2.6.
1.9 "CONTINGENT WORK" shall mean research conducted by CONTINGENT FTEs.
1.10 "CONTRACT YEAR" shall mean any twelve (12) consecutive month
period beginning with the EFFECTIVE DATE of the AGREEMENT.
1.11 "CONTROL", "CONTROL(S)" or "CONTROLLED" shall refer to direct or
indirect beneficial ownership of at least fifty percent (50%) of the voting
stock of a corporation or other business entity, or a fifty percent (50%) or
greater interest in the income of such corporation or other business entity, or
the power to direct or cause the direction of the management or policies of such
corporation or other business entity whether by ownership of voting securities,
by contract or otherwise, or such other relationship as, in fact, constitutes
actual control.
1.12 "CPI" shall mean the Consumer Price Index, All Urban Consumers, as
published by the U.S. Bureau of Labor Statistics.
1.13 "DECISION POINT(S)" shall mean with respect to a particular
PROJECT, the point at which LICENSEE must elect by notice to KOSAN to provide
for funding the CONTINGENT WORK for such PROJECT (a "GO DECISION"), or
discontinue the PROJECT and not support further research with respect to such
PROJECT (a "NO-GO DECISION"), subject to Section 2.6.3.
1.14 "DERIVATIVE" shall mean a compound which (i) results from a
chemical synthesis program based on a LICENSED COMPOUND, or (ii) is based on
structure-function data derived from one or more LICENSED COMPOUNDS, which data
is not in the public
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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domain as a result of a disclosure (x) by a THIRD PARTY, (y) by KOSAN (solely
or jointly with LICENSEE), or (z) in a patent application owned solely by
LICENSEE, in each case prior to the time the applicable compound is
synthesized or acquired, or (iii) is synthesized or acquired by LICENSEE
using KOSAN KNOW-HOW or KOSAN PATENT RIGHTS or any biological materials
provided to LICENSEE by KOSAN or any progeny or derivative thereof, or (iv)
is claimed or contained within a chemical genus, as defined in any issued
VALID CLAIM within the PATENT RIGHTS, or in a VALID CLAIM within the PATENT
RIGHTS of a pending application for such a patent which application is being
prosecuted in good faith, and as to which one member of such chemical genus
is within (i), (ii) or (iii) above. For purposes of determining whether a
given composition is a DERIVATIVE, it is understood that a compound which
meets one or more of the foregoing criteria and is discovered, identified,
synthesized or acquired on or before the CUTOFF DATE, shall be included as a
DERIVATIVE notwithstanding whether the composition was identified by LICENSEE
as being active after the end of the RESEARCH PROGRAM. For purposes of this
Section 1.14, the CUTOFF DATE shall mean: (i) if the RESEARCH PROGRAM
continues for at least two (2) years, the date two (2) years after the end of
the NON-EXCLUSIVE SCREENING PERIOD, (ii) if the EXCLUSIVE SCREENING PERIOD
and the NON-EXCLUSIVE SCREENING PERIOD terminate pursuant to Section 19.1.3,
the date two (2) years after the effective date of any such termination, and
(iii) if the entire AGREEMENT terminates prior to the second anniversary of
the EFFECTIVE DATE, the date two years after the effective date of any such
termination. "DERIVATIVE" shall include any compound synthesized based on, or
derived from, another DERIVATIVE, as described in subsections (i) through
(iv) above. Notwithstanding the above, DERIVATIVE shall not include any
compound which is conceived and synthesized by or on behalf of LICENSEE after
the CUTOFF DATE, unless such compound is within the scope of a patent within
the KOSAN PATENT RIGHTS or RWJPRI PATENT RIGHTS which (i) was issued as of
the CUTOFF DATE, or (ii) issued from a patent application pending as of the
CUTOFF DATE (or a division or continuation of such an application), and
issued after such date.
1.15 "DESIGNATION NOTICE" shall have the meaning set forth in Section
3.5.
1.16 "DEVELOPMENT" shall mean all work involved in STAGES O, I, II, and
III for a PRODUCT in any country or territory.
1.17 "DEVELOPMENT PLAN" shall mean the plan for DEVELOPMENT of a
PRODUCT pursuant to Article 5.
1.18 "EFFECTIVE DATE" shall mean the date at the head of this
AGREEMENT.
1.19 "EXCLUDED TECHNOLOGY" shall mean any intellectual property
owned or controlled by KOSAN or its AFFILIATES relating to the creation, or
generation of [**] or their genes, the practice of combinatorial biosynthesis
or cell-free enzymatic synthesis to make [**]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]. It is understood that EXCLUDED TECHNOLOGY shall not include
intellectual property necessary for RWJPRI to make chemical modifications of
the [**] prepared by KOSAN or for RWJPRI to otherwise carry out its
activities pursuant to the RESEARCH PLAN during the RESEARCH TERM, to conduct
process development and strain selection research with cells provided to
RWJPRI by KOSAN for the production of [**], to produce LICENSED PRODUCTS for
DEVELOPMENT and commercialization purposes, and to characterize, evaluate and
test such LICENSED PRODUCTS.
1.20 "EXCLUSIVE SCREENING PERIOD" shall mean the period commencing on
the EFFECTIVE DATE and ending one (1) year after the end of the RESEARCH
PROGRAM.
1.21 "FDA" shall mean the United States Food and Drug Administration.
1.22 "FIELD" shall mean the treatment of bacterial infections for all
human and animal pharmaceutical applications.
1.23 "FINISHED PRODUCT" shall mean the finished pharmaceutical form, in
any formulation, of a PRODUCT packaged for sale to a THIRD PARTY.
1.24 "FTE" shall mean a full time scientific person with appropriate
academic credentials and training dedicated to the RESEARCH PROGRAM or in the
case of less than a full-time dedicated scientific person, a full-time,
equivalent scientific person year (based upon a total of fifty-two (52) weeks or
two thousand eighty (2080) hours per year, with the foregoing including all
working days and vacations, paid holidays, sick days, etc., consistent with
KOSAN's normal business practices) of scientific work, on or directly related to
the RESEARCH, carried out by such a person. Included are research scientists
(Ph.D. or equivalent) and their associates (MS or BS). Excluded are project
management personnel, administrative facilities support, general information and
computer support, laboratory support and other internal or external support
personnel involved in the RESEARCH PROGRAM.
1.25 "IND" shall mean an Investigational New Drug Application filed
pursuant to the requirements of the FDA as more fully defined in 21 C.F.R.
Section 312.3 or its equivalent in any MAJOR MARKET COUNTRY or in the
European Economic Community.
1.26 "JDAC" shall mean the Joint Development Advisory Committee
described in Section 5.1.1 below.
1.27 "JRC" shall mean the Joint Research Committee described in Section
2.3.1 below.
1.28 "KNOW-HOW" shall mean all information, not generally known to the
public, including techniques and data, including but not limited to, screens,
models, methods, assays,
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
inventions, discoveries, trade secrets, improvements, and technical
information, together with all experience, data, formulas, procedures and
results, and including all chemical, pharmacological, toxicological,
clinical, analytical and quality control data, in each case, which is
necessary or materially useful in the development, manufacturing or use of
LICENSED COMPOUNDS or PRODUCTS. Notwithstanding the foregoing, KNOW-HOW shall
not include any biological materials or the subject matter covered by any
published patent or patent application.
1.29 "KOSAN KNOW-HOW" shall mean all KNOW-HOW which (i) KOSAN owns as
of the EFFECTIVE DATE, and which relates to the FIELD, or (ii) is developed by
KOSAN in performance of the RESEARCH PROGRAM during the RESEARCH TERM. It is
understood and agreed that the KOSAN KNOW-HOW shall not include any EXCLUDED
TECHNOLOGY.
1.30 "KOSAN PATENT RIGHTS" shall mean (i) the patents and patent
applications identified in Exhibit C hereof, and in respect of such letters
patent, and patent applications, all corresponding Patent Co-operation Treaty
applications, European Patent Convention applications or applications under
similar administrative international conventions and corresponding national
patents and patent applications, together with any divisional, continuation,
(but not a continuation-in-part except to the extent described in (ii) or (iii)
below), substitution, reissue, extension, supplementary protection certificate
or other application based thereon; and (ii) other patents or patent
applications to the extent they disclose and claim inventions made by KOSAN in
performance of the RESEARCH PROGRAM, and (iii) any other patents or patent
applications containing one or more claims covering the manufacture, use or sale
of a PRODUCT to the extent such patents or patent applications disclose and
claim inventions made by KOSAN during the EXCLUSIVE SCREENING PERIOD, in each
case, which is necessary or materially useful for the development, manufacture
or use of LICENSED COMPOUNDS or PRODUCTS, and which KOSAN has rights to grant
licenses to (e.g., have not been developed in the course of an exclusive
collaboration with a THIRD PARTY or exclusively licensed to a THIRD PARTY). It
is understood and agreed that the KOSAN PATENT RIGHTS shall not include any
EXCLUDED TECHNOLOGY.
1.31 "LICENSED COMPOUND" shall mean a particular [**], as the case
may be, with respect to which RWJPRI has provided a DESIGNATION NOTICE and
acquired an exclusive license pursuant to Section 3.5. For purposes of this
AGREEMENT, each CLOSE STRUCTURAL ANALOG of any such LICENSED COMPOUND shall
also be deemed to be a LICENSED COMPOUND.
1.32 "MACROLIDE(S)" shall mean [**], in each case, which are actually
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
utilized in connection with the RESEARCH PROGRAM that (i) exist in KOSAN's
proprietary compound library as of the EFFECTIVE DATE; or (ii) are synthesized
or acquired by or on behalf of KOSAN or LICENSEE in connection with the RESEARCH
PROGRAM.
1.33 "MAJOR MARKET COUNTRY" shall mean each of the United States,
United Kingdom, Germany, France, Italy, Spain or Japan.
1.34 "MARKETING AUTHORIZATION" shall mean all allowances and approvals
(including pricing and reimbursement approvals) granted by the appropriate
federal, state and local regulatory agencies, departments, bureaus or other
governmental entities within a country necessary to market and SELL PRODUCT.
1.35 "MOTILIDE ACTIVITY" shall mean [**].
1.36 "NCE" shall mean a MACROLIDE which has ANTIBIOTIC ACTIVITY in
accordance with criteria set forth in the RESEARCH PLAN.
1.37 "NDA" shall mean a New Drug Application and any supplements filed
pursuant to the requirements of the FDA, including all documents, data and other
information concerning the PRODUCT which are necessary for or included in, FDA
approval to market such PRODUCT as more fully defined in 21 C.F.R. section
314.50 ET SEQ., as well as equivalent submissions to the appropriate health
authorities in other countries.
1.38 "NET SALES" shall mean the revenue billed by ORTHO or an AFFILIATE
or SUBLICENSEE from the sale of PRODUCTS to independent THIRD PARTIES, less the
following amounts: (i) discounts, including cash discounts, or rebates,
including rebates to governmental agencies such as Medicaid rebates and the
like, actually allowed or granted, (ii) credits or allowances actually granted
upon claims or returns regardless of the party requesting the return, (iii)
freight charges paid for delivery, (iv) taxes or other governmental charges
levied on or measured by the billed amount, when included in billing, as
adjusted for rebates and refunds, and (v) provisions for uncollectible amounts
determined in accordance with U.S. Generally Accepted Accounting Practices,
consistently applied to all products of the selling party. A "sale" shall
include any transfer or other disposition for consideration, and NET SALES shall
include the fair market value of all other consideration received by LICENSEE or
its AFFILIATES or SUBLICENSEES in respect of any grant of rights to make, use,
sell or otherwise distribute PRODUCTS, whether such consideration is in cash,
payment in kind, exchange or another form.
In the case of discounts on "bundles" of products or services which include
PRODUCTS, ORTHO may with notice to KOSAN calculate NET SALES by discounting the
bona fide list
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
price of a PRODUCT by the average percentage discount of all products of ORTHO
and/or its AFFILIATES or SUBLICENSEES in a particular "bundle", calculated as
follows:
Average percentage
discount on a = (1 - A/B) x 100
particular "bundle"
where A equals the total discounted price of a particular "bundle" of products,
and B equals the sum of the undiscounted bona fide list prices of each unit of
every product in such "bundle." ORTHO shall provide KOSAN documentation,
reasonably acceptable to KOSAN, establishing such average discount with respect
to each "bundle." If ORTHO cannot so establish the average discount of a
"bundle", NET SALES shall be based on the undiscounted list price of the PRODUCT
in the "bundle." If a PRODUCT in a "bundle" is not sold separately and no bona
fide list price exists for such PRODUCT, the parties shall negotiate in good
faith an imputed list price for such PRODUCT, and NET SALES with respect thereto
shall be based on such imputed list price.
In the event that PRODUCTS are sold in the form of combination products
containing one or more active ingredients other than the PRODUCT, NET SALES for
such combination products will be calculated by multiplying actual NET SALES of
such combination products by the fraction A/(A+B) where A is the invoice price
of the PRODUCT if sold separately, and B is the total invoice price of any other
active component or components in the combination, if sold separately by
LICENSEE or an AFFILIATE OR SUBLICENSEE.
If on a country-by-country basis the other active component or components in the
combination are not sold separately in said country by the LICENSEE or an
AFFILIATE or SUBLICENSEE, NET SALES, for the purpose of determining royalties on
the combination products shall be calculated by multiplying actual NET SALES of
such combination products by the fraction A/C where A is the invoice price of
the PRODUCT if sold separately and C is the invoice price of the combination
product.
If on a country-by-country basis neither the PRODUCT nor the combination product
is sold separately in said country by the LICENSEE or an AFFILIATE or
SUBLICENSEE, NET SALES for purposes of determining royalties on the combination
products shall be reasonably allocated between the LICENSED PRODUCT and the
other active components based on their relative value as determined by the
parties in good faith.
1.39 "NON-EXCLUSIVE SCREENING PERIOD" shall mean the period commencing
on the EFFECTIVE DATE and continuing until three (3) years after the end of the
EXCLUSIVE SCREENING PERIOD.
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1.40 "PATENT RIGHTS" shall mean all United States and foreign patents
(including all reissues, extensions, substitutions, confirmations,
re-registrations, re-examinations, revalidations and patents of addition) and
patent applications (including, without limitation, all continuations,
continuations-in-part and divisions thereof) in each case, claiming an invention
which is necessary or useful for the design, development, testing, use,
manufacture or sale of LICENSED COMPOUNDS or PRODUCTS.
1.41 "PHASE I", "PHASE II", and "PHASE III" shall mean Phase I (or
Phase I/II), Phase II, and Phase III clinical trials, respectively, in each case
as prescribed by the regulations of the applicable government agency or other
regulatory entity.
1.42 "PRODUCT" shall mean any pharmaceutical product containing a
LICENSED COMPOUND or a DERIVATIVE thereof which is selected for DEVELOPMENT
and/or marketing by LICENSEE or its AFFILIATES or SUBLICENSEES.
1.43 "PROJECT" shall mean each of the Fast Track Project and the SAR
Project.
1.44 "RESEARCH FUNDING" shall mean the funding to be paid by RWJPRI to
KOSAN for the conduct of the RESEARCH PROGRAM.
1.45 "RESEARCH PLAN" shall have the meaning described in Section 2.2
hereof and shall be attached as Exhibit A.
1.46 "RESEARCH PROGRAM" shall mean all research and development
performed in the course of performing the PROJECTS pursuant to the RESEARCH PLAN
during the RESEARCH TERM.
1.47 "RESEARCH TERM" shall mean the period set forth in Section 2.5
hereunder, unless this AGREEMENT or the RESEARCH TERM is earlier terminated
under Article 19 below.
1.48 "RESERVED COMPOUND" shall mean a [**] that is designated by
RWJPRI pursuant to Section 3.5.6 below.
1.49 "RWJPRI KNOW-HOW" shall mean such KNOW-HOW which RWJPRI or ORTHO
or its AFFILIATE discloses to KOSAN under this AGREEMENT.
1.50 "RWJPRI PATENT RIGHTS" shall mean any patents and patent
applications, including all corresponding Patent Co-operation Treaty
applications, European Patent Convention applications or applications under
similar administrative international conventions, and corresponding national
patents and patent applications, together with any divisional, continuation,
continuation-in-part, substitution, reissue, extension, supplementary protection
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
certificate or other application based thereon, owned or controlled by
LICENSEE or its AFFILIATES, and to which LICENSEE or its AFFILIATES has the
ability to grant a license or sublicense to without violating the terms of
any agreement with any THIRD PARTY.
1.51 "SELLER" shall mean one who SELLS.
1.52 "SOLD," "SALE," "SALES," "SELL," "SELLING" and "SELLS" shall refer
to the act of selling or disposing of for value.
1.53 "STAGE O" shall mean that portion of the DEVELOPMENT program which
starts with the selection of a LICENSED COMPOUND for development into a PRODUCT
under Article 5 hereunder and which generally provides for toxicological and
pharmacological studies as well as drug substance and drug product formulation
and manufacturing development necessary to obtain the permission of regulatory
authorities to begin and continue human clinical testing.
1.54 "STAGE I" shall mean that portion of the DEVELOPMENT program which
provides for the first introduction into humans of a PRODUCT with the purpose of
determining safety, metabolism, absorption, elimination and other
pharmacological action in humans as well as additional development work on
animal toxicity, metabolism, drug substance and drug product formulation and
manufacturing development to ensure continuation of human clinical testing.
1.55 "STAGE II" shall mean that portion of the DEVELOPMENT PROGRAM
which provides for the initial trials of PRODUCT on a limited number of patients
for the purposes of determining dose and evaluating safety and preliminary
efficacy data in the proposed therapeutic indication as well as additional
development work on animal toxicity, metabolism, drug substance and drug
product formulation and manufacturing development to ensure continuation of
human clinical testing.
1.56 "STAGE III" shall mean that portion of the DEVELOPMENT PROGRAM
which provides for continued trials of PRODUCT on sufficient numbers of patients
to establish the safety and efficacy of a PRODUCT to support MARKETING
AUTHORIZATION in the proposed indication. In addition, all other development
work on animal toxicity, metabolism, drug substance and drug product formulation
and manufacturing development will be finalized in STAGE III.
1.57 "STANFORD LICENSE" shall mean that certain License Agreement
effective as of March 11, 1996, as amended March 31, 1996, entered by and
between KOSAN and the Board of Trustees of Leland Stanford Jr.
University.
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1.58 "SUBLICENSEE" shall mean, with respect to a particular PRODUCT, a
THIRD PARTY to whom LICENSEE has granted a licensee or sublicense to make and
sell such PRODUCT. As used in this AGREEMENT, "SUBLICENSEE" shall also include a
THIRD PARTY to whom LICENSEE has granted the right to distribute such PRODUCT,
provided that such THIRD PARTY is responsible for marketing or promoting such
PRODUCTS within the applicable territory.
1.59 "THIRD PARTY" shall mean any party other than KOSAN or LICENSEE or
AFFILIATES of either of them.
1.60 "USE," "USES" and "USED" shall refer to the act of using for any
commercial purposes whatsoever.
1.61 "VALID CLAIM" shall mean a claim of an issued, unexpired patent,
or a claim being prosecuted in a pending patent application, in each case, which
is within the PATENT RIGHTS. A claim of an issued, unexpired patent shall be
presumed to be valid unless and until it has been held to be invalid by a final
judgement of a court of competent jurisdiction from which no appeal can be or is
taken. For the purposes of royalty determination and payment under Article 6
hereof, any claim being prosecuted in a pending patent application for a period
of up to five (5) years from the filing date of such application shall be deemed
to a VALID CLAIM, provided, that each claim in such an application shall again
become a VALID CLAIM when and if a patent issues thereon.
ARTICLE 2 -- RESEARCH
2.1 RESEARCH PROGRAM. Subject to the terms and conditions herein, KOSAN
hereby agrees to conduct the RESEARCH PROGRAM in collaboration with RWJPRI with
a goal of discovering, identifying and synthesizing LICENSED COMPOUNDS for
DEVELOPMENT by RWJPRI into one or more PRODUCTS for commercialization by ORTHO,
an AFFILIATE or SUBLICENSEE.
2.2 RESEARCH PLAN. The RESEARCH PROGRAM shall be conducted in
accordance with the overall RESEARCH PLAN attached hereto as Exhibit A, as may
be amended from time to time with the agreement of the parties.
2.3 MANAGEMENT.
2.3.1 JRC. The parties shall establish a Joint Research
Committee ("JRC") within thirty (30) days of the EFFECTIVE DATE to administer
the RESEARCH PROGRAM. Each party shall present one consolidated view and have
one vote on any issue. All decisions of the JRC must be unanimous.
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2.3.2 MEMBERSHIP. The JRC shall include three (3)
representatives of each of LICENSEE and KOSAN, each Party's members selected by
that party. KOSAN and LICENSEE may each replace its JRC representatives at any
time, upon written notice to the other party. From time to time, the JRC may
establish subcommittees, to oversee particular projects or activities, and such
subcommittees will be constituted as the JRC agrees.
2.3.3 MEETINGS; MINUTES. During the EXCLUSIVE SCREENING
PERIOD, the JRC shall meet at least quarterly, or more frequently as agreed
by the parties, at such locations as the parties agree, and will otherwise
communicate regularly by telephone, electronic mail, facsimile and/or video
conference. With the consent of the parties, other representatives of KOSAN
or LICENSEE may attend JRC meetings as nonvoting observers. Each party shall
be responsible for all of its own expenses associated with attendance of such
meetings. The first meeting of the JRC shall occur within forty-five (45)
days after the EFFECTIVE DATE. The JRC shall prepare written minutes of each
JRC meeting and a written record of all JRC decisions, whether made at a JRC
meeting or otherwise. A written record shall be provided to each party by the
presenting party of all materials presented at meetings of the JRC.
2.3.4 FUNCTIONS OF THE JRC. The JRC shall be responsible for
managing the RESEARCH PROGRAM. In carrying out this function, the JRC will:
(i) oversee directed research activities to be
undertaken under the RESEARCH PROGRAM in accordance with the RESEARCH PLAN,
which will specify the details by which the parties will conduct the Research;
(ii) review progress of the RESEARCH PROGRAM, revise
the RESEARCH PLAN as it deems appropriate, set priorities for research
activities, review results achieved, and provide general guidance to assist the
overall program in meeting its objective of fostering successful identification
of LICENSED COMPOUNDS for DEVELOPMENT by RWJPRI;
(iii) advise RWJPRI regarding the selection of
LICENSED COMPOUNDS for full DEVELOPMENT under Article 5;
(iv) attempt to settle disputes or disagreements
between the parties regarding the performance of the RESEARCH PROGRAM hereunder;
(v) approve any material agreements with THIRD
PARTIES to be made by KOSAN related to performance of the RESEARCH PROGRAM under
this AGREEMENT; and
(vi) perform such other functions as are appropriate
to further the purposes of this AGREEMENT as determined by the parties.
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2.3.5 DISPUTE RESOLUTION. If the JRC fails to reach unanimous
agreement on any issue being considered by the JRC, and which after a reasonable
amount of discussion between the JRC representatives of RWJPRI and KOSAN cannot
be resolved, the issue will be referred to the Chief Executive Officer of KOSAN
and the Vice President, Drug Discovery, RWJPRI, for resolution. If there is no
resolution of the issue at that level, and the issue pertains to the RESEARCH
PLAN, the status quo as reflected in the last previous approved RESEARCH PLAN
shall remain in effect. If the issue pertains to making a Go/No-GO DECISION for
a given PROJECT, RWJPRI shall make the final determination.
2.3.6 INFORMATION AND ACCESS. KOSAN and RWJPRI shall provide
the JRC, its members and authorized representatives with reasonable access
during regular business hours to all records and documents relating to the
performance of this AGREEMENT which it reasonably may request in order to
perform its obligations hereunder; provided that if such documents are under a
bona fide obligation of confidentiality to a THIRD PARTY, KOSAN or RWJPRI, as
the case may be, may withhold access thereto to the extent necessary to satisfy
such obligation.
2.4 RESPONSIBILITIES.
2.4.1 REASONABLE EFFORTS. RWJPRI and KOSAN shall each use
reasonable efforts to conduct the RESEARCH PROGRAM in a professional manner in
accordance with the applicable RESEARCH PLAN within the time schedules
contemplated therein.
2.4.2 RESOURCES. Each party agrees to commit the personnel,
facilities, expertise and other resources necessary to perform its obligations
under the RESEARCH PLAN; provided, however, that neither party warrants that the
RESEARCH PROGRAM shall achieve any of the research objectives contemplated by
them.
2.4.3 KOSAN RESEARCH EFFORTS. KOSAN agrees to commit to the
RESEARCH PROGRAM such efforts as are specified in the RESEARCH PLAN, to maintain
and utilize the scientific staff, laboratories, offices and other facilities
consistent with such undertaking, and to reasonably cooperate with RWJPRI in the
conduct of the RESEARCH PROGRAM. KOSAN agrees that, on average for each twelve
(12) month period during the RESEARCH TERM, KOSAN shall dedicate FTEs to each
phase of each PROJECT and the RESEARCH PROGRAM as specified the RESEARCH PLAN.
2.4.4 SUBCONTRACTORS. KOSAN may have work performed by THIRD
PARTY collaborators as provided in the RESEARCH PLAN or otherwise approved by
the JRC.
2.4.5 INFORMATION AND REPORTS.
(a) DISCLOSURES.
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<PAGE>
(i) Each party will make available and
use all reasonable efforts to disclose to the other party the information
necessary to conduct the other party's responsibilities under the RESEARCH
PLAN and all KNOW-HOW relating to (a) [**] which are RESERVED COMPOUNDS, and
(b) all [**] that are designated as LICENSED COMPOUNDS, and (c) the activity
of such [**], including information regarding compounds synthesized or
discovered, initial leads, activities of leads, derivatives, results of IN
VITRO and IN VIVO studies, assay techniques and new assays. Significant
discoveries or advances shall be communicated as soon as practical after such
KNOW-HOW is obtained or its significance is appreciated.
(ii) Subject to its obligations to THIRD
PARTIES, KOSAN will make available and use all reasonable efforts to disclose to
RWJPRI KNOW-HOW necessary for RWJPRI to make chemical modifications of the
MACROLIDE scaffolds provided by KOSAN to RWJPRI in accordance with the RESEARCH
PLAN, to conduct process development and strain selection research with respect
to LICENSED COMPOUNDS, to make PRODUCTS for DEVELOPMENT and commercialization
purposes, to characterize, evaluate and test such PRODUCTS and to otherwise
carry out its activities pursuant to the RESEARCH PLAN and DEVELOPMENT PLAN.
(iii) RWJPRI will make available and use
all reasonable efforts to disclose to KOSAN such RWJPRI KNOW-HOW necessary or
materially useful in evaluating [**] and DERIVATIVES of the preceding.
(b) REPORTS. The JRC shall periodically and not less
often than semiannually during the RESEARCH TERM, request and the parties shall
have the obligation to prepare and provide to the JRC, written reports
summarizing the progress of the research performed by or sponsored by the
parties pursuant to the RESEARCH PLAN during the preceding half-year. In
addition, the parties will exchange at least quarterly verbal or written reports
presenting a meaningful summary of their activities performed in connection
with the RESEARCH PROGRAM.
(c) PROJECT COORDINATOR. Each party shall designate a
single project coordinator whose duties shall be to oversee matters arising
under the provisions of this AGREEMENT and to facilitate the communication of
research results. Such project coordinator shall be responsible for day-to-day
worldwide coordination of the RESEARCH PROGRAM and will serve to facilitate
communication between the parties relating to the RESEARCH PROGRAM. Each party
may change its designated project coordinator upon notice to the other party.
(d) RECORDS. Personnel working on the RESEARCH
PROGRAM shall use all reasonable efforts to make accurate laboratory notebook
records of the RESEARCH
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
PROGRAM in a manner suitable for use in United States patent prosecution and
litigation. Each party shall be permitted to review such laboratory notebooks
and records at any reasonable time and to obtain copies thereof for further
review by the other party. Each party shall make reasonable effort to safeguard
such notes and records against theft and loss by fire, flood or other damage.
(e) ASSIGNMENT AGREEMENTS. To the extent permitted by
applicable law, KOSAN shall require all persons, agents, contractors, and
consultants employed or retained by KOSAN to work on the RESEARCH PROGRAM, prior
to beginning such employment, to be bound in writing to (i) assign to KOSAN all
rights, title and interest in and to any ideas, discoveries, improvements,
inventions, KNOW-HOW, patents, patent applications, and the like which were made
or conceived in performing the RESEARCH PROGRAM, and to sign all documents and
give lawful assistance necessary for filing, and defending patents, and patent
applications in all countries, whether such filing is by KOSAN, or designees or
assignees thereof, and (ii) to be bound in writing to provisions of
confidentiality substantially similar to those of Article 9 hereof.
2.5 RESEARCH TERM. The RESEARCH PROGRAM shall commence on the EFFECTIVE
DATE and continue for two (2) years thereafter (such period and any extension
thereof referred to as the "RESEARCH TERM"). The RESEARCH TERM may be extended
as follows: (i) the RESEARCH TERM shall automatically be emended to include any
CONTINGENT WORK undertaken by the parties pursuant to Section 2.6.4; (ii) RWJPRI
shall have the one-time option, exercisable by written notice to KOSAN not later
than ninety (90) days prior to the expiration of the then-current RESEARCH TERM,
to extend the RESEARCH TERM for one additional period of up to six (6) months at
the level of funding and FTE rate applicable to the preceding six (6) month
period, unless otherwise agreed by the JRC; and (iii) the RESEARCH PROGRAM may
be extended by mutual written agreement of KOSAN and LICENSEE.
2.6 GO/NO-GO DECISIONS.
2.6.1 RESEARCH FUNDING. At each DECISION POINT for each
PROJECT, RWJPRI shall have the right to elect whether to proceed with the
CONTINGENT WORK for such PROJECT consequent to such DECISION POINT. It is
understood and agreed that RWJPRI must provide RESEARCH FUNDING as set forth
in the RESEARCH PLAN until at least the second anniversary of the EFFECTIVE
DATE subject to the provisions of Article 19. RWJPRI shall provide RESEARCH
FUNDING (i) for the Fast Track PROJECT, until the earlier of (a)
identification of a [**] as an NCE in the Fast Track PROJECT ("N1" in
Exhibit A) or (b) twelve (12) months from the EFFECTIVE DATE, and (ii) for the
SAR PROJECT, until the earlier of (x) identification of [**] as NCEs in the SAR
PROJECT ("N2" and "N3" in Exhibit A) or (y) twenty-four (24) months from the
EFFECTIVE DATE.
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TO THE OMITTED PORTIONS.
<PAGE>
2.6.2 DECISION POINTS. The DECISION POINTS for the PROJECTS
will be as follows:
<TABLE>
<CAPTION>
PROJECT DECISION EVENTS DECISION TIME
------- --------------- -------------
<S> <C> <C>
Fast Track Identification of a [**] 15 months from the
as an NCE ("N1" in EFFECTIVE DATE
Exhibit A)
SAR Identification of a [**] 24 months from the
as an NCE ("N2" in EFFECTIVE DATE for "N2"
Exhibit A)
Identification of [**] 36 months from the
as an NCE ("N3" in EFFECTIVE DATE for N3
Exhibit A)
</TABLE>
A DECISION POINT for a PROJECT shall occur upon the earlier of (i) the
occurrence of the applicable Decision Event, or (ii) the applicable Decision
Time; provided, at any time RWJPRI with notice to KOSAN may elect to proceed
with the CONTINGENT WORK for either PROJECT, and in such case such election
shall be deemed a GO DECISION, subject to Sections 2.6.4 and 2.7.4. Upon
reaching a DECISION POINT, RWJPRI shall notify KOSAN whether RWJPRI wishes to
proceed with the applicable CONTINGENT WORK.
2.6.3 EXTENSION OF DECISION POINTS. RWJPRI shall have the
right to extend the DECISION POINT of the Fast Track PROJECT for [**]and/or
the SAR PROJECT for [**], in each case, with at least [**] advance notice to
KOSAN. In any such event, RWJPRI agrees to fund the applicable PROJECT during
the extension period at the FTE level required under the RESEARCH PLAN for
the [**] period preceding the applicable DECISION POINT, and any such
extension shall constitute an extension of the RESEARCH TERM subject to
Section 2.5. The parties may, but shall have no obligation to, agree on
additional extensions of the DECISION POINT(S) for each or both PROJECTS.
2.6.4 CONSEQUENCE OF A GO DECISION. In the event that a GO
DECISION is made with respect to a particular PROJECT, the parties shall
immediately commence the CONTINGENT WORK with respect to such PROJECT, and
RWJPRI shall fund the CONTINGENT FTEs therefore for the periods set forth in
the RESEARCH PLAN. In the event of a GO DECISION in the Fast Track PROJECT,
then RWJPRI will provide further RESEARCH FUNDING for the Fast Track PROJECT
for an [**]. In the event of a GO DECISION with respect to the first NCE
("N2") and/or second NCE ("N3") in the SAR PROJECT, then RWJPRI will provide
further RESEARCH FUNDING for the SAR PROJECT for an [**] period for each NCE
with respect to which there has been a GO DECISION.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
2.6.5 CONSEQUENCE OF A NO-GO DECISION. In the event that a
NO-GO DECISION is made with respect to a particular PROJECT at a DECISION
POINT for that PROJECT, that PROJECT shall terminate and cease to be part of
the RESEARCH PROGRAM. In the event of termination of both research PROJECTS,
LICENSEE's rights and license to the [**] made in such PROJECTS, and the
corresponding intellectual property rights shall terminate concurrently,
subject to RWJPRI's non-exclusive right pursuant to Section 3.2.1 to continue
screening the [**] other than [**]. In any such event, at KOSAN's request,
RWJPRI shall grant to KOSAN an exclusive, worldwide, royalty-free license to
RWJPRI's interest in any RWJPRI KNOW-HOW and RWJPRI PATENT RIGHTS to make,
use and sell the [**] thereof conceived or reduced to practice in connection
with such PROJECTS. Notwithstanding the foregoing, RWJPRI shall retain
ownership of the RWJPRI PATENT RIGHTS and RWJPRI KNOW-HOW, and the right to
practice the RWJPRI KNOW-HOW and RWJPRI PATENT RIGHTS to conduct internal
research, and, subject to its obligations under this AGREEMENT, to make, use
and sell compounds (other than the [**] that were conceived or reduced to
practice in connection with the terminated PROJECTS, or their DERIVATIVES).
2.6.6 PROJECT MANAGEMENT. Each PROJECT shall be managed by the
parties independently of the other PROJECT. DECISIONS impacting the continuation
of any individual PROJECT (e.g., Go/No-GO DECISIONS with respect any given
PROJECT) will not affect the continuation of the other PROJECT. So long as any
one of the PROJECTS is on-going, the RESEARCH PROGRAM shall be deemed to be in
effect.
2.7 RESEARCH PROGRAM FUNDING.
2.7.1 FTE FUNDING. For the conduct of the RESEARCH PROGRAM
by KOSAN, RWJPRI shall pay KOSAN RESEARCH FUNDING on an annualized FTE basis
(FTE-years). FTE positions will be paid at an annual rate of $[**] per FTE
during the [**] CONTRACT YEARS of the RESEARCH PROGRAM, and thereafter shall
be revised annually to reflect increases in the CPI, using 1998 as the base
year, according to the following formula:
[**]
Where CPI is a fraction, the numerator of which is the difference between the
Consumer Price Index (All Urban Consumers, U.S. City Average for All Items, with
1982-84 = 100) as of the last month of the research year immediately preceding
the research year to be adjusted and the Consumer Price Index as of the last
month before the EFFECTIVE DATE, and the denominator of which is the Consumer
Price Index as of the last month before the EFFECTIVE DATE.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
2.7.2 TIMING OF PAYMENTS. Research funding shall be paid in
four (4) equal quarterly installments during each Calendar Year, payable in
advance on or about January 1, April 1, July 1, and October 1; provided that the
first quarterly payment for the first CONTRACT YEAR shall be due ten (10) days
after the EFFECTIVE DATE. Any payment for a portion of a quarter shall be made
on a pro rata basis.
2.7.3 USE OF RESEARCH FUNDS. All funds provided by RWJPRI
under this Section 2.7 shall be used by KOSAN in the conduct of the RESEARCH
PROGRAM, except as expressly provided in Section 2.7.4. Subject to the approval
of the JRC and minimum FTE commitments for each PROJECT set forth in the
RESEARCH PLAN, RWJPRI-funded KOSAN FTE's may be used in either of the PROJECTS.
RWJPRI shall be under no obligation to provide FTE support to KOSAN beyond the
levels stated above except at RWJPRI's sole discretion. KOSAN shall have no
obligation to expend any amount on the RESEARCH PROGRAM except the amounts paid
by RWJPRI.
2.7.4 EARLY SUCCESS. In the event that an NCE is designated
in the Fast Track Project and/or both NCEs are designated in the SAR Project,
or RWJPRI elects to initiate the CONTINGENT WORK for either PROJECT prior to
the applicable DECISION POINT, then within [**] RWJPRI shall pay to KOSAN any
remaining FTE support allocated in the RESEARCH PLAN for such PROJECT for
research which was to be conducted prior to the commencement of the
applicable CONTINGENT WORK for the applicable PROJECT. KOSAN may, but shall
have no obligation to, expend such amounts on the RESEARCH PROGRAM.
2.7.5 SUPPLIES AND EQUIPMENT. The purchase of any item
including, but not limited to, equipment, materials and cell lines reasonably
required by KOSAN to carry out the RESEARCH PROGRAM shall be paid for by KOSAN
and shall be owned by KOSAN. KOSAN may, but shall not be required to, purchase
items including, but not limited to, equipment, materials and cell lines that
would be useful, but are not required by KOSAN to carry out the RESEARCH
PROGRAM, and any such items shall be owned by KOSAN. With the approval of the
JRC, such items may be purchased with RESEARCH FUNDING. RWJPRI shall inform
KOSAN if it has equipment available which it believes would be useful for the
conduct of the RESEARCH PROGRAM, and discuss with KOSAN the possible use of such
equipment by KOSAN for such purpose.
2.7.6 THIRD PARTY LICENSES. In the event that KOSAN or
LICENSEE becomes aware that it is necessary for KOSAN to acquire a license
from any THIRD PARTY specifically for the conduct of the RESEARCH PROGRAM,
such party shall inform the JRC, and the JRC shall discuss which party will
be responsible for acquiring such license and how the costs of negotiating
and preparing such license, as well as any payments thereunder, shall be
allocated. Notwithstanding the above, it is understood that KOSAN shall be
responsible for [**] due (i) under the STANFORD LICENSE, and (ii) to any
THIRD PARTY for intellectual
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
property rights which are necessary for the practice by KOSAN of the KOSAN
PATENT RIGHTS existing as of the EFFECTIVE DATE for the creation or
preparation of [**], and which are within the scope of an issued patent or
published patent application owned by a THIRD PARTY as of the EFFECTIVE DATE.
2.8 AUDIT. KOSAN will maintain complete and accurate records which
are relevant to its expenditure of Research funding provided to it by RWJPRI
pursuant to Section 2.7 hereof. Such records shall be open during regular
business hours for a period of [**] from creation of individual records for
examination at RWJPRI's expense for the sole purpose of verifying that KOSAN
has devoted to the RESEARCH PROGRAM the FTE's required by Section 2.4.3
above; provided however, that such right may not be exercised more than once
in any calendar year. RWJPRI shall be entitled to a credit against future
research payments or a refund in the event such audit reveals that the proper
FTE's were not allocated in accordance with Section 2.4.3 above.
ARTICLE 3 -- SCREENING BY LICENSEE
3.1 EXCLUSIVE SCREENING.
3.1.1 ANTIBIOTIC ACTIVITY. During the EXCLUSIVE SCREENING
PERIOD, RWJPRI shall have the exclusive right to screen [**] provided by
KOSAN for ANTIBIOTIC ACTIVITY in accordance with the RESEARCH PLAN. Until the
termination of the EXCLUSIVE SCREENING PERIOD, KOSAN agrees that during the
EXCLUSIVE SCREENING PERIOD (i) it shall not grant a THIRD PARTY the right to
screen or develop the [**], and (ii) except in connection with the RESEARCH
PROGRAM, shall not itself screen or develop the [**]. Following the
expiration of the EXCLUSIVE SCREENING PERIOD, KOSAN may screen and/or develop
and allow others to screen the [**]; provided, that so long as LICENSEE
retains rights hereunder to a particular LICENSED COMPOUND, KOSAN shall not
grant any THIRD PARTY a license to such LICENSED COMPOUND or its CLOSE
STRUCTURAL ANALOGS and, if reasonably feasible, will not provide such
compounds to THIRD PARTIES for screening.
3.1.2 OTHER ACTIVITIES. On a [**] basis, KOSAN shall not
(i) allow THIRD PARTIES to screen [**] provided to RWJPRI hereunder, or
(ii) itself screen such [**] until [**] following the date that KOSAN delivers
the applicable [**] to RWJPRI.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
3.2 NON-EXCLUSIVE SCREENING.
3.2.1 MACROLIDES. During the NON-EXCLUSIVE SCREENING
PERIOD, RWJPRI and its AFFILIATES shall have the non-exclusive right to
screen the [**] in any biological test system for any therapeutic indication;
provided, however, RWJPRI may not screen the [**] until the [**] of the
EFFECTIVE DATE and then only subject to the following conditions. If LICENSEE
wishes to screen the [**], it shall provide KOSAN notice thereof by the [**]
of the EFFECTIVE DATE, and by [**] KOSAN shall notify LICENSEE whether it has
entered into an exclusive agreement with a THIRD PARTY for screening for such
activities, or initiated research and development in such regard to such
activities on its own behalf. If KOSAN has not entered into an exclusive
agreement with a THIRD PARTY for screening for the relevant activity, or
initiated research and development tin such regard to such activity on its
own behalf as evidenced by prior written records, then RWJPRI may screen the
[**], as the case may be, on a non-exclusive basis during the NON-EXCLUSIVE
SCREENING PERIOD. To notify RWJPRI of targets relating to [**], KOSAN may
periodically provide LICENSEE notice of any targets which are reported in the
scientific literature to be involved in inflammation.
3.2.2 AROMATIC POLYKETIDES. During the NON-EXCLUSIVE
SCREENING PERIOD, RWJPRI shall have a non-exclusive right to screen the [**]
for any biological activity in any biological test system for any therapeutic
indication.
3.3 DELIVERY OF EXTRACTS AND CELLS.
3.3.1 MACROLIDES.
(a) During the EXCLUSIVE SCREENING PERIOD, KOSAN
will deliver to RWJPRI agreed quantities of [**] sufficient to conduct IN
VITRO screening for [**], as specified in the RESEARCH PLAN.
(b) During the NON-EXCLUSIVE SCREENING PERIOD, at
RWJPRI's request, KOSAN (or its designee) shall provide RWJPRI with agreed
quantities of extracts of [**]. For expenses incurred by KOSAN in
preparing such [**], RWJPRI shall pay to KOSAN a reasonable rate to be
agreed to by the parties, provided, however, if the parties are unable to agree
on such payments, KOSAN shall have no obligation to provide any such extracts or
cells producing such [**] to RWJPRI.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
3.3.2 [**]. During the NON-EXCLUSIVE SCREENING PERIOD, at
RWJPRI's request, KOSAN (or its designee) shall provide RWJPRI with agreed
quantities of extracts of such [**]. For expenses incurred by KOSAN in
preparing such [**], RWJPRI shall pay to KOSAN an amount to be agreed upon by
the parties; provided, however, if the parties are unable to agree on such
payments, KOSAN shall have no obligation to provide such extracts or cells
producing such [**] to RWJPRI. KOSAN shall provide to RWJPRI, without charge,
a set of plates containing the [**] which KOSAN has in stock as of the
EFFECTIVE DATE. Exhibit B describes the estimated numbers and concentrations
of the [**] in stock as of the EFFECTIVE DATE. It is understood that
Exhibit B is provided for general identification of the [**] KOSAN has in stock
as of the EFFECTIVE DATE, and that KOSAN makes no representations or warranties
regarding the accuracy of the information contained in Exhibit B concerning
[**].
3.3.3 NO TRANSFER; LIMITED USE. Except as expressly
provided herein, RWJPRI shall not (i) transfer any of the [**] supplied to
LICENSEE to any THIRD PARTY other than an AFFILIATE without the express prior
written consent of KOSAN, or (ii) use or permit any other person or entity to
use any of the [**] supplied to LICENSEE for any purpose other than for
screening or development and/or commercialization as expressly permitted in
this AGREEMENT.
3.4 SCREENING RESULTS. LICENSEE shall provide KOSAN with written
quarterly summary reports within thirty (30) days of the end of each calendar
quarter with respect to RWJPRI's non-exclusive screening activities,
identifying all assays in which any of the [**]demonstrated activity and the
level of such activity for the [**], all assays in which the [**] did not
demonstrate activity, and a summary of all other results of RWJPRI's
non-exclusive screening activities.
3.5 DESIGNATION OF RESERVED COMPOUNDS AND LICENSED COMPOUNDS.
3.5.1 DESIGNATION NOTICE.
(a) MACROLIDES. Until the end of the NON-EXCLUSIVE
SCREENING PERIOD, RWJPRI may notify KOSAN with notice ("DESIGNATION NOTICE")
that RWJPRI wishes to designate [**] as LICENSED COMPOUNDS by notice to KOSAN
identifying the [**] and the activity thereof. It is understood that
designation of a LICENSED COMPOUND shall be in RWJPRI's sole discretion.
Further, all decisions concerning the selection of a LICENSED COMPOUND for
DEVELOPMENT shall be in RWJPRI's sole discretion.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(b) [**]. During the NON-EXCLUSIVE SCREENING
PERIOD, RWJPRI may notify KOSAN that RWJPRI wishes to designate one or more
[**] as LICENSED COMPOUNDS by notice to KOSAN ("DESIGNATION
NOTICE") identifying the [**] and the activity thereof.
3.5.2 LICENSED COMPOUND STATUS. Within thirty (30) days
following receipt of any DESIGNATION NOTICE from LICENSEE pursuant to Section
3.5.1 above, KOSAN shall notify LICENSEE if KOSAN has granted a THIRD PARTY
any rights or a license with respect to the same [**] before KOSAN's receipt
of such DESIGNATION NOTICE; provided, KOSAN shall have no obligation to
disclose to LICENSEE the identity of the THIRD PARTY, the structure of such
compound or the activity(s) with respect to which such THIRD PARTY identified
such activity. Unless KOSAN has previously granted a THIRD PARTY rights to
such a [**], or elected to develop such [**] itself, in each case, as
shown by prior written records, upon KOSAN's receipt of DESIGNATION NOTICE
from RWJPRI, such [**] shall be deemed to be a LICENSED COMPOUND for all
purposes of this AGREEMENT.
3.5.3 NCE STATUS. It is understood and agreed that each
[**] designated by LICENSEE in a DESIGNATION NOTICE which becomes a
LICENSED COMPOUND shall be deemed to be an NCE for the purposes of Section 6.2.1
hereunder. It is further understood and agreed that a [**] which meets the
criteria for an NCE shall be deemed to be an NCE for the purposes of Section
6.2.1 hereunder without any further affirmative action on the part of KOSAN or
LICENSEE.
3.5.4 NOTICE TO THIRD PARTIES. Once a [**] has become a
LICENSED COMPOUND pursuant to Section 3.5.2 above, KOSAN shall notify any
THIRD PARTIES who attempt to subsequently designate or claim rights to such
LICENSED COMPOUND of the existence of LICENSEE's prior claim with respect to
such compound without disclosing LICENSEE's identity, the structure of such
compound (unless earlier disclosed) or the activity(s) with respect to which
LICENSEE has identified such activity. LICENSEE hereby consents to such
notice. KOSAN shall promptly inform LICENSEE of such THIRD PARTY'S
designation or claim; provided KOSAN shall have no obligation to disclose to
LICENSEE the identity of such THIRD PARTY or the activity(s) with respect to
which such THIRD PARTY identified such activity. If the THIRD PARTY desires
to negotiate with LICENSEE, KOSAN shall transmit notice of such intent
(including the THIRD PARTY'S identity) to LICENSEE. In addition, once a [**]
has become a LICENSED COMPOUND pursuant to Section 3.5.2 above, if
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TO THE OMITTED PORTIONS.
<PAGE>
reasonably feasible, KOSAN shall not provide such LICENSED COMPOUND to THIRD
PARTIES for screening.
3.5.5 CLOSE STRUCTURAL ANALOGS. At the time that each [**]
becomes a LICENSED COMPOUND, a non-binding, written list identifying the
compounds which are CLOSE STRUCTURAL ANALOGS of such [**] will be prepared by
the parties. Any compounds determined to be CLOSE STRUCTURAL ANALOGS shall
remain CLOSE STRUCTURAL ANALOGS until and unless such compounds have been
actually synthesized and tested and found not to have the level of activity
specified in the RESEARCH PLAN or agreed by the parties at the time the
compound became a LICENSED COMPOUND. In the event that either party,
determines that such compound does not have the required level of activity it
shall notify, the other providing the relevant data and unless the other
party, disputes the validity of such data, the applicable compound shall
cease to be a CLOSE STRUCTURAL ANALOG thirty (30) days thereafter. In the
event of any dispute regarding the status of whether a particular compound
should become, is or will remain a CLOSE STRUCTURAL ANALOG, the matter shall
be settled by the dispute resolution procedure set forth in Article 21.
3.5.6 RESERVED COMPOUNDS.
(a) DESIGNATION. Subject to Section 3.5.6(b) and
(c), until the end of the RESEARCH TERM, RWJPRI may give KOSAN written notice
that RWJPRI wishes to designate as RESERVED COMPOUNDS one or more [**], which
notice shall identify, such [**].
(b) LIMITATIONS. Notwithstanding the foregoing,
RWJPRI may not designate more than [**] RESERVED COMPOUNDS at any time
without the written consent of KOSAN. RWJPRI may, with notice to KOSAN
discontinue the RESERVED COMPOUND status of any [**], and thereafter such
MACROLIDE shall no longer be a RESERVED COMPOUND. If RWJPRI has designated
RESERVED COMPOUNDS such that there exist more than [**] RESERVED COMPOUNDS at
any time, then RWJPRI shall pay to KOSAN, for each RESERVED COMPOUND beyond
[**], a fee of [**] dollars ($[**]) per RESERVED COMPOUND, as set forth in
Section 6.6.
(c) EFFECT OF RESERVATION. Until the end of the
RESEARCH TERM, KOSAN shall not grant a license to any THIRD PARTY with
respect to any RESERVED COMPOUND except as follows: if KOSAN receives a
request from a THIRD PARTY to obtain a LICENSE for any RESERVED COMPOUND, it
shall notify RWJPRI and RWJPRI shall have [**] days to notify. KOSAN whether
RWJPRI will designate such RESERVED COMPOUND as a LICENSED COMPOUND and pay
concurrently the fee required under Section 6.3. In such event, such RESERVED
COMPOUND shall become a LICENSED COMPOUND for all purposes of this AGREEMENT.
If RWJPRI fails to provide such notice to
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TO THE OMITTED PORTIONS.
<PAGE>
KOSAN during the [**] period, then such COMPOUND shall cease to be a
RESERVED COMPOUND and KOSAN shall have the right to grant such THIRD PARTY a
license to such [**] during the EXCLUSIVE SCREENING PERIOD.
3.6 SELECTION OF LICENSED COMPOUNDS. Following the expiration of the
NON-EXCLUSIVE SCREENING PERIOD, all rights to [**] for which LICENSEE does
not have a LICENSED COMPOUND in DEVELOPMENT or commercialization shall lapse
and KOSAN shall have the right to develop, market and commercialize such [**]
independently and all rights and licenses thereto shall revert to KOSAN at
the conclusion of such period.
3.7 RESERVED RIGHTS. At all times, KOSAN shall have the right to use
the [**] for screening of any and all activities other than [**], and for its
internal research programs, including without limitation, the preparation and
synthesis of [**], as intermediates and otherwise. Nothing in this AGREEMENT
shall restrict or limit KOSAN from using all or any portion of any [**] which
is used in connection with the RESEARCH PROGRAM in any research or
development not subject to this AGREEMENT.
3.8 RIGHT OF FIRST NEGOTIATION. Until January 10, 1999, if a THIRD
PARTY wishes to enter into an exclusive agreement with KOSAN to screen the
[**] or develop or commercialize [**], before entering into an agreement with
such a THIRD PARTY granting a license for such rights, KOSAN shall notify
RWJPRI, and for a period of [**] (or such longer period as the parties may
agree) from the date of such notice (the "Negotiation Period") KOSAN and
RWJPRI shall negotiate the terms of such an agreement. In the event that the
parties do not agree on terms within the Negotiation Period, KOSAN may grant
any THIRD PARTY rights with respect to screening [**] and developing and
commercializing [**]; provided, however, prior to January 10, 1999 or the end
of the Negotiation Period, KOSAN shall not enter into an agreement with a
THIRD PARTY on terms less favorable to KOSAN, when taken as a whole, than
those last offered in writing by RWJPRI to KOSAN. It is understood and agreed
that KOSAN shall have the unrestricted rights itself to screen, develop
and/or commercialize [**].
ARTICLE 4 -- LICENSES
4.1 RESEARCH LICENSES.
4.1.1 TO RWJPRI. Subject to the terms and conditions of this
AGREEMENT, KOSAN hereby grants RWJPRI a non-exclusive paid-up license, with no
right to grant
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TO THE OMITTED PORTIONS.
<PAGE>
sublicenses, under KOSAN PATENT RIGHTS and KOSAN KNOW-HOW to make and use
methods and materials to carry, out the RESEARCH PROGRAM during the RESEARCH
TERM.
4.1.2 TO KOSAN. Subject to the terms and conditions of this
AGREEMENT, LICENSEE hereby grants KOSAN a non-exclusive paid-up license, with no
right to grant sublicenses, under RWJPRI PATENT RIGHTS and RWJPRI KNOW-HOW to
make and use methods and materials to carry out the RESEARCH PROGRAM during the
RESEARCH TERM.
4.2 SCREENING LICENSES. KOSAN hereby grants to RWJPRI the following
fully paid, non-transferable licenses, with the right to grant sublicenses to
RWJPRI AFFILIATES, under the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW to conduct
screening pursuant to Article 3:
4.2.1 an exclusive, worldwide license during the EXCLUSIVE
SCREENING PERIOD to use the [**];
4.2.2 a non-exclusive, worldwide license during the
NON-EXCLUSIVE SCREENING PERIOD:
(a) to use the [**] to conduct screening for [**];
(b) to use the [**] to conduct screening for [**];
and
4.2.3 Subject to the terms and conditions of Section 3.2.1, a
non-exclusive, worldwide license during the EXCLUSIVE SCREENING PERIOD and
NON-EXCLUSIVE SCREENING PERIOD to use the [**].
4.3 DEVELOPMENT AND COMMERCIALIZATION LICENSE.
4.3.1 GRANT. Subject to the terms and conditions of this
AGREEMENT, KOSAN hereby grants to LICENSEE, and LICENSEE hereby accepts from
KOSAN, a worldwide, exclusive license, with the right to grant sublicenses,
under the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW, to make, use and develop
LICENSED COMPOUNDS, and, to make, have made, USE, import, offer for SALE, SELL
and have SOLD PRODUCTS.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
4.3.2 TERM. Unless LICENSEE's rights are terminated earlier
as provided in Section 2.6.5 or Article 19, the foregoing license in Section
4.3.1 shall remain exclusive on a LICENSED COMPOUND-by-LICENSED COMPOUND and
PRODUCT-by-PRODUCT basis (i) as to the applicable KOSAN PATENT RIGHTS, for
their respective lives on a country-by-country basis, and (ii) as to the
KOSAN KNOW-HOW, until the termination of LICENSEE's obligation to make
royalty payments under Section 7.1 hereof, at which time the license under
the KOSAN KNOW-HOW shall automatically become a [**], non-exclusive license.
Notwithstanding the foregoing, however, with respect to any country of the
European Union, the license to the KOSAN KNOW-HOW shall remain exclusive
until the earlier of (i) the date on which the KOSAN KNOW-HOW becomes
published or generally known to the public through no fault on the part of
LICENSEE, its AFFILIATES or SUBLICENSEES or (ii) the [**], of the first
commercial sale of the first PRODUCT in any country of the European Union, at
which time the license under the KOSAN KNOW-HOW shall automatically become a
[**], non-exclusive license.
4.4 DELIVERY OF CELLS; LIMITED USE. For each [**] designated by
LICENSEE in a DESIGNATION NOTICE which becomes a LICENSED COMPOUND pursuant
to Section 3.5, and for which LICENSEE pays the amounts set forth in Section
6.2.1, KOSAN will, if available, deliver to LICENSEE a viable sample of
clonal cells which produces such [**] for use in PRODUCT manufacture. Except
as expressly provided herein, LICENSEE shall not (i) transfer any cells or
other biological materials supplied by KOSAN (or any derivatives or progeny
thereof) to any THIRD PARTY other than an AFFILIATE or SUBLICENSEE without
the express prior written consent of KOSAN, or (ii) use or permit others to
use any of the cells or other biological materials supplied by KOSAN (or any
derivatives or progeny thereof) for research use relating to drug discovery
or any other purpose, except the manufacture of LICENSED COMPOUNDS for
clinical trials and commercial sale as expressly provided in this AGREEMENT.
4.5 LIMITATIONS ON LICENSES. Notwithstanding any other provision of
this AGREEMENT, it is understood and agreed that nothing in this AGREEMENT
grants LICENSEE the right to practice any aspect of the EXCLUDED TECHNOLOGY.
4.6 AFFILIATE LICENSES. In the event LICENSEE wishes to manufacture
PRODUCT or SELL in a country where its AFFILIATE is unable to pay royalties to
ORTHO or where payment of royalties to ORTHO are limited as to their tax
deductibility, KOSAN hereby agrees, at the request of ORTHO, to grant direct
licenses containing the same terms, conditions and provisions as this AGREEMENT
to any AFFILIATE under KOSAN PATENT RIGHTS and KOSAN KNOW-HOW to make, have
made use and sell PRODUCTS. Any such licensed AFFILIATE shall thereafter report
NET SALES directly to KOSAN and the activities of any such AFFILIATE shall not
be includable in any reports made by ORTHO to KOSAN.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
4.7 SUBLICENSES. RWJPRI and its AFFILIATES shall have the right to
grant to THIRD PARTIES sublicenses under the licenses granted to LICENSEE in
Section 4.3 (or to its AFFILIATES under Section 4.6) with respect to PRODUCTS
developed by or on behalf of RWJPRI, but shall have no right to grant
sublicenses to THIRD PARTIES with respect to any technology licensed by KOSAN
from Stanford University without the written consent to KOSAN, which consent
will not be unreasonably withheld; provided, such sublicense under the STANFORD
LICENSE is necessary to develop and/or commercialize PRODUCTS pursuant to the
license granted in Section 4.3 and limited to such activities.
4.8 STANFORD LICENSE. LICENSEE acknowledges that it has received a
sublicense under the STANFORD LICENSE. LICENSEE has received a copy of the
STANFORD LICENSE and, having read and understood the same, agrees to comply with
the provisions thereof, including without limitation, Articles 4, 5.3, 8 and 10
thereof. KOSAN agrees that in the event of a termination of the STANFORD
LICENSE, in accordance with the provisions of Section 14.3 of the STANFORD
LICENSE, the sublicense granted LICENSEE herein shall be assigned to STANFORD.
4.9 NO COMPETING RESEARCH. During the RESEARCH TERM, KOSAN shall not
knowingly conduct, have conducted or fund any research or development
activity specifically directed at discovery or developing products intended
for use in the FIELD derived from expression of the [**], except pursuant to
this AGREEMENT.
4.10 LICENSED COMPOUND EXCLUSIVITY. During the term of this AGREEMENT,
KOSAN shall not develop, commercialize or sublicense to any THIRD PARTY any
LICENSED COMPOUND to which LICENSEE retains commercial license rights, without
the prior written consent of LICENSEE.
4.11 MODE OF COMMERCIALIZATION. ORTHO may SELL PRODUCTS through its
AFFILIATES, SUBLICENSEES or agents in any country. ORTHO agrees to be
responsible and liable for the performance hereunder by its AFFILIATES, agents
and SUBLICENSEES to which the license and rights hereunder shall have been
extended. For the purposes of reporting and making payments of earned royalties
under this AGREEMENT, the manufacture, SALE or USE of PRODUCTS by any AFFILIATE,
or SUBLICENSEE to which such license rights shall have been extended shall be
considered the manufacture, SALE or USE of such PRODUCT by ORTHO and any such
AFFILIATE or SUBLICENSEE may make the pertinent reports and royalty payments
specified in Article 7 hereof directly to KOSAN on behalf of ORTHO; otherwise,
such reports and payments on account of SALES of PRODUCTS by each AFFILIATE and
SUBLICENSEE shall be made by ORTHO; and, in any event, the SALES of PRODUCT by
each such AFFILIATE and SUBLICENSEE shall be separately shown in the reports to
KOSAN if such information is readily available to ORTHO.
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
4.12 THIRD PARTY RIGHTS.
4.12.1 KOSAN THIRD PARRY ACTIVITIES. It is understood that
KOSAN provides [**] to THIRD PARTIES, and that KOSAN will grant such THIRD
PARTIES rights after the EFFECTIVE DATE to acquire licenses for compounds
derived from such libraries similar to LICENSEE's rights under this Article
4, subject to the provisions of Section 3. I. Notwithstanding the licenses
granted to LICENSEE under Section 4.3 above, it is possible that a THIRD
PARTY may acquire rights from KOSAN with respect to one or more compounds of
which KOSAN is a sole or joint owner, which compounds were made and designed
independently of KOSAN's activities and knowledge gained under the RESEARCH
PROGRAM; accordingly, KOSAN's grant of rights under Section 4.3 is limited to
the extent that (i) a THIRD PARTY (either alone or jointly with KOSAN) has
filed a patent application with respect to such a compound prior to the
filing by LICENSEE (either alone or jointly with KOSAN) of a patent
application with respect to such a compound, or (ii) KOSAN has previously
granted a THIRD PARTY a license or other rights with respect to such a
compound, and subject to any such grant of rights to a THIRD PARTY.
4.12.2 NO LIABILITY. It is understood and agreed that, even if
KOSAN complies with its obligations under this AGREEMENT, compounds provided to
THIRD PARTIES in the course of KOSAN's other business activities may result in
THIRD PARTY patent applications and patents, including patent applications and
patents owned by such THIRD PARTIES, or owned jointly by KOSAN and such THIRD
PARTIES, which could conflict with patent applications and patents owned by
LICENSEE, or jointly owned by LICENSEE and KOSAN hereunder. KOSAN shall use its
reasonable efforts to avoid such conflict. It is understood that, unless
LICENSEE is damaged as a proximate result of a material breach by KOSAN of
Section 3.1 or 4.3 then KOSAN shall have no liability, under this AGREEMENT with
respect to any such conflict.
4.13 RETAINED RIGHTS. It is understood and agreed that, KOSAN shall
retain the exclusive right to develop (including pre-clinical and clinical
development), make, have made, use and sell all products other than PRODUCTS. It
is understood and agreed that KOSAN may practice and use the KOSAN PATENT RIGHTS
and KOSAN KNOW-HOW to facilitate the exercise of its rights.
4.14 NO IMPLIED RIGHTS. No other, further or different license or
right, except as expressly provided in this Article 4 hereof, is hereby granted
or implied.
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<PAGE>
ARTICLE 5 -- DEVELOPMENT AND COMMERCIALIZATION
5. 1 DEVELOPMENT.
5.1.1 JDAC. Promptly after selection by RWJPRI of a LICENSED
COMPOUND or a DERIVATIVE for DEVELOPMENT, the parties shall establish a Joint
Development Advisory. Committee (the "JDAC") to oversee the DEVELOPMENT of
PRODUCTS.
5.1.2 MEMBERSHIP. The JDAC shall include three (3)
representatives from each of KOSAN and RWJPRI, each Party's members to be
selected by that party. KOSAN and LICENSEE may each replace its JDAC
representatives at any time, upon written notice to the other party. One of the
RWJPRI members of the JDAC, chosen at the sole discretion of RWJPRI, shall serve
as chair of the JDAC.
5.1.3 MEETINGS; MINUTES. The JDAC shall meet at least
quarterly, or more frequently as agreed by the parties, at such locations as the
parties agree, and will otherwise communicate regularly by telephone, electronic
mail, facsimile and/or video conference. Meetings of the JDAC shall be held at
least quarterly and may be called by either party with not less than ten (10)
working days notice to the other unless such notice is waived, and meetings
shall be held at the office of the party not calling the meeting, unless
otherwise agreed. The JDAC may be convened, polled or consulted from time to
time by means of telecommunication or correspondence. Each party will disclose
to the other proposed agenda items reasonably in advance of each meeting of the
JDAC. With the consent of the parties, other representatives of KOSAN or
LICENSEE may attend JDAC meetings as observers. Each party shall be responsible
for all of its own expenses associated with attendance of such meetings. The
JDAC shall prepare written minutes of each JDAC meeting and a written record of
all JDAC recommendations, whether made at a JDAC meeting or otherwise. A written
record shall be provided by the presenting party, to each party of all materials
presented at meetings of the JDAC.
5.1.4 FUNCTIONS OF THE JDAC. The JDAC shall serve in an
advisory capacity concerning the management of the DEVELOPMENT of PRODUCTS as
well as related pre-market activities performed under the provisions of this
AGREEMENT. In carrying out this function, the JDAC will:
(a) Promptly upon selection of a PRODUCT for
DEVELOPMENT, advise RWJPRI in the preparation of a written DEVELOPMENT PLAN,
including appropriate timelines for DEVELOPMENT, for such PRODUCT, which
DEVELOPMENT PLAN shall be provided by RWJPRI to the parties;
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<PAGE>
(b) review progress of the DEVELOPMENT work at least
quarterly, and advise RWJPRI concerning changes or modifications to the
DEVELOPMENT PLAN;
(c) oversee and direct the transfer of LICENSED
COMPOUNDS from KOSAN to LICENSEE; and
(d) review progress reports as to the performance
of the DEVELOPMENT PLAN, the first such report to be submitted by RWJPRI [**]
following selection of such LICENSED COMPOUND for DEVELOPMENT and at [**]
intervals thereafter until the SALE of PRODUCT is approved and PRODUCT is
being marketed on a regular commercial basis in the United States and each
MAJOR MARKET COUNTRY and such approval and marketing is reported in writing
to KOSAN. Minutes of meetings of the JDAC may serve as such. progress
reports. The parties agree to maintain information in such reports in
confidence in accordance with the confidentiality, provisions of Article 9
hereof.
5.1.5 DEVELOPMENT PROGRAM. RWJPRI shall be [**] and have
[**] in consultation with the JDAC, to select LICENSED COMPOUNDS which shall
then be designated PRODUCTS for further DEVELOPMENT by RWJPRI and marketing
by ORTHO and its AFFILIATES. RWJPRI shall provide KOSAN with written notice
of its decision to select a LICENSED COMPOUND for DEVELOPMENT. Once a PRODUCT
has been selected for further DEVELOPMENT, RWJPRI, with the advice of the
JDAC, shall have the [**] right to develop the PRODUCT through STAGES O,
I, II and III and shall have the [**] right to prepare and file, and
shall be the owner of, all applications for MARKETING AUTHORIZATION
throughout the world. During such DEVELOPMENT efforts, KOSAN will assist
RWJPRI as may be mutually agreed, at RWJPRI's expense, in chemical
development, formulation development, production of labeled material and
production of sufficient quantities of material for STAGE O and initial STAGE
I studies. RWJPRI shall exercise diligent efforts, commensurate with the
efforts it would normally exercise for products with similar potential sales
volume and consistent with its overall business strategy, in developing such
PRODUCT in accordance with the DEVELOPMENT PLAN established by RWJPRI. In the
course of such efforts RWJPRI shall, either directly or through an AFFILIATE
or SUBLICENSEE to which the license shall have been extended, take
appropriate steps including the following:
(i) in consultation with the JDAC, select certain
LICENSED COMPOUNDS for STAGE O DEVELOPMENT; and
(ii) establish and maintain a program reasonably
designed, funded and resourced to obtain information adequate to enable the
preparation and filing with an appropriate and properly empowered national
regulatory authority all necessary documentation, data and
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other evidence required for IND non-rejection to commence and conduct human
clinical trials of such PRODUCT.
(iii) proceed following IND non-rejection to commence
PHASE I, II, and III clinical trials, associated studies and such other work
which RWJPRI reasonably deems to be required for subsequent inclusion in filings
for MARKETING AUTHORIZATION;
(iv) after such submissions are filed prosecute such
submissions and file all reasonably necessary, reports and respond to all
reasonable requests from the pertinent regulatory, authorities for information,
data, samples, tests and the like.
5.2 DELIVERY. For each [**] in DEVELOPMENT, if available, KOSAN
will provide to RWJPRI the clone producing the LICENSED COMPOUND or an
intermediate therefor, and all information related to fermentation conditions,
process development, scale-up, etc.
5.3 MARKETING AUTHORIZATION. MARKETING AUTHORIZATION applications shall
be compiled by ORTHO based on information generated during the DEVELOPMENT
program. Subject to Section 19.3.4, ORTHO shall own such MARKETING
AUTHORIZATIONS. KOSAN shall prepare supporting documentation requested by ORTHO.
At ORTHO's request and expense, KOSAN shall further assist ORTHO with the
preparation of supporting data to apply for and pursue MARKETING AUTHORIZATIONS.
5.4 COMMERCIALIZATION STATUS. If LICENSEE is developing a LICENSED
COMPOUND, or any PRODUCT, during the period from the end of the RESEARCH TERM
to the first commercial sale of such PRODUCT, LICENSEE shall keep KOSAN
informed of its development activities with respect to such LICENSED COMPOUND
and PRODUCT, including without limitation, the achievement of the milestones
set forth in Section 6.4 and the commercialization of such LICENSED COMPOUND
and PRODUCT, by [**] providing KOSAN with a written report stating the status
of development of each such LICENSED COMPOUND and PRODUCT. It is understood
that the report provided to the JDAC under Section 5.1.4(d) may serve to
fulfill LICENSEE's obligation to KOSAN hereunder.
5.5 COMMERCIALIZATION. Once a PRODUCT has been approved for marketing,
ORTHO shall exercise reasonable efforts, commensurate with the efforts it would
normally exercise for products with similar potential sales volume and
consistent with its overall business strategy, in promoting, advertising and
SELLING such PRODUCT under this AGREEMENT.
5.6 PERFORMANCE OBLIGATIONS.
5.6.1 LACK OF DILIGENCE. Non-performance of this Article 5, or
any subparagraph thereof by LICENSEE, shall be a breach of this AGREEMENT,
subject to
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<PAGE>
KOSAN's right to terminate this AGREEMENT pursuant to Section 19.2. In such
event, KOSAN agrees that (except in the case of a breach of Section 5.7) subject
to the terms of Section 19.3, such termination shall be KOSAN's sole and
complete remedy for such a breach.
5.6.2 ACKNOWLEDGMENT. Notwithstanding any other provision
hereunder, LICENSEE makes no representation or warranty, that development and
marketing of PRODUCT shall be the exclusive means by which LICENSEE will
participate in the FIELD. Furthermore, all business decisions concerning the
DEVELOPMENT, marketing and SALES of PRODUCT(S) including, without limitation,
the design, sale, price and promotion of PRODUCTS covered under this AGREEMENT
shall be within the sole discretion of LICENSEE. KOSAN realizes that LICENSEE
already sells products for the treatment of [**], and
acknowledges that LICENSEE may now or in the future develop or acquire other
products for the treatment and prevention of such conditions.
5.7 NO OTHER PRODUCTS OTHER THAN PRODUCTS. Except as otherwise agreed
in writing or specifically provided in the terms of this AGREEMENT, neither
LICENSEE nor its SUBLICENSEES shall commercialize any LICENSED COMPOUND or
DERIVATIVE thereof; other than as a PRODUCT in accordance with this AGREEMENT.
ARTICLE 6 -- LICENSE FEES AND MILESTONE PAYMENTS
6.1 INITIAL FEE. In consideration of the rights and licenses granted to
LICENSEE under this AGREEMENT on EFFECTIVE DATE, ORTHO shall pay KOSAN an
initial fee of [**] dollars ($[**]) to reimburse KOSAN for past
research and development. Such fee shall not be refundable nor creditable
against other amounts due KOSAN under this AGREEMENT.
6.2 RESEARCH MILESTONE PAYMENTS.
6.2.1 NCE IDENTIFICATION. RWJPRI shall pay the following
amounts to KOSAN within [**] following accomplishment of the following
Research Milestones in connection with the Research PROJECTS:
$[**] Identification of a [**] in the FAST
TRACK PROJECT
$[**] Identification of each [**] in
the SAR PROJECT
6.2.2 DELIVERY OF FIRST MACROLIDES. LICENSEE shall pay to
KOSAN a [**] fee of [**] dollars ($[**]) [**]following the delivery to RWJPRI
of
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[**] from the Fast Track PROJECT, provided that any such payment shall not be
made prior to [**].
6.3 LICENSED COMPOUND FEE. Within [**] after any compound becomes a
LICENSED COMPOUND, RWJPRI shall pay [**]dollars ($[**]) for each such
LICENSED COMPOUND (other than the [**] for which RWJPRI has already paid the
$[**] set forth in Section 6.2.1).
6.4 DEVELOPMENT MILESTONE PAYMENTS. Within [**] following the
occurrence of the relevant events specified below with respect to the each
PRODUCT, LICENSEE shall pay to KOSAN the following amounts:
<TABLE>
<CAPTION>
DEVELOPMENT MILESTONE PAYMENT
--------------------- -------
<S> <C>
[**] $[**]
</TABLE>
6.5 BACKUP PRODUCTS. In the event one or more of the aforesaid
milestone payments have been paid in respect of a given PRODUCT for which
DEVELOPMENT or commercialization is subsequently discontinued, LICENSEE shall
receive a credit for such milestone payments against milestone payments due for
the next PRODUCT to meet such milestone. It is understood that in no event shall
LICENSEE be obligated to make the payment due on any milestone event more than
once with respect to the same PRODUCT, regardless of the number of indications
for which such PRODUCT is developed. If at the time a milestone is achieved by a
PRODUCT any prior milestones have not been achieved for such PRODUCT, the
payments for such prior milestones for such PRODUCT shall then be due.
6.6 RESERVED COMPOUND FEE. If RWJPRI has designated more than [**]
as RESERVED COMPOUNDS at any time, for each such RESERVED COMPOUND in excess
of [**], RWJPRI shall pay [**] dollars ($[**]) within [**]
after the date of the designation of the applicable RESERVED COMPOUND.
6.7 NO WITHHOLDING. All amounts paid to KOSAN pursuant to this Article
6 shall be made without withholding for taxes or any other charge.
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<PAGE>
ARTICLE 7 -- ROYALTIES, RECORDS AND REPORTS
7.1 EARNED ROYALTIES; ROYALTY TERM. For the rights and privileges
granted under this AGREEMENT, subject to Article 19, ORTHO shall pay to KOSAN,
on a country-by-country and PRODUCT-by-PRODUCT basis, earned royalties on NET
SALES as follows:
7.1.1 where the manufacture, USE or SALE of the PRODUCT falls
within the scope of a VALID CLAIM which is (i) owned sorely by KOSAN, (ii) owned
jointly by KOSAN and LICENSEE, or (iii) filed during the RESEARCH TERM or claims
priority to a patent application filed during the RESEARCH TERM and in
connection with the RESEARCH PROGRAM which is owned solely by LICENSEE or its
AFFILIATES or SUBLICENSEES, ORTHO shall pay to KOSAN a royalty on the NET SALES
of all such PRODUCTS that are SOLD by or for ORTHO or AFFILIATES or SUBLICENSEES
under this AGREEMENT until the expiration of the last to expire of such patents
in the PATENT RIGHTS in such country., as follows:
Annual Cumulative NET
SALES/PRODUCT ROYALTY RATE
------------- ------------
[**] [**]%
7.1.2 where the manufacture, USE or SALE of the applicable
PRODUCT is not within the scope of a VALID CLAIM subject to Section 7.1.1, ORTHO
shall pay to KOSAN a royalty on NET SALES equal to [**] the royalties in
(a) above with respect to such PRODUCTS that are SOLD by or for ORTHO or
AFFILIATES or SUBLICENSEES under this AGREEMENT in such country, for a period
of the longer of (i) [**] from the date of first commercial sale of such
PRODUCT in such country, or (ii) so long as there is a VALID CLAIM in such
country.
7.1.3 It is understood and agreed that the increased royalty
rates due pursuant to Sections 7.1.1 and 7.1.2 on higher levels of NET SALES
shall only be due on the incremental NTT SALES over the lower tier.
7.l.4 It is understood and agreed that regardless of any
credits or offsets to which LICENSEE is entitled under the terms of this
AGREEMENT, the royalty, payments due KOSAN under Article 7 shall not be less
than [**] of the royalties due pursuant to Sections 7.1.1 or 7.1.2 as
applicable, on NET SALES of any PRODUCT in the applicable quarter. Any such
royalty credits or offsets may be carried forward until applied.
7.2 ROYALTY ON NET SALES TO THIRD PARTIES. Earned royalties shall be
paid pursuant to Section 7.1 hereof on all PRODUCTS SOLD under this AGREEMENT
and the
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earned royalty payable on a given PRODUCT made hereunder shall not become due
and owing until such PRODUCT is SOLD. Except where LICENSEE or its AFFILIATES or
SUBLICENSEE is an end-user of a PRODUCT, the earned royalty for any particular
PRODUCT shall be due upon the first bona fide arm's length SALE to a THIRD PARTY
other than an AFFILIATE or SUBLICENSEE thereof and any subsequent SALE of such
PRODUCT by a THIRD PARTY that is not an AFFILIATE or SUBLICENSEE shall be
royalty-free.
7.3 THIRD-PARTY ROYALTIES. KOSAN shall be responsible for paying [**]
royalties due Stanford University on PRODUCTS pursuant to the STANFORD LICENSE
and for [**] THIRD PARTY royalties for which KOSAN is responsible pursuant
to Section 2.7.6. Except as provided in the preceding sentence, LICENSEE shall
be responsible for procuring such licenses as it deems, in its sole discretion,
appropriate for the manufacture, use, marketing, sale or distribution of
PRODUCTS by LICENSEE and its AFFILIATES and SUBLICENSEES, and for the payment of
any amounts due THIRD PARTIES under such licenses; provided that with regard to
licenses entered by RWJPRI with THIRD PARTIES for intellectual property rights
which are necessary, for the practice of the KOSAN PATENT RIGHTS existing as of
the EFFECTIVE DATE for the creation or preparation of MACROLIDES and/or AROMATIC
POLYKETIDES, which licenses have been approved by the JRC, LICENSEE may offset
against the royalties owed to KOSAN up to [**] percent ([**]%) of royalties owed
such THIRD PARTY, up to a maximum of [**] percent ([**]%) of the royalty owed to
KOSAN in any quarter with respect to the applicable PRODUCT. Any such amounts
which are uncredited in a quarter may be carried forward until expended.
7.4 ONE ROYALTY. Notwithstanding the provisions of Section 7.2 hereof,
in the case of transfers or SALES of any PRODUCT among ORTHO, AFFILIATES and
SUBLICENSEE or between AFFILIATES for re-sale to THIRD PARTIES, one and only one
royalty shall be payable thereon and such royalty, shall become payable upon the
SALE thereof to a THIRD PARTY.
7.5 AUDIT RIGHTS. ORTHO shall keep, and shall cause its AFFILIATES
and SUBLICENSEES to keep, full, true and accurate books of account containing
all particulars in accordance with ORTHO's normal accounting procedures then
in effect for the purpose of showing the amount payable to KOSAN by way of
royalty as aforesaid or by way of any other provision hereunder. Said books
of account shall be kept at ORTHO's (or if sales by a SUBLICENSEE, at the
SUBLICENSEE's) principal place of business. Said books and the supporting
data shall be maintained and kept open during reasonable business hours, for
[**] following the end of the calendar year to which they pertain (and access
shall not be denied thereafter, if reasonably available), to the inspection
of an independent certified public accountant retained by KOSAN and
reasonably acceptable to ORTHO or such SUBLICENSEE for the purpose of
verifying ORTHO's royalty statements, or ORTHO's compliance in other respects
with this AGREEMENT, but this right to inspect may not be exercised more than
once in any year and once a calendar period is audited, it may not be
re-audited unless a payment
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discrepancy is identified. Said accountant shall disclose to KOSAN only
information relating to the accuracy of the royalty reports and the royalties
paid under this AGREEMENT. Names of customers and other confidential information
shall not be disclosed to KOSAN by such independent accountant. Such accountant
shall be retained at KOSAN's sole expense. Notwithstanding the foregoing,
inspections of the records of SUBLICENSEES shall be limited to the extent that
ORTHO has the right to authorize KOSAN to make such inspection; provided that if
ORTHO does not have the right to authorize KOSAN to make such an inspection,
upon KOSAN's request, ORTHO, at its expense, using an independent certified
accountant reasonably acceptable to KOSAN, shall inspect the SUBLICENSEE's
records and shall provide to KOSAN the results of such inspection. In any audit,
if an underpayment of more than five percent (5%) is established for a quarter,
LICENSEE shall pay the costs of the audit of such period and shall promptly pay
to KOSAN any amounts due together with interest as provided in Section 7.7.
7.6 ROYALTY REPORTS. ORTHO within [**] of each year (the "Reporting
Date") shall deliver to KOSAN a true and accurate report, giving such
particulars of the PRODUCTS SOLD by ORTHO, AFFILIATES, and SUBLICENSEES and
the NET SALES due during the [**] preceding the Reporting Date ("Accounting
Period") under this AGREEMENT as are pertinent to an accounting for royalty
under this AGREEMENT. Each such report shall state, separately for LICENSEE
and each AFFILIATE and SUBLICENSEE, the number, description, and aggregate
NET SALES, by country, of each PRODUCT sold during the calendar quarter upon
which a royalty is payable under this AGREEMENT. Simultaneously with the
delivery of each such report, ORTHO shall pay to KOSAN the royalty due under
this AGREEMENT for the period covered by such report. If no royalties are
due, it shall be so reported.
7.7 PAYMENT METHOD; LATE PAYMENTS. All amounts due KOSAN hereunder
shall be paid in U.S. dollars by wire transfer in immediately available funds
to a bank account designated by KOSAN. Any payments or portions thereof due
hereunder which are not paid on the date such payments are due under this
AGREEMENT shall bear interest at a rate equal to the lesser of [**], or the
maximum rate permitted by law, calculated on the number of days such payment
is delinquent, compounded monthly. This Section 7.7 shall in no way limit any
other remedies available to KOSAN.
7.8 CURRENCY CONVERSION. All royalty, payments by ORTHO to KOSAN
shall be converted into U.S. Dollars in accordance with ORTHO's current
customary and usual procedures for calculating same which are the following:
the rate of currency conversion shall be calculated using a [**], or if such
rate is not available, the [**]. ORTHO shall give KOSAN prompt written notice
of any changes to ORTHO's customary and usual procedures for currency
conversion, which shall only apply after
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such notice has been delivered and provided that such changes continue to
maintain a set methodology for currency conversion. If the transfer or the
conversion into U.S. Dollars in any such instance is not lawful or possible, the
payment of each pan of the royalties due as is necessary, shall be made by the
deposit thereof, in whatever currency is allowable, to the credit and account of
KOSAN in any commercial bank or trust company of KOSAN's choice located in that
country. Prompt notice of said deposit shall be given by ORTHO to KOSAN and
ORTHO shall use reasonable efforts to assist KOSAN in securing the payment of
such funds to KOSAN's U.S. bank account.
7.9 TAXES. Any tax required to be withheld on royalties payable to
KOSAN under the laws of any foreign country shall be promptly paid by ORTHO for
and on behalf of KOSAN to the appropriate governmental authority, and ORTHO
shall furnish KOSAN with proof of payment of such tax together with official
documents issued by the appropriate governmental authority and other appropriate
evidence sufficient to enable KOSAN to support a claim for a tax credit in
respect of any sum so withheld, and at KOSAN's request, provide reasonable
assistance to KOSAN in recovering such amounts, if possible.
7.10 LEGAL LIMIT ON ROYALTIES. In any country where the rate of royalty
is limited by applicable law, the royalty payment shall be made to KOSAN at the
highest rate permitted by law in that country for licenses of the type herein
granted, provided that such rate is equal to or less than the rate specified in
this AGREEMENT.
7.11 RESTRICTIONS ON PAYMENTS. The obligation to pay royalties to KOSAN
under this AGREEMENT shall be waived and excused to the extent that applicable
statutes, laws, codes or government regulations in a particular country prevent
such royalty payments; provided, however, in such event, if legally permissible,
LICENSEE shall pay the royalties owed to KOSAN by depositing such amounts, to
the credit and account of KOSAN or its nominee in any commercial bank or trust
company of KOSAN's choice located in that country, prompt notice of which shall
be given by ORTHO to KOSAN.
ARTICLE 8 -- SUPPLY OF PRODUCTS
8.1 ORTHO RESPONSIBILITY. ORTHO shall be solely responsible for making
or having made PRODUCTS for DEVELOPMENT and commercialization. During
DEVELOPMENT or commercialization of the PRODUCTS, the parties may agree that
KOSAN shall manufacture and supply to ORTHO quantities of certain compounds.
8.2 CONSIDERATION OF KOSAN. If KOSAN wishes to be responsible for
production of and purification of [**] for preclinical and clinical testing
and manufacture of bulk PRODUCTS for commercial sale it may notify LICENSEE
and demonstrate that KOSAN (or its designee) is able to manufacture PRODUCTS
meeting the relevant LICENSEE specifications with respect to cost and quality
in a timely
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manner, then, subject to the approval of LICENSEE, KOSAN may conduct such
manufacturing. In such event, the parties shall enter into a separate supply
agreement on terms to be mutually agreed by the parties.
8.3 TECHNOLOGY TRANSFER. Upon LICENSEE's request, KOSAN shall provide
reasonable technical assistance, and, to the extent that KOSAN has a right to do
so without incurring additional expense, licenses, as may reasonably be
requested by LICENSEE to transfer such technology as needed for LICENSEE or its
designee to commence or continue manufacturing under Section 8.1. All such
technical assistance shall be provided at LICENSEE's expense.
ARTICLE 9 -- CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION. Except as expressly provided herein,
the parties agree that, for the term of this AGREEMENT and for [**]
thereafter, the receiving party, shall keep completely confidential and shall
not publish or otherwise disclose and shall not use for any purpose except
for the purposes contemplated by this AGREEMENT, any confidential information
of the other party, or any data, samples, technical and economic information
(including the economic terms hereof), commercialization, clinical and
research strategies and KNOW-HOW and other information provided by the other
party (the "Disclosing Party") during the TERM of this AGREEMENT or during
the negotiation of this AGREEMENT, or in connection with the transactions
contemplated thereby, or any RESEARCH PROGRAM Technology and all other data,
results and information developed pursuant to the RESEARCH PROGRAM and solely
owned by the Disclosing Party (collectively, the "Confidential Information")
furnished to it by the Disclosing Party hereto pursuant to this AGREEMENT or
the transactions contemplated thereby. Notwithstanding the above,
Confidential Information shall not include information that:
(i) is or hereafter becomes generally available to the public
other than by reason of any default with respect to a confidentiality,
obligation under this AGREEMENT; or
(ii) was already known to the recipient as evidenced by prior
written documents in its possession; or
(iii) is disclosed to the recipient by a THIRD PARTY who is
not in default of any confidentiality, obligation to the disclosing party
hereunder; or
(iv) is developed by or on behalf of the receiving party,
without reliance on Confidential Information received from the other party
hereunder; or
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(v) is used with the consent of the Disclosing Party (which
consent shall not be unreasonably withheld) in applications for patents or
copyrights under the terms of this AGREEMENT; or
(vi) has been approved in writing for publication by the
Disclosing Party; or
(vii) is PRODUCT-related information which is reasonably
required to be disclosed in connection with marketing of PRODUCT covered by this
AGREEMENT.
Confidential Information shall be safeguarded by the recipient, shall not be
disclosed to THIRD PARTIES and shall be made available only to recipient's
employees or independent contractors who agree in writing to equivalent
conditions and who have a need to know the information for the purposes
specified under this AGREEMENT; however, the recipient may disclose Confidential
Information to the extent such disclosure is required in compliance with
applicable laws or regulations in connection with the manufacture or sale of
products covered by this AGREEMENT, or is otherwise required to be disclosed in
compliance with applicable laws or regulations or order by a court or other
regulatory body having competent jurisdiction, provided that in the event such
disclosure is required, the recipient (i) shall, unless prohibited by law, give
reasonable advance notice of such disclosure to the other party and (ii) shall
use reasonable efforts to secure confidential treatment of such information
(whether by protective order or otherwise). Notwithstanding the foregoing,
Confidential Information may be provided to THIRD PARTIES under appropriate
terms and conditions including confidentiality provisions equivalent to those in
this AGREEMENT for consulting, manufacturing development, manufacturing,
external testing and marketing trials with respect to the products covered by
this AGREEMENT.
9.2 PUBLICATION. The parties shall cooperate in appropriate
publication of the results of research and development work performed
pursuant to this AGREEMENT, but subject to the predominating interest to
obtain patent protection for any patentable subject matter. To this end, it
is agreed that prior to any public disclosure of such results, the party
proposing disclosure shall send the other party a copy of the information to
be disclosed, and shall allow the other party [**] from the date of receipt
in which to determine whether the information to be disclosed contains
subject matter for which patent protection should be sought prior to
disclosure, or otherwise contains Confidential Information of the reviewing
party which such party desires to maintain as a trade secret. Each party
shall designate a representative for receipt of proposed publications from
the other party. Confidential Information of the reviewing party which such
party desires to maintain as a trade secret shall not be published if the
reviewing party objects in writing within such [**] period. If notification
is not received during the [**] period, the party proposing disclosure shall
be free to proceed with the disclosure. If due to a valid business reason or
a reasonable belief by the non-disclosing party that the disclosure contains
subject matter for which a patentable invention should be sought, then prior
to the expiration of the [**] period, the non-disclosing party shall so notify
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the Disclosing Party, who shall then delay public disclosure of the
information for an additional period of up to [**] to permit the preparation
and filing of a patent application on the subject matter to be disclosed or
other action to be taken. The party proposing disclosure shall thereafter be
free to publish or disclose the information. Notwithstanding the foregoing,
if the publication discloses a LICENSED COMPOUND, either party may delay
publication until such time as the applicable patent application disclosing
the LICENSED COMPOUND is published in the normal course of events. The
determination of authorship for any paper shall be in accordance with
accepted scientific practice.
9.3 ACQUISITION. In the event a party hereto is acquired, such party
shall take reasonable efforts to ensure that the Confidential information of the
other party hereto is used only for the purposes of this AGREEMENT, and is not
disclosed to the acquiror.
ARTICLE 10 -- REGULATORY MATTERS
10.1 ADVERSE EVENT REPORTING. Each party shall promptly inform the
other in writing within twenty-four (24) hours of its receipt of any information
which it receives regarding or related to any serious, unexpected adverse
reaction in humans to PRODUCT. Each party shall comply with each Adverse Drug
Experience reporting requirement of it in the United States Federal Food Drug
and Cosmetic Act, as amended (21 U.S.C. Section 301 ET SEQ.) and the similar
requirements of international regulatory authorities. In addition, on an
on-going basis, each party agrees to make a good faith effort to promptly
provide the other party with any additional information in its possession which
indicates adverse effects in humans associated with PRODUCT. The obligations of
this article shall survive termination of this AGREEMENT as to PRODUCT continued
to be sold by ORTHO, or its AFFILIATES or SUBLICENSEES.
10.2 REGULATORY AND OTHER INQUIRIES. In the event KOSAN is
manufacturing pursuant to Article 8 hereof, then upon being contacted by the FDA
or any drug regulatory Agency for any regulatory purpose pertaining to this
AGREEMENT or to a PRODUCT, KOSAN and LICENSEE shall promptly (within two (2)
business days) notify and consult with one another and LICENSEE shall provide a
response as it deems appropriate. LICENSEE shall have sole responsibility for
responding to all inquiries to LICENSEE or KOSAN regarding the benefits, side
effects and other characteristics of PRODUCTS. The party which is responsible
for manufacturing the BULK PRODUCT form of the pertinent PRODUCT shall have the
sole responsibility for responding to all inquiries regarding the manufacture of
such BULK PRODUCT after consultation with the other party.
10.3 PRODUCT RECALL. In the event that LICENSEE or KOSAN determines
that an event, incident or circumstance has occurred which may result in the
need for a recall or other removal of any PRODUCT, or any lot or lots thereof,
from the market, it shall advise and consult with the other party with respect
thereto. LICENSEE shall make the final determination to recall or otherwise
remove the PRODUCT or any lot or lots thereof from the market. KOSAN shall be
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responsible for the costs of any recall due to defects in BULK PRODUCTS
manufactured by KOSAN, and LICENSEE shall be responsible for the costs of other
recalls.
ARTICLE 11 -- PATENT INFRINGEMENT
11.1 NOTICE. In the event that there is infringement on a commercial
scale by a THIRD PARTY of any patent licensed to LICENSEE hereunder that covers
the manufacture, USE or SALE of a PRODUCT. LICENSEE shall notify KOSAN in
writing to that effect, including with said written notice evidence establishing
a prima facie case of infringement by such THIRD PARTY.
11.2 SOLELY OWNED INVENTIONS.
11.2.1 KOSAN ACTION. With respect to patents solely owned
by KOSAN, KOSAN shall after any such notification, at its option, take action
to obtain a discontinuance of such infringement or bring suit against the
THIRD PARTY infringer. KOSAN shall bear all the expenses of any suit brought
by it. In the event damages or other monies are awarded or received in
settlement of such suit, KOSAN shall be entitled to deduct an amount to cover
its out-of-pocket expenses, including attorneys' and professional fees, and
including a reasonable allocation for in-house attorney's time, incurred for
such suit. The balance of any recoveries shall then be shared by the parties
with KOSAN receiving [**] percent ([**]%) and [**] percent ([**]%). LICENSEE
and its AFFILIATES will cooperate with KOSAN in any such suit and shall have
the right to consult with KOSAN and be represented by its own counsel at its
own expense. KOSAN shall incur no liability to LICENSEE and its AFFILIATES as
a consequence of such litigation or any unfavorable decision resulting
therefrom, including any decision holding KOSAN's patent invalid or
unenforceable.
11.2.2 ORTHO ACTION. If, after the expiration of one
hundred eighty (180) days from the date of a request by ORTHO to do so, KOSAN
has not overcome the prima facie case of infringement, obtained a
discontinuance of such infringement, or brought suit against the THIRD PARTY
infringer, then after such one hundred eighty (180) days notice period, ORTHO
shall have the right, but not the obligation, to bring suit against such
infringer and join KOSAN as a party plaintiff with respect to infringements
relating to patents claiming compositions of matter which are LICENSED
COMPOUNDS and/or the method of commercial manufacture thereof used by ORTHO
(but not with respect to patents relating to the creation or production of
polyketides more generally), provided that ORTHO shall bear all the expenses
of such suit. In the event ORTHO brings such suit, and damages or other
monies are awarded or received in settlement of such suit. ORTHO shall be
entitled to deduct an amount to cover its out-of-pocket expenses, including
attorneys' and professional fees, and including a reasonable allocation for
in-house attorney's time. incurred for such suit. The balance of any
recoveries shall be shared by the parties with ORTHO receiving [**] percent
([**]%) and [**] percent ([**]%). KOSAN will cooperate with ORTHO in any suit
for infringement of a
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licensed patent brought by ORTHO against a THIRD PARTY, and shall have the right
to consult with ORTHO and to participate in and be represented by independent
counsel in such litigation at its own expense. ORTHO shall incur no liability
to KOSAN as a consequence of such litigation or any unfavorable decision
resulting therefrom, including any decision holding KOSAN's patent invalid or
unenforceable; provided, ORTHO shall not enter into any settlement which (i)
makes any admission of wrongdoing on the part of KOSAN, or (ii) admits that any
of KOSAN PATENT RIGHTS are invalid, unenforceable or not infringed, without the
prior written consent of KOSAN.
11.3 JOINT INVENTIONS. In the event KOSAN or LICENSEE becomes aware of
any actual or threatened infringement of any PATENT RIGHT which claims a Joint
Invention that party shall promptly notify the other and the parties shall
promptly discuss how to proceed in connection with such actual or threatened
infringement. In the event only one party wishes to participate in such
proceeding, it shall have the right to proceed alone, at its expense, and may
retain any recovery; provided, at the request and expense of the participating
party, the other party agrees to cooperate and join in any proceedings in the
event that a THIRD PARTY asserts that the co-owner of such Joint Invention is
necessary or indispensable to such proceedings.
11.4 COOPERATION. In the event either party hereto shall initiate or
carry on legal proceedings to enforce the PATENT RIGHTS against an alleged
infringer, as provided herein, the other party hereto shall fully co-operate
with the party initiating or carrying on such proceedings.
ARTICLE 12 -- INTELLECTUAL PROPERTY
12.1 OWNERSHIP.
12.1.1 OWNERSHIP OF INVENTIONS. KOSAN will own any
inventions, and patents claiming such inventions, conceived or reduced to
practice by KOSAN personnel in connection with the performance of the
RESEARCH PROGRAM, subject to the licenses granted in Article 4 above. RWJPRI
will own any inventions, and patents claiming such inventions, conceived and
reduced to practice solely by RWJPRI personnel in connection with the
RESEARCH PROGRAM. The parties will jointly own any inventions, and patent
claiming such inventions, conceived and reduced to practice jointly by RWJPRI
and KOSAN personnel in connection with the RESEARCH PROGRAM ("Joint
Inventions"); provided, KOSAN shall have sole ownership of all [**]
transferred to LICENSEE hereunder and all EXCLUDED TECHNOLOGY and
intellectual property relating thereto, and LICENSEE shall and hereby assigns
to KOSAN any interest that LICENSEE may have in or to the foregoing.
12.1.2 U.S. LAW. Inventorship and rights of ownership shall be
determined in accordance with U.S. patent law. The laws of the United States
with respect to joint ownership
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of inventions shall apply in all jurisdictions, and each party hereby waives any
right (other than as set forth in this AGREEMENT) to obtain an accounting of
profits or approve any license or exploitation thereof.
12.2 PATENT PROSECUTION.
12.2.1 KOSAN shall file, maintain and prosecute the patent
applications within the KOSAN PATENT RIGHTS to obtain patents thereon in such
countries it deems appropriate, at its own expense. KOSAN does not represent or
warrant that any such patent will be obtained, and KOSAN shall, in its sole
discretion, be responsible for determining whether to abandon any or all of said
patent applications or any portions thereof.
12.2.2 KOSAN shall promptly notify LICENSEE in the event
KOSAN decides not to file, or decides to abandon or discontinue prosecution
or maintenance of any one or more patents or patent applications included in
the KOSAN PATENT RIGHTS. Such notification will be given as early as possible
which in no event will be less than [**] prior to the date on which said
application(s) will become abandoned. LICENSEE shall have the option,
exercisable upon written notification to KOSAN, to assume full responsibility
for the filing, prosecution or maintenance of the affected patents or patent
application(s), in LICENSEE's name, at its expense. Royalty obligations with
respect to such affected patents or patent applications shall be governed by,
and at the royalty rate, set forth in Section 7.1.2 hereinabove for the life
of such patent.
12.2.3 LICENSEE shall file, maintain and prosecute the patent
applications within the PATENT RIGHTS solely owned by LICENSEE to obtain patents
thereon in such countries it deems appropriate, at its own expense. LICENSEE
does not represent or warrant that any such patent will be obtained, and
LICENSEE shall, in its sole discretion be responsible for determining whether to
abandon any or all of said patent applications or any portions thereof.
12.3 CONSULTATION. LICENSEE shall have the right to consult with KOSAN
regarding the content of said patent applications, prior art searches and
correspondence, and to comment thereon. KOSAN shall consider all such comments
offered by LICENSEE, it being agreed, however, that all final decisions
respecting conduct of the prosecution of said patent applications shall rest
solely in the discretion of KOSAN. KOSAN agrees to promptly provide LICENSEE
with copies of:
12.3.1 All patent applications included in KOSAN PATENT RIGHTS
which claim LICENSED COMPOUNDS;
12.3.2 All prior art searches conducted on behalf of KOSAN
related to said patent applications and the subject matter of this AGREEMENT;
and
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12.3.3 All correspondence to and from the United States Patent
and Trademark Office related to said patent applications as well as all
requested correspondence relating to corresponding national and international
patent applications.
12.4 JOINT INVENTIONS.
12.4.1 The parties will cooperate to file, prosecute and
maintain patent applications covering the Joint Invention(s) within the RESEARCH
PROGRAM in the United States, Japan and the European Union (in Europe through a
European Patent Convention application) (collectively, the "Core Countries") and
other countries agreed by the parties. The parties will share equally all
expenses and fees associated with the filing, prosecution, issuance and
maintenance of any patent application and resulting patent for a Joint Invention
in the Core Countries and other agreed countries. Subject to Section 12.4.3
below, it is understood that, after the termination of the RESEARCH PROGRAM, the
parties shall share equally the expenses and fees associated with the filing,
prosecution, issuance and maintenance of any patent application and resulting
patent for a Joint Invention in the Core Countries and other agreed countries.
12.4.2 In the event that either party wishes to seek patent
protection with respect to any Joint Invention outside the Core Countries, it
shall notify the other party hereto. If both parties wish to seek patent
protection with respect to such Joint Invention in such country or countries,
activities shall be subject to Section 12.4.1 above. If only one party wishes to
seek patent protection with respect to such Joint Invention in such country or
countries, it may file, prosecute and maintain patent applications and patents
with respect thereto, at its own expense. Whenever possible, the parties shall
cooperate to obtain the benefit of international treaties, conventions and/or
agreements (e.g., the Patent Cooperation Treaty.) in order to obtain the
benefits afforded thereby. In any such case, the party declining to participate
in such activities shall not grant any THIRD PARTY a license under its interest
in the applicable joint invention in the applicable country or countries
without the prior written consent of the other party, which shall not be
unreasonably withheld. KOSAN agrees to provide its written consent, if
necessary, for LICENSEE to sublicense any joint invention in any country
pursuant to the terms of this AGREEMENT.
12.5 PATENT TERM EXTENSIONS. LICENSEE shall cooperate with KOSAN, and
unless KOSAN has previously applied for such an extension on its own behalf or
on behalf of a THIRD PARTY with respect to the applicable patent, KOSAN agrees
to diligently seek any extension under the U.S. Drug Price Competition and
Patent Term Restoration Act of 1984, the Supplementary Certificate of Protection
of the Member States of the European Community or other similar measure in any
other country that is available or that becomes available in respect of the
term of any patent within the KOSAN PATENT RIGHTS including any patent that may
issue on a patent application within the KOSAN PATENT RIGHTS. LICENSEE shall
diligently advise KOSAN in a timely manner of approval by the Food and Drug
Administration of the United States of America to USE, SELL or market PRODUCTS
or any other governmental
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approval obtained by or on behalf of LICENSEE or an AFFILIATE that is pertinent
to any such extension and LICENSEE shall supply KOSAN with any pertinent
information and data in its possession or control or that is in the possession
or control of any AFFILIATE or SUBLICENSEE and shall cooperate fully in
assisting KOSAN to obtain any such extension that it may seek and LICENSEE shall
supply KOSAN in a timely manner with any information and data and any supporting
affidavits or documents required to comply with 35 U.S.C. Section 156 Extension
of Patent Term (and any successor legislation) and any administrative rules or
regulation thereunder or required to comply with any corresponding laws and
regulations that are or shall be in effect in any country within the KOSAN
PATENT RIGHTS, all without further consideration. ORTHO shall require its
AFFILIATES to comply with this Section 12.5.
ARTICLE 13 -- PUBLICITY
Neither party shall originate any publicity, news release or public
announcement, written or oral, whether to the public or press, stockholders
or otherwise, relating to this AGREEMENT, including its existence, the
subject matter to which it relates, performance under it or any of its terms,
to any amendment hereto or performances hereunder without the written consent
of the other party save only (i) such announcements as in the opinion of
counsel for the party making such announcement is required by applicable law
to be made, or (ii) announcements to KOSAN's private advisors, present
investors, and bona fide prospective investors so long as such disclosure is
made under a binder of confidentiality wherein such advisor or investor
agrees not to disclose the information contained in the announcement to any
THIRD PARTY or to use the information for any purpose other than to evaluate
its investment or prospective investment in KOSAN. Such announcements shall
be factual and as brief as reasonable. If a party decides to make an
announcement required by law or otherwise permitted under this AGREEMENT, it
will give the other party [**] advance written notice of the text of the
announcement so that the other party will have an opportunity to comment upon
the announcement. Upon request by a party for approval of any other
disclosures, such approval or disapproval shall be given in writing within
[**] of its receipt. Upon request by either party, the parties agree to
prepare a mutually agreed press release and related Question and Answer
document with respect to this AGREEMENT. Once information has been approved
for disclosure, no further consent or approval shall be required under this
Article with respect to such information.
ARTICLE 14 -- WARRANTIES AND REPRESENTATIONS
14.1 KOSAN warrants that as of the EFFECTIVE DATE it owns or
exclusively controls by agreement, assignment or license right, title and
interest in the KOSAN PATENT RIGHTS and KOSAN KNOW-HOW and that it has full
power and authority to execute, deliver and perform this AGREEMENT and the
obligations hereunder.
14.2 KOSAN expressly warrants and represents that it has no outstanding
encumbrances or agreements, either written, oral, or implied, in connection
herewith that are
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inconsistent with the rights granted herein, and that it has not granted and
will not grant during the term of this AGREEMENT or any renewal hereof, any
rights, license, consent or privilege that conflict with the rights granted
herein.
14.3 LICENSEE expressly warrants and represents that it has no
outstanding encumbrances or agreements, either written, oral, or implied, in
connection herewith that are inconsistent with the obligations undertaken by
LICENSEE herein, and that it has not entered into, and during the term of this
AGREEMENT or any renewal hereof will not enter into, any agreements, either
written, oral, or implied, that conflict with the rights granted, and
obligations undertaken, by LICENSEE herein.
14.4 Each party expressly represents and warrants that it has the full
power and authority to enter into this AGREEMENT and to carry out the
transactions contemplated hereby.
14.5 Each party hereby warrants that the execution, delivery and
performance of this AGREEMENT has been duly approved and authorized by all
necessary corporate or partnership actions of both parties: do not require any
shareholder or partnership approval which has not been obtained or the approval
and consent of any trustee or the holders of any indebtedness of either party;
do not contravene any law, regulation, rules or order binding on either party,
and do not contravene the provisions of or constitute a default under any
indenture, mortgage, contract or other agreement or instrument to which either
party is a signatory.
14.6 Each party hereby represents and warrants that to the extent
the United States government has any interest in the KOSAN PATENT RIGHTS as a
result of government funded research, that it will continue to make good
faith efforts to comply in all respects with the applicable provisions of any
applicable law, regulation, or requirement by the U.S. Government relating to
the KOSAN PATENT RIGHTS and shall make reasonable efforts to ensure that such
laws, regulations and requirements are fulfilled with respect to the KOSAN
PATENT RIGHTS including without limitation the provisions of 35 U.S.C.
Section 202. Each party agrees that it will make good faith efforts to ensure
that all necessary steps are taken to comply with the requirements of 35
U.S.C. Section 202 ET SEQ. and 37 C.F.R. Section 401.1 ET SEQ. to retain the
maximum rights under the KOSAN PATENT RIGHTS allowable by law. LICENSEE and
KOSAN agree that it will provide the necessary reports and information
required to comply with 35 U.S.C. Sec. 202 et seq. and 37 C.F.R. Section
401.1 et seq., including periodic reports on utilization or efforts at
utilization of the inventions covered by the KOSAN PATENT RIGHTS.
14.7 KOSAN and LICENSEE each specifically disclaim that the RESEARCH
PROGRAM or the DEVELOPMENT will be successful, in whole or part or that any
clinical or other studies undertaken by it will be successful. KOSAN AND
LICENSEE EXPRESSLY DISCLAIM ANY WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, WITH RESPECT TO THE CONFIDENTIAL INFORMATION, OR KOSAN
PATENT RIGHTS OR KNOW-HOW, LICENSED COMPOUNDS, RESERVED
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COMPOUNDS, NCEs OR PRODUCTS, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF ANY
INTELLECTUAL PROPERTY, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
ARTICLE 15 -- STANFORD LICENSE
15.1 KOSAN represents that as of the EFFECTIVE DATE the STANFORD
LICENSE is in full force and effect. KOSAN shall use its reasonable efforts to
not cause the termination and shall not seek to terminate the STANFORD LICENSE
during the term of this AGREEMENT without the express written consent of
LICENSEE.
15.2 KOSAN shall use its reasonable efforts to perform all duties and
obligations required under the STANFORD LICENSE. KOSAN shall notify LICENSEE
within [**] of its receipt of any termination notices from STANFORD of
the STANFORD LICENSE and at LICENSEE's option shall seek to avoid said
termination or shall subrogate LICENSEE to KOSAN's rights under the STANFORD
LICENSE to enable LICENSEE to seek to avoid such termination.
15.3 KOSAN shall inform LICENSEE of any renegotiation of the STANFORD
LICENSE, and shall not modify any terms or provisions of the STANFORD License,
if such renegotiation or modification will adversely affect LICENSEE's rights
under this AGREEMENT, without LICENSEE's written consent. KOSAN shall promptly
provide LICENSEE with a copy of such renegotiated or modified STANFORD LICENSE.
15.4 In order to provide adequate protection of LICENSEE's interest in
avoiding the termination of the STANFORD LICENSE, KOSAN agrees that should KOSAN
default or receive a notice from STANFORD of default under the STANFORD LICENSE
for failure to timely pay royalties which KOSAN does not intend to cure within
the applicable period provided by the STANFORD LICENSE, KOSAN shall notify
LICENSEE within [**] of its receipt of such notice and,
LICENSEE may cure any such default on KOSAN's behalf, including paying any
delinquencies. LICENSEE may credit any such payments made to STANFORD to cure
KOSAN's delinquency against future payments due to KOSAN hereunder.
ARTICLE 16 -- TRADEMARKS
16.1 ORTHO TRADEMARKS. ORTHO, at its expense, shall be responsible for
the selection, registration and maintenance of all trademarks which it employs
in connection with PRODUCTS and shall own and control such trademarks. KOSAN
recognizes the exclusive ownership by ORTHO of any proprietary ORTHO name,
logotype or trademark furnished by ORTHO (including ORTHO's AFFILIATES) for use
in connection with the PRODUCT. KOSAN shall
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not, either while this AGREEMENT is in effect or at any time thereafter,
register, use or attempt to obtain any right in or to any such name. logotype or
trademark or in and to any name, logotype or trademark confusingly similar
thereto.
ARTICLE 17 -- INDEMNIFICATION
17.1 BY ORTHO. ORTHO agrees to indemnity and hold harmless, KOSAN, its
AFFILIATES and their respective officers, directors, employees and agents, and
The Leland Stanford Jr. University, Stanford Health Services, Brown
University, Brown University Research Foundation, and their respective,
trustees, officers, employees, students and agents (each a "KOSAN Indemnitee")
from and against any and all liability, damages, losses, claims, suits,
proceedings, demands, recoveries or expenses, including reasonable attorney's
fees and expenses, incurred or rendered against such KOSAN Indemnitees which
arise out of or result from the use, testing, manufacture, processing,
packaging, labeling, sale or distribution of PRODUCTS by ORTHO or its AFFILIATES
or SUBLICENSEE; except to the extent such liability, damages, losses, claims,
suits, proceedings, demands, recoveries or expenses, incurred by or rendered
against KOSAN are based upon the gross negligence or wilful misconduct by KOSAN
or its AFFILIATES.
17.2 BY KOSAN. KOSAN agrees to indemnify and hold harmless, LICENSEE,
its AFFILIATES, and SUBLICENSEES and their respective officers, directors,
employees and agents (each a "LICENSEE Indemnitee") from and against any and all
THIRD PARTY liability, damages, losses, claims, suits, proceedings, demands,
recoveries or expenses, including reasonable attorney's fees and expenses,
incurred or rendered against such LICENSEE Indemnitee(s) which arise out of or
result from (i) the negligence or wilful misconduct by KOSAN or its AFFILIATES
in carrying out the RESEARCH PROGRAM under this AGREEMENT, or (ii) personal
injury to KOSAN's employees or agents or damage to KOSAN's property resulting
from acts performed by, under the direction of, or at the request of LICENSEE in
carrying out activities contemplated by this AGREEMENT; except to the extent
such liability, damages, losses, claims, suits, proceedings, demands, recoveries
or expenses, incurred by or rendered against LICENSEE are based upon the gross
negligence or wilful misconduct of a LICENSEE Indemnitee.
17.3 CONTROL. A party or person (the "Indemnitee") that intends to
claim indemnification under this Article 17 shall promptly notify the other
party (the "Indemnitor") in writing of any loss, claim, damage, liability, or
action in respect of which the Indemnitee or any of its AFFILIATES, SUBLICENSEES
or their directors, officers, employees, agents or counsel intend to claim such
indemnification, and the Indemnitor shall have the right to participate in, and,
to the extent the Indemnitor so desires, to assume the defense thereof with
counsel chosen by Indemnitor, with consent of Indemnitee, which consent shall
not be unreasonably withheld. The Indemnitee shall not enter into negotiations
or enter into any agreement with respect to the settlement of any claim without
the prior written approval of the Indemnitor, and the indemnity
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agreement in this Article 17 shall not apply to amounts paid in settlement of
any loss, claim, damage, liability, or action if such settlement is made without
the consent of the Indemnitor, which consent shall not be withheld unreasonably.
The failure to deliver written notice to the Indemnitor within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such Indemnitor of any liability to the
Indemnitee under this Article 17. At the Indemnitor's request, the Indemnitee
under this Article 17, and its employees and agents, shall cooperate fully with
the Indemnitor and its legal representatives in the investigation and defense of
any action, claim or liability covered by this indemnification and provide full
information with respect thereto.
ARTICLE 18 -- BANKRUPTCY
All rights and licenses granted under or pursuant to this AGREEMENT by
each party are, and shall otherwise be deemed to be, for purposes of Section
365(n) of Title 11, United States Code (the "Bankruptcy Code"), licenses of
rights to "intellectual property" as defined under Section 101(60) of the
Bankruptcy Code. The parties agree that LICENSEE shall retain and may fully
exercise all of its rights and elections under the Bankruptcy Code.
ARTICLE 19 -- TERM AND TERMINATION
19.1 TERM.
19.1.1 TERM OF AGREEMENT. This AGREEMENT shall commence
upon the EFFECTIVE DATE and shall, unless sooner terminated pursuant to any
other provision of this AGREEMENT, continue in full force and effect until
the latest of (i) the end of the RESEARCH TERM, or (ii) the date upon which
LICENSEE ceases to have one or more PRODUCTS in active DEVELOPMENT or
commercialization, or (iii) for as long as royalties are payable according to
the provisions of Article 7 herein. The licenses granted herein to LICENSEE
shall expire on a country-by-country and PRODUCT-by-PRODUCT basis, once ORTHO
has paid royalties for the full period under which such royalty payments are
due under Section 7.1 hereunder, and ORTHO and its AFFILIATES shall
thereafter have a [**], irrevocable, non-exclusive license under the KOSAN
KNOW-HOW to make, have made, USE, SELL and HAVE SOLD PRODUCTS.
19.1.2 TERM AND TERMINATION OF RESEARCH PROGRAM.
(a) TERM. Unless earlier terminated as set forth in
Section 19.1.2(b), the term of the RESEARCH PROGRAM shall be as set forth in
Section 2.5, above.
(b) PERMISSIVE TERMINATION. With [**]prior written
notice to KOSAN, LICENSEE may terminate the RESEARCH PROGRAM; provided,
however, that no
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such termination shall be effective prior to the date twenty-four (24) months
following the EFFECTIVE DATE.
(c) WIND-DOWN PAYMENT. At the end of the RESEARCH
TERM, ORTHO shall pay to KOSAN a "wind-down" payment equal to [**] percent
([**]%) of the amount of RESEARCH FUNDING paid to KOSAN by LICENSEE in the
twelve (12) months prior to the expiration of the RESEARCH TERM; provided,
however, that if LICENSEE gave KOSAN prior written notice that the RESEARCH
PROGRAM would not be extended (by exercise of the option in Section 2.5(ii)
or otherwise), then the amount of the "wind-down" payment shall be reduced as
follows: (i) if such prior notice was given at least [**] prior to the end of
the RESEARCH TERM, then ORTHO shall not owe any "wind-down" payment, and
(ii) if such notice was given less than [**] prior to the end of the RESEARCH
PROGRAM, then the wind-down payment shall be reduced by [**] for each full
month between the date KOSAN receives such written notice and the expiration
or termination of the RESEARCH TERM. Notwithstanding the above, it is
understood that if the Fast Track PROJECT is not extended beyond the first
anniversary of the AGREEMENT, then payments made by RWJPRI for the Fast Track
Project shall not be included in the calculation of the "wind-down" payment.
It is further understood and agreed that no "wind-down" payment shall be due
if the RESEARCH TERM remains in effect until the fourth anniversary of the
EFFECTIVE DATE.
19.1.3 TERMINATION OF SCREENING. With [**] prior written
notice to KOSAN, RWJPRI may terminate the EXCLUSIVE SCREENING PERIOD and/or
the NON-EXCLUSIVE SCREENING PERIOD. In the former case, RWJPRI's right to
exclusively screen the [**] shall terminate as of the effective date of such
notice, and in the latter case RWJPRI's right to screen the [**] for any
activity shall terminate as of the effective date of such notice.
19.2 TERMINATION OF THE AGREEMENT.
19.2.1 PERMISSIVE TERMINATION FOLLOWING RESEARCH TERM.
After the end of the RESEARCH TERM, LICENSEE may (i) terminate this AGREEMENT
in its entirety or (ii) terminate this AGREEMENT as to any PRODUCT, upon [**]
written notice to KOSAN. At its sole discretion, KOSAN may on receipt of such
notice from LICENSEE immediately accelerate such termination of this
AGREEMENT or PRODUCT, as the case may be, at any time within such [**] period.
19.2.2 FAILURE TO DESIGNATE [**]. In the event that
LICENSEE has not designated at least one [**] as a LICENSED COMPOUND prior to
the end of the NON-EXCLUSIVE SCREENING PERIOD, then the AGREEMENT shall
automatically terminate concurrently with the end of the NON-EXCLUSIVE
SCREENING PERIOD.
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19.2.3 MATERIAL BREACH. Notwithstanding any other
provisions of this AGREEMENT either party, at its option, may terminate this
AGREEMENT on [**] prior written notice served by one party should the other
party fail to comply with or perform its obligations hereunder, unless such
failure or non-performance is corrected within the [**] period following
notification, or such extended period as may be agreed between the parties.
In the event that KOSAN fails to comply with or perform its obligations
hereunder during the RESEARCH TERM, LICENSEE may, at its option, terminate
the RESEARCH PROGRAM, and not the AGREEMENT, on [**] prior written notice,
unless such failure or non-performance is corrected within the [**] period
following notification or such extended period as may be agreed by the
parties. Failure to terminate this AGREEMENT following breach or failure to
comply with this AGREEMENT shall not constitute a waiver of a party's
defenses, rights or causes of action arising from such or any future breach
or noncompliance.
19.2.4 BANKRUPTCY. If either party should be adjudicated
bankrupt, file a voluntary petition in bankruptcy, have filed against it a
petition for bankruptcy or reorganization unless such petition is dismissed
within [**] of filing, make a general assignment for the benefit of
creditors, enter into a procedure of winding up to dissolution, or should a
Trustee or Receiver be appointed for its business assets or operations, the
other party shall be entitled to terminate this AGREEMENT forthwith by giving
written notice to the first party.
19.3 EFFECT OF TERMINATION.
19.3.1 ACCRUED RIGHTS AND OBLIGATIONS. Termination of this
AGREEMENT for any reason shall not release any party hereto from any liability
which, at the time of such termination, has already accrued to the other party
or which is attributable to a period prior to such termination, nor preclude
either party from pursuing any rights and remedies it may have hereunder or at
law or in equity which accrued or are based upon any event occurring prior to
such termination.
19.3.2 RETURN OF CONFIDENTIAL INFORMATION. Upon any
termination of this AGREEMENT, LICENSEE and KOSAN shall promptly return to the
other party all Confidential Information received from the other party (except
one copy of which may be retained by legal counsel solely for purposes of
monitoring compliance with the provisions of Article 9 and archival purposes).
19.3.3 LICENSES.
(a) In the event that the AGREEMENT terminates for
any reason prior to the end of the RESEARCH PROGRAM other than pursuant to
Section 19.1.2(b), the AGREEMENT and the licenses granted to LICENSEE in
Sections 4.1 and 4.3 (and any license to its AFFILIATES under Section 4.6) shall
terminate concurrently.
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(b) In the event of any termination pursuant to
Section 19.1.2(b), 19.1.3 or 19.2.2, the licenses granted to LICENSEE in
Sections 4.1 and 4.2.1 shall terminate concurrently, and the license granted
to LICENSEE in Section 4.3 (and any license to its AFFILIATES under Section
4.6) shall terminate concurrently with respect to all [**] other than those
designated as LICENSED COMPOUNDS pursuant to Section 3.5 prior to the
effective date of such termination. In the event of any termination of this
AGREEMENT pursuant to Section 19.2.1(ii) only with respect to one or more
PRODUCTS, the licenses granted to LICENSEE shall terminate only with respect
to such PRODUCT and the LICENSED COMPOUNDS and/or DERIVATIVES contained in
such PRODUCTS.
(c) In the event of any termination of this AGREEMENT
in its entirety by LICENSEE pursuant to Section 19.2.1(i), 19.2.3 or 19.2.4, the
licenses granted in Article 4 shall terminate concurrently.
(d) In the event of any termination of this AGREEMENT
by KOSAN pursuant to Section 19.2.3 or 19.2.4, the licenses granted to LICENSEE
(and to its AFFILIATES) under this AGREEMENT shall terminate concurrently.
(e) It is understood that, except as provided in
Section 19.3.3(a), (c) and (d) above, the licenses granted in Section 4.2.2 and
4.2.3 shall survive until the end of the NON-EXCLUSIVE SCREENING PERIOD.
(f) In the event of any termination of the RESEARCH
PROGRAM (but not the AGREEMENT) by LICENSEE pursuant to Section 19.2.3 due to
uncured material breach by KOSAN, or a termination pursuant to Section 19.1.3,
any licenses then in effect with respect to LICENSED COMPOUNDS designated as
LICENSED COMPOUNDS pursuant to section 3.5.1, or identified as CLOSE STRUCTURAL
ANALOGS pursuant to Section 3.5.5, before the date of such termination shall
remain in effect pursuant to the terms and conditions of this AGREEMENT, but
RWJPRI shall not receive any further licenses under this AGREEMENT.
19.3.4 REVERSION. in the event that the licenses to LICENSEE
(and its AFFILIATES) terminate as described in Section 19.3.3 above, then
LICENSEE undertakes the following:
(a) to deliver to KOSAN any KOSAN KNOW-HOW in its
possession;
(b) not to use the KOSAN KNOW-HOW as long as it has
to be kept confidential pursuant to Article 9 hereunder;
(c) at KOSAN's request, to transfer (and grant the
right to access, cross-reference and use, without charge) all RWJPRI KNOW-HOW,
MARKETING
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AUTHORIZATIONS. pre-clinical and clinical data, and regulatory filings relating
to LICENSED COMPOUNDS and PRODUCTS (including clinical studies and other
supporting information, and any written communications to and with the FDA and
other comparable agencies), and any data relating to reportable adverse events
in respect of PRODUCTS for use in connection with developing and
commercializing, and submitting regulatory filings for, PRODUCTS for which
LICENSEE does not retain rights under this AGREEMENT and other products;
(d) to the extent requested by KOSAN, to transfer to
KOSAN responsibility for and control of ongoing DEVELOPMENT work, including
contracts with THIRD PARTIES for such work, in an expeditious and orderly manner
with the costs for such work assumed by KOSAN as of the date such contracts are
transferred; and
(e) to grant to KOSAN an irrevocable, exclusive,
worldwide paid-up license under RWJPRI PATENT RIGHTS and RWJPRI KNOW-HOW owned
or controlled by LICENSEE, with the right to grant and authorize sublicenses, to
make, have made, USE, SELL and HAVE SOLD LICENSED COMPOUNDS and PRODUCTS, and
provide KOSAN with all reasonable assistance to transfer the RWJPRI KNOW-HOW and
enable KOSAN to continue DEVELOPMENT and to make, have made, USE, SELL and HAVE
SOLD LICENSED COMPOUNDS and PRODUCTS.
(f) It is understood that, in the event of a
termination of licenses pursuant to Sections 19.3.3(b) or (f) wherein LICENSEE
retains certain licenses, the foregoing provisions of Section 19.3.4 shall apply
only to the terminated rights and licenses.
19.4 SURVIVAL. Sections 2.4.5(d), 2.6.5, 2.8, 3.3.3, 3.4, 3.5.5, 3.7,
4.5, 4.12, 4.13, 4.14, 7.1, 7.5, 7.6, 7.7, 7.9, 7.10, 7.11, 10.1, 11.3, 11.4,
12.1, 12.4, 14.7, 18, 19.3 and 19.4 and the last sentence of Section 4.4, and
Articles 9, 13, 17, 21 and 22 shall survive the expiration and any termination
of the AGREEMENT for any reason.
ARTICLE 20 -- ASSIGNMENT
20.1 PERMITTED ASSIGNMENTS. This AGREEMENT or any interest herein shall
not be assigned or transferred, in whole or in part, by either party hereto
without the prior written consent of the other party hereto. However, without
securing such prior written consent, either party may assign this AGREEMENT to
an AFFILIATE or a successor of all or substantially all of its business to which
this AGREEMENT relates provided, that no such assignment shall be binding and
valid until and unless the assignee shall have assumed in a writing, delivered
to the non-assigning party, all of the duties and obligations of the assignor,
and, provided, further, that the assignor shall remain liable and responsible to
the non-assigning party hereto for the performance and observance of all such
duties and obligations.
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20.2 BINDING EFFECT. This AGREEMENT shall be binding upon, and inure
to, the benefit of the parties hereto, and to the benefit of any permitted
assignee or successor. LICENSEE shall also have the right, whether or not it
elects to terminate this AGREEMENT, to require that all reasonable steps it may
reasonably specify be taken to prevent disclosure of its confidential
information to an acquiror or assignee of KOSAN in any way reasonably adverse to
its interests.
ARTICLE 21 -- DISPUTE RESOLUTION
21.1 DISCUSSION. The parties shall attempt in good faith to resolve
any dispute arising out of or relating to this AGREEMENT promptly by
negotiations between the Chief Executive Officer of KOSAN and LICENSEE (who
shall be the Chairman of RWJPRI for issues relating primarily to research and
development, and the President of ORTHO for issues relating to PRODUCT
commercialization), who each have authority to settle the controversy and who
are at a higher level of management than the persons with direct
responsibility for administration of this AGREEMENT. Any party may give the
other party written notice of any dispute not resolved in the normal course
of business. Within [**] after receipt of the notice, the receiving party
shall submit to the other a written response. The notice and the response
shall include a detailed statement of each party's position and a summary of
arguments supporting that position. Within [**] after delivery of the
response, Chief Executive Officer of KOSAN and LICENSEE (who shall be the
Chairman of RWJPRI for issues relating primarily to research and development
and the President of ORTHO for issues relating to PRODUCT commercialization)
shall meet at a mutually acceptable time and place, and thereafter as often
as they reasonably deem necessary, to attempt to resolve the dispute. All
reasonable requests for information made by one party to the other will be
honored. All negotiations pursuant to this clause will be confidential and
shall be treated as compromise and settlement negotiations for the purposes
of the Federal Rules of Evidence and all other evidentiary purposes.
21.2 MEDIATION. If the matter has not been resolved within [**] of
the disputing party's notice, or if the Chief Executive Officer of KOSAN and
LICENSEE (who shall be the Chairman of RWJPRI for issues relating primarily
to research and development and the President of ORTHO for issues relating to
PRODUCT commercialization) fail to meet within the time frame set forth in
Section 21.1, either party may initiate mediation of the dispute as set forth
in Section 21.2 of this AGREEMENT.
(a) Any dispute, controversy or claim arising out of or
related to this AGREEMENT, or the interpretation, application, breach,
termination or validity thereof, including any claim of inducement by fraud or
otherwise, shall, before submission to arbitration, first be mediated through
non-binding mediation in accordance with the Model Procedures for the Mediation
of Business Disputes promulgated by the Center for Public Resources ("CPR") then
in effect, except where those rules conflict with these provisions, in which
case these provisions control. The mediation shall be conducted in New York, New
York and shall be
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attended by a senior executive with authority, to resolve the dispute from each
of the operating companies that are parties.
(b) The mediator shall be an attorney specializing in business
litigation who has at least fifteen (15) years of experience as a lawyer with a
law firm of over twenty-five (25) lawyers or was a judge of a court of general
jurisdiction and who shall be appointed from the list of neutrals maintained by
CPR.
(c) The parties shall promptly confer in an effort to select a
mediator by mutual agreement. In the absence of such an agreement, the mediator
shall be selected from a list generated by CPR with each party, having the right
to exercise challenges for cause and two peremptory challenges within three
business days of receiving the CPR list.
(d) The mediator shall confer with the putties to design
procedures to conclude the mediation within no more than [**] after
initiation. Unless agreed upon by the parties in writing, under no
circumstances shall the commencement of arbitration under Section 21.3 be
delayed more than [**] by the mediation process specified herein.
(e) Each party, agrees to toll all applicable statutes of
limitation during the mediation process and not to use the period or pendency of
the mediation to disadvantage the other party procedurally or otherwise. All
negotiations pursuant to this clause will be confidential and shall be treated
as compromise and settlement negotiations for the purposes of the Federal Rules
of Evidence and all other evidentiary purposes.
21.3 ARBITRATION.
(a) Following the mediation procedures set forth in Section
21.2, Any dispute, claim or controversy arising from or related in any way to
this AGREEMENT or the interpretation, application, breach, termination or
validity, thereof, including any claim of inducement of this AGREEMENT by fraud
or otherwise, will be submitted for resolution to arbitration pursuant to the
commercial arbitration rules then pertaining of the Center for Public Resources
("CPR"), except where those rules conflict with these provisions, in which case
these provisions control. The arbitration will be held in San Francisco,
California.
(b) The panel shall consist of three (3) arbitrators chosen
from the CPR Panels of Distinguished Neutrals each of whom (i) is a lawyer
specializing in business litigation, with experience in litigation relating to
development and commercialization of pharmaceutical products and whom has never
represented any party hereto or any of its Affiliates and whom has at least
fifteen (15) years experience with a law from of over twenty-five (25) lawyers,
or (ii) was a judge of a court of general jurisdiction and who has never
represented either party hereto or any of its Affiliates.
-55-
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(c) The parties agree to cooperate (l) to obtain selection
of the arbitrators within [**] of initiation of the arbitration, (2) to meet
with the arbitrators within [**] of selection and (3) to agree at that
meeting or before upon procedures for discovery and as to the conduct of the
hearing which will result in the hearing being concluded within no more than
[**] after selection of the arbitrators and in the award being rendered
within [**] of the conclusion of the hearings, or of any post-hearing
briefing, which briefing will be completed by both parties within [**] after
the conclusion of the hearings. In the event no such agreement is reached,
the CPR will select arbitrators, allowing appropriate strikes for reasons of
conflict or other cause and three (3) peremptory challenges for each side.
The arbitrators shall set a date for the hearing, commit to the rendering of
the award within [**] of the conclusion of the evidence at the hearing, or of
any post-hearing briefing (which briefing will be completed by both sides in
no more than [**] after the conclusion of the hearings), and provide for
discovery according to these time limits, giving recognition to the
understanding of the parties hereto that they contemplate reasonable
discovery, including document demands and depositions, but that such
discovery be limited so that the time limits specified herein may be met
without undue difficulty. In no event will the arbitrators allow either side
to obtain more than a total of [**] of deposition testimony from all
witnesses, including both fact and expert witnesses. In the event multiple
hearing days are required, they will be scheduled consecutively to the
greatest extent possible.
(d) The arbitrators shall render their award following the
substantive law of California, without reference to principles of conflicts of
law. The arbitrators shall render an opinion setting forth findings of fact and
conclusions of law with the reasons therefor stated. A transcript of the
evidence adduced at the hearing shall be made and shall, upon request, be made
available to either party.
(e) To the extent possible, the arbitration hearings and award
will be maintained in confidence.
(f) Any United States District Court having jurisdiction of
the matter may enter judgment upon any award. In the event the panel's award
exceeds [**] Dollars ($[**]) in monetary, damages or includes or
consists of equitable relief, then the court shall vacate, modify or correct any
award where the arbitrators' findings of fact are clearly erroneous, and/or
where the arbitrators' conclusions of law are erroneous; in other words, it will
undertake the same review as if it were a federal appellate court reviewing a
district court's findings of fact and conclusions of law rendered after a bench
trial. An award for less than [**] Dollars ($[**]) in damages and
not including equitable relief may be vacated, modified or corrected only upon
the grounds specified in the Federal Arbitration Act. The parties consent to the
jurisdiction of the District Court for the enforcement of these provisions, the
entry of judgment on any award, and the vacatur, modification and correction of
any award as above specified.
-56-
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
(g) Each party has the right before or during the arbitration
to seek and obtain from the appropriate court provisional remedies such as
attachment, preliminary injunction, replevin, etc. to avoid irreparable harm,
maintain the status quo, or preserve the subject matter of the arbitration.
(h) EACH PARTY HERETO WAIVES ITS RIGHT TO TRIAL OF ANY ISSUE
BY JURY.
(i) SUBJECT TO THE PROVISIONS OF ARTICLE 17, EACH PARTY HERETO
WAIVES ANY CLAIM TO PUNITIVE, EXEMPLARY AND CONSEQUENTIAL DAMAGES FROM THE
OTHER.
ARTICLE 22 -- MISCELLANEOUS
22.1 ENTIRE AGREEMENT. Before signing this AGREEMENT the parties have
had numerous conversations, including preliminary discussions, formal
negotiations and informal conversations at meals and social occasions, and have
generated correspondence and other writings, in which the parties discussed the
transaction which is the subject of this AGREEMENT and their aspirations for its
success. In such conversations and writings, individuals representing the
parties may have expressed their judgments and beliefs concerning the
intentions, capabilities, and practices of the parties, and may have forecasted
future events. The parties recognize that such conversations and writings often
involve an effort by both sides to be positive and optimistic about the
prospects for the transaction. It is also recognized, however, that all business
transactions contain an element of risk, as does the transaction contemplated by
this AGREEMENT and that it is normal business practice to limit the legal
obligations of contracting parties to only those promises and representations
which are essential to their transaction so as to provide certainty as to their
respective future rights and remedies. Accordingly, it is agreed that this
AGREEMENT constitutes the entire agreement and understanding between the parties
as to the legal undertakings hereunder. All prior negotiations, representations,
agreements, contracts, offers and earlier understandings of whatsoever kind,
whether written or oral between KOSAN and LICENSEE in respect of this AGREEMENT,
are superseded by, merged into, extinguished by and completely expressed by this
AGREEMENT. No aspect, part or wording of this AGREEMENT may be modified except
by mutual agreement between the KOSAN and LICENSEE taking the form of an
instrument in writing signed and dated by duly authorized representatives of
both KOSAN and LICENSEE.
22.2 NOTICES. All communications, reports, payments and notices
required by this AGREEMENT by one party to the other shall be addressed to the
parties at their respective addresses set forth below or to such other address
as requested by either party by notice in writing to the other.
-57-
<PAGE>
If to KOSAN:
KOSAN BIOSCIENCES, INC.
1450 Rollins Road
Burlingame, California 94010
Attn: President
Telefax No.: (650) 343-2931
With a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Arm: Michael S. Rabson
Telefax No.: (415) 496-4006
If to RWJPRI, ORTHO or LICENSEE:
ORTHO-MCNEIL PHARMACEUTICAL CORPORATION
1000 U.S. Route 202,
Raritan. New Jersey 08869
Attention: President
Telefax No.: (908) 218-1416
With a copy to:
Chief Patent Counsel
Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08903
Telefax No.: (908) 524-2808
AND
R.W. JOHNSON PHARMACEUTICAL RESEARCH
INSTITUTE
920 U.S. Route 202
Raritan. New Jersey 08869
Attention: Chairman
Telefax No.: (908) 704-9486
-58-
<PAGE>
All such notices, reports, payments and communications shall be made in writing
by telefax to the numbers set forth above or by First Class mail, postage
prepaid, and shall be considered made as of the date of deposit with the United
States Post Office or when received by telefax.
22.3 GOVERNING LAW. All matters affecting the interpretation, validity,
and performance of this AGREEMENT, including any arbitration proceeding
conducted pursuant to Article 21, shall be governed by the internal laws of the
State of California without regard to its conflict of law principles, except as
to any issue which by California law depends upon the validity, scope or
enforceability of any patent within the PATENT RIGHTS, which issue shall be
determined in accordance with the applicable patent laws of the country of such
patent.
22.4 SEVERABILITY. Should any part or provision of this AGREEMENT be
held unenforceable or in conflict with the law of any jurisdiction, the validity
of the remaining part or provisions shall not be affected by such holdings;
provided that the parties shall use their best efforts to negotiate an
enforceable provision that most nearly reflects the parties original intentions.
22.5 WAIVER. The waiver by either party, whether express or implied, of
any provisions of this AGREEMENT, or of any breach or default of either party,
shall not be construed to be a continuing waiver of such provision, or of any
succeeding breach or default or of a waiver of any other provisions of this
AGREEMENT.
22.6 NO REPRESENTATIONS. Notwithstanding anything to the contrary, in
this AGREEMENT, nothing herein contained shall be construed as a representation
by KOSAN that the PATENT RIGHTS can be or will be used to prevent the
importation by a THIRD PARTY hereto of a product into or the SALE or USE by a
THIRD PARTY hereto of a product in any country within the PATENT RIGHTS where
such product shall have been placed in commerce under circumstances which
preclude the use of the PATENT RIGHTS to prevent such importation or SALE or USE
by reason of any applicable law or treaty.
22.7 FORCE MAJEURE. Notwithstanding any other provisions of this
AGREEMENT, neither of the parties hereto shall be liable in damages or have
the right to terminate this AGREEMENT for any delay or default in performing
hereunder if such delay or default is caused by conditions beyond its control
including, but not limited to acts of God, governmental restrictions, wars,
or insurrections, strikes, floods, earthquakes, work stoppages and/or lack of
materials, and any time for performance hereunder shall be extended for the
actual time of delay caused by such occurrence; provided, however, that the
party suffering such delay or default shall notify the other party in writing
of the reasons for the delay or default and shall diligently seek to correct
such conditions, if such reasons for delay or default continuously exist for
[**], this AGREEMENT may be terminated by either party.
-59-
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
22.8 INDEPENDENT CONTRACTORS. It is understood that both parties hereto
are independent contractors and are engaged in the operation of their own
respective businesses, and neither hereto is to be considered the agent or
partner of the other for any purpose whatsoever. Neither party has any authority
to enter into any contracts or assume any obligations for the other party or
make any warranties or representations on behalf of the other party.
22.9 ADVICE OF COUNSEL. KOSAN and LICENSEE have each consulted counsel
of their choice regarding this AGREEMENT, and each acknowledges and agrees that
this AGREEMENT shall not be deemed to have been drafted by one party or another
and will be construed accordingly.
22.10 PATENT MARKING. LICENSEE agrees to mark and have its AFFILIATES
and SUBLICENSEES mark all PRODUCTS they sell or distribute pursuant to this
AGREEMENT in accordance with the applicable statute or regulations in the
country, or countries of manufacture and sale thereof.
22.11 COMPLIANCE WITH LAWS. Each party, shall furnish to the other
party any information requested or required by that party during the term of
this AGREEMENT or any extensions hereof to enable that party, to comply with the
requirements of any U.S. or foreign federal, state and/or government agency.
Each party shall comply with all applicable U.S., foreign, state, regional and
local laws, rules and regulations relating to its activities to be performed
pursuant to this AGREEMENT, including without limitation, the United States
Foreign Corrupt Practices Act, United States export regulations and such other
United States and foreign laws and regulations as may be applicable, and to
obtaining all necessary approvals, consents and permits required by the
applicable agencies of the government of the United States and foreign
jurisdictions.
22.12 FURTHER ASSURANCES. At any time or from time to time on and after
the date of this AGREEMENT, each party shall at the request of the other party
(i) deliver to such party such records, data or other documents consistent with
the provisions of this AGREEMENT, (ii) execute, and deliver or cause to be
delivered, all such consents, documents or further instruments of transfer or
license, and (iii) take or cause to be taken all such actions, as the requesting
party may reasonably deem necessary or desirable in order for the requesting
party to obtain the full benefits of this AGREEMENT and the transactions
contemplated hereby.
22.13 JOINT AND SEVERAL LIABILITY: PERFORMANCE WARRANTY.
Notwithstanding any other provision of this AGREEMENT, it is understood and
agreed that ORTHO and RWJPRI shall be jointly and severally liable for the
obligations of ORTHO and RWJPRI under this AGREEMENT. LICENSEE hereby warrants
and guarantees the performance of any and all rights and obligations of this
AGREEMENT by its AFFILIATE(S) and SUBLICENSEE(S) including, without limitation,
performance under any license granted pursuant to Section 4.3, 4.5, or 4.6
above.
-60-
<PAGE>
22.14 USE OF SINGULAR. As used in this AGREEMENT, singular includes the
plural and plural includes the singular, wherever so required by the context.
22.15 HEADINGS. The captions to the several Sections and Articles
hereof are not a part of this AGREEMENT, but are included merely for convenience
of reference only and shall not affect its meaning or interpretation.
22.16 COUNTERPARTS. This AGREEMENT may be executed in two counterparts,
each of which shall be deemed an original and which together shall constitute
one immanent.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and duly executed this AGREEMENT on the date(s) indicated below, to be effective
the day and year first above written.
For and on Behalf of KOSAN BIOSCIENCES, INC.
By: /s/ Daniel V. Santi
-----------------------------------------
Name: Daniel Santi
---------------------------------------
Title: Chairman
--------------------------------------
Date: Sept 28-98
---------------------------------------
For and on Behalf of ORTHO-MCNEIL PHARMACEUTICAL INC.
By: /s/ Robert G. Savage
-----------------------------------------
Robert G. Savage, President
Date: 9-29-98
---------------------------------------
For and on Behalf of THE R.W. JOHNSON PHARMACEUTICALS RESEARCH INSTITUTE
By: /s/ William A.M. Duncan
-----------------------------------------
William A.M. DunCan, Chairman
Date: 9-29-28
---------------------------------------
-61-
<PAGE>
Exhibit A
Research Plan
PART I. FAST -TRACK PROJECT
OBJECTIVES AND SPECIFIC AIMS
[**]
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TO THE OMITTED PORTIONS.
<PAGE>
[**]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
REFERENCES
Jacobsen, J.R., Hutchinson, C.R., Cane, D.E., & Khosla, C. (1997)
"Precursor-directed biosynthesis of erythromycin analogs by an engineered
polyketide synthase," SCIENCE 277: 367-369.
Zotchev, S.B., & Hutchinson, C.R. (1995) "Cloning and heterologous expression of
the genes encoding nonspecific electron transport components for a cytochrome
P450 system of SACCHAROPOLYSPORA ERYTHRAEA involved in erythromycin production,"
GENE 156: 101-106.
PART II. SAR PROJECT
OBJECTIVE AND SPECIFIC AIMS
[**]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
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[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
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Confidential Information
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
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Confidential Information
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
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Confidential Information
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
REFERENCES
Andersen, J.F., Tatsuta, K., Gunji, H., Ishiyama, T., & Hutchinson, C.R. (1993)
"Substrate specificity of 6-deoxyerythronolide B hydroxylase, a bacterial
cytochrome P450 of erythromycin A biosynthesis," BIOCHEMISTRY 32:1905-1913.
Bright, G.M., Nagel, A.A., Bordner, J., ET AL. (1988) "Synthesis, IN VITRO and
IN VIVO activity of novel 9-deoxo-9a-aza-9a-homoerythromycin A derivatives; a
new class of macrolide antibiotics, the azalides," J.
ANTIBIOTICS 41: 1029-1047.
Griesgraber, G., Or Y.S., Chu, D.T.W., Nilius, A.M., Johnson, P.M., Flamm, R.K.,
Henry, R.F., & Plattner, J.J. (1996) "3-keto-11,12 carbazate derivatives of
6-O-methyl erythromycin A: synthesis and IN VITRO activity," J.
ANTIBIOTICS 49(5): 465-477.
Jacobsen, J.R., Hutchinson, C.R., Cane, D.E., & Khosla, C. (1997)
"Precursor-directed biosynthesis of erythromycin analogs by an engineered
polyketide synthase," SCIENCE 277: 367-369.
Kao, C.M., Luo, G., Katz, L., Cane, D.E., & Khosla, C. (1995) "Manipulation of
macrolide ring size by directed mutagenesis of a modular polyketide synthase,"
J. AM. CHEM. SOC. 117: 9105-9106.
Kealey, J.T., Liu, L., Santi, D.V., Betlach, M.C., & Barr, P.J. (1997)
"Production of a polyketide natural product in non-polyketide producing
prokaryotic and eukaryotic hosts," PROC. NATL. ACAD. SCI. USA, in press.
Liu, L., Thamchaipenet, A., Fu, H., Betlach, M., & Ashley, G. (1997)
"Biosynthesis of 2-nor-6-deoxyerythronolide B by rationally designed domain
substitution," J. AM. CHEM. SOC. 119: 10553-10554.
McDaniel, R., Kao, C.M., Fu, H., Hevezi, P., Gustafsson, C., Betlach, M.,
Ashley, G., Cane, D.E., & Khosla, C. (1997) "Gain-of-function mutagenesis of a
modular polyketide synthase," J. AM. CHEM. SOC. 119: 4309-4310.
Morimoto, S., Takahashi, Y., Watanabe, Y., & Omura, S. (1984) "Chemical
modification of erythromycins. I. Synthesis and antibacterial activity of
6-O-methylerythromycins A," J., ANTIBIOTICS 37:187-189.
Page 8 of 13
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
Ruan, X., Pereda, A., Stassi, D., Zeidner, D., Summers, R.G., Jackson, M.,
Shivakumar, A., Kakavas, S., Staver, M.J., Donadio, S., & Katz, L. (1997)
"Acyltransferase Domain substitutions in erythromycin polyketide synthase yield
novel erythromycin derivatives, "J. BACTERIOLOGY 179:6416-6425.
Zotchev, S.B., & Hutchinson, C.R. (1995) "Cloning and heterologous expression of
the genes encoding nonspecific electron transport components for a cytochrome
P450 system of SACCHAROPOLYSPORA ERYTHRAEA involved in erythromycin production,"
GENE 156: 101-106.
PART III. CRITERIA FOR NCES
[**]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
[**]
PART IV. FTE TABLES AND TIMELINES
The table below shows the number and cost of Kosan FTEs to be applied in the
Fast-Track and SAR Projects though the course of the Research Program.
[**]
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<PAGE>
[**]
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<PAGE>
Exhibit B
[**]
<TABLE>
<CAPTION>
- ----------------------------------------------------- ---------------- ---------------- ----------------
KOS002 CONCENTRATION DATA
- ----------------------------------------------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
WELL EXTRACT PEAK RT COMPOUND MW CONC(mM)
<S> <C> <C> <C> <C> <C>
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A2 KE-001 7.55 KA-058 302 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A2 KE-001 11.41 KA-060 302 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A2 KE-001 11.81 KA-061 302 1.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A2 KE-001 14.65 KA-042 284 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A3 KE-007 10.60 KA-100 368 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A3 KE-007 11.90 KA-118 386 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A3 KE-007 15.25 KA-119 386 2.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A3 KE-007 15.44 KA-120 386 0.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A3 KE-007 19.17 KA-075 324 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A4 KE-014 6.31 KA-068 318 2.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A4 KE-014 7.52 KA-069 318 2.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A4 KE-014 10.28 KA-056 300 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A4 KE-014 10.93 KA-057 300 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A4 KE-014 21.75 KA-031 270 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A5 KE-023 6.37 KA-068 318 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A5 KE-023 7.57 KA-069 318 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A5 KE-023 10.33 KA-056 300 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A6 KE-030 15.32 KA-119 386 1.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A6 KE-030 15.78 KA-120 386 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A7 KE-038 10.47 KA-100 368 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A7 KE-038 11.95 KA-118 386 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A7 KE-038 15.28 KA-119 386 4.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A7 KE-038 15.76 KA-120 386 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A7 KE-038 25.08 KA-074 322 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 10.58 KA-100 368 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 12.93 KA-102 368 1.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 15.35 KA-119 386 4.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 15.83 KA-120 386 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 19.25 KA-075 324 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 23.01 KA-121 386 0.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 23.66 KA-122 386 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A8 KE-045 25.06 KA-108 372 3.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 11.43 KA-101 368 1.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 13.38 KA-005 182 1.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
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- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 13.88 KA-150 453 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 14.78 KA-151 453 0.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 15.03 KA-127 392 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 15.60 KA-125 390 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 16.18 KA-128 392 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 16.71 KA-018 236 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 18.18 KA-138 413 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 18.70 KA-136 411 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 19.76 KA-142 427 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 20.31 KA-139 413 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 20.75 KA-140 413 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 21.25 KA-129 392 2.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 22.24 KA-126 390 1.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 23.65 KA-137 411 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 25.00 KA-109 374 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A9 KE-073 26.58 KA-088 348 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A10 K005-83 26.73 KA-025 254 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
A 11 K005-92D [**] 390 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 7.82 KA-058 302 1.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 11.30 KA-059 302 0.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 12.05 KA-061 302 4.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 14.87 KA-042 284 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 19.57 KA-052 298 1.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 21.13 KA-053 298 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 21.30 KA-054 298 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 21.98 KA-064 312 8.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 22.96 KA-044 286 2.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 23.75 KA-038 283 3.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 24.53 KA-055 298 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 25.40 KA-040 283 5.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 26.76 KA-025 254 9.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 27.10 KA-050 297 2.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 28.05 KA-022 240 3.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B2 KE-002 29.21 KA-023 240 2.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 10.27 KA-100 368 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 13.71 KA-150 453 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 14.64 KA-046 290 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 15.19 KA-119 386 1.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 15.71 KA-120 386 0.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 16.55 KA-135 411 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 18.58 KA-136 411 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
B3 KE-060 26.28 KA-114 382 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Page 2 of 10
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B4 KE-016 12.78 KA-102 368 9.3
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B4 KE-016 15.97 KA-105 370 2.5
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B4 KE-016 16.73 KA-106 370 0.4
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B4 KE-016 21.43 KA-089 350 0.5
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B5 KE-064 6.38 KA-068 318 1.1
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B5 KE-064 7.59 KA-069 318 0.5
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B5 KE-064 10.15 KA-065 315 2.2
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B5 KE-064 10.33 KA-056 300
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B5 KE-064 11.90 KA-001 166 0.3
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B5 KE-064 12.26 KA-002 166 0.1
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B5 KE-064 16.58 KA-030 260 0.4
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B6 KE-031 9.83 KA-116 384 0.7
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B6 KE-031 11.86 KA-098 366 0.3
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B7 KE-039 8.00 KA-058 302 4.7
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B7 KE-039 11.81 302 0.3
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B7 KE-039 12.23 KA-061 302 4.8
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B7 KE-039 14.97 KA-042 284 3.0
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B8 KE-046 10.00 KA-115 384 2.8
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B9 KE-075 14.93 KA-148 450 1.0
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B9 KE-075 15.96 KA-153 464 0.4
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B9 KE-075 16.65 KA-146 448 0.1
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B9 KE-075 17.56 KA-154 464 0.2
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B10 K005-80 19.30 KA-052 298 1.0
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
B11 K005-92E [**] 924 1.0
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 13.13 KA-083 342 1.3
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 13.68 KA-051 298 0.7
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 14.38 KA-093 356 0.4
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 15.08 KA-095 360 0.1
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 16.30 KA-009 196 0.5
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 16.51 KA-010 196 0.9
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 16.96 KA-079 332 0.2
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 17.55 KA-080 332 0.2
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 18.98 KA-086 346 0.3
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C2 KE-058 19.41 KA-087 346 0.2
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C3 KE-062 6.15 KA-026 258 0.7
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
C3 KE-062 7.86 KA-058 302 0.8
- ------------------- ---------------- ---------------- -------------------- ------------ ----------------
Page 3 of 10
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 11.40 KA-059 302 0.7
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 12.07 KA-061 302 3.8
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 14.88 KA-042 284 2.6
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 16.51 KA-013 220 0.5
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 19.08 KA-052 298 6.7
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 19.51 KA-036 283 4.4
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 21.30 KA-037 283 2.0
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 22.85 KA-121 386 0.5
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 23.78 KA-038 283 1.1
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 25.00 KA-039 283 0.9
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C3 KE-062 26.76 KA-025 254 1.5
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C4 KE-017 9.68 KA-115 384 0.8
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C5 KE-063 6.48 KA-068 318 6.8
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C5 KE-063 7.78 KA-069 318 3.2
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C5 KE-063 10.42 KA-065 314 0.3
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C5 KE-063 14.83 KA-151 453 0.9
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C6 KE-032 10.08 KA-024 242 0.2
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C6 KE-032 15.10 KA-119 386 1.5
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C6 KE-032 15.58 KA-120 386 0.3
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C7 KE-068 10.28 KA-056 300 1.5
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C7 KE-068 10.96 KA-057 300 1.4
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C8 KE-047 8.12 KA-058 302 0.4
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C8 KE-047 11.48 KA-059 302 1.1
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C8 KE-047 12.25 KA-061 302 2.0
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C8 KE-047 14.62 KA-041 284 1.4
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C8 KE-047 15.01 KA-042 284 0.2
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C9 KE-053 5.35 KA-067 318 0.7
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C9 KE-053 10.95 KA-152 462 0.5
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C9 KE-053 14.03 KA-148 450 0.4
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C9 KE-053 15.73 KA-153 464 0.7
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C9 KE-053 16.00 KA-146 448 0.7
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C10 K005-88 KA-092 354
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
C11 K005-92F erythromycin A 734 1.0
- ------------------- --------------- ------------------- --------------- --------------- ----------------
- ------------------- --------------- ------------------- --------------- --------------- ----------------
D2 KE-057 5.28 KA-067 318 0.3
- ------------------- --------------- ------------------- --------------- --------------- ----------------
D2 KE-057 5.76 KA-032 276 0.3
- ------------------- --------------- ------------------- --------------- --------------- ----------------
D2 KE-057 6.18 KA-070 319 0.9
- ------------------- --------------- ------------------- --------------- --------------- ----------------
D2 KE-057 7.43 KA-071 319 0.2
- ------------------- --------------- ------------------- --------------- --------------- ----------------
Page 4 of 10
<PAGE>
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D2 KE-057 12.60 KA-141 421 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D2 KE-057 13.13 KA-083 342 1.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D2 KE-057 13.73 KA-150 453 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D2 KE-057 14.41 KA-132 407 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D2 KE-057 14.80 KA-133 409 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D2 KE-057 18.58 KA-136 411 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 5.73 KA-016 234 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 7.62 KA-058 302 1.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 8.68 KA-165 302 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 11.20 KA-059 302 1.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 11.90 KA-061 302 1.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 12.46 KA-072 322 1.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 14.76 KA-041 284 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 17.15 KA-020 304 0.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 19.20 KA-052 298 0.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 19.65 KA-164 620 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 21.31 KA-163 618 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D3 KE-009 26.70 KA-025 254 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D4 KE-018 7.95 KA-058 302 1.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D4 KE-018 11.75 KA-060 302 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D4 KE-018 12.12 KA-061 302 2.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D4 KE-018 14.93 KA-042 284 1.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D5 KE-025 10.05 KA-115 384 4.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D5 KE-025 15.05 KA-017 234 0.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D5 KE-025 17.85 KA-111 380 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D6 KE-033 5.75 KA-012 210 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D6 KE-033 9.82 KA-115 384 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D6 KE-033 11.93 KA-098 366 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 6.25 KA-026 258 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 19.12 KA-052 298 5.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 19.45 KA-036 283 5.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 21.25 KA-037 283 1.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 23.73 KA-038 283 2.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 25.25 KA-040 283 3.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 26.88 KA-025 254 5.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 28.09 KA-022 240 4.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 29.20 KA-023 240 3.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D7 KE-042 32.00 KA-158 508 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D8 KE-048 12.03 KA-077 326 1.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D8 KE-048 14.63 KA-041 284 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Page 5 of 10
<PAGE>
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D9 KE-074 14.91 KA-148 450 1.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D9 KE-074 15.96 KA-153 464 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D10 K003-89 KA-064 312 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
D11 K005-92G [**] 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 11.96 KA-061 302 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 18.56 KA-094 358 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 19.21 KA-052 298 1.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 23.75 KA-043 284 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 24.85 KA-035 282 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 25.84 KA-021 240 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 26.78 KA-025 254 2.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 28.06 KA-022 240 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E2 KE-004 29.23 KA-023 240 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 7.86 KA-058 302 0.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 12.11 KA-061 302 1.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 14.68 KA-049 291 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 14.90 KA-097 365 1.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 18.60 KA-136 411 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 19.13 KA-052 298 5.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 19.43 KA-036 283 7.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 21.25 KA-037 283 4.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 23.77 KA-038 283 4.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 24.90 KA-078 330 1.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 25.41 KA-040 283 3.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 26.80 KA-025 254 2.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 28.00 KA-022 240 1.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E3 KE-061 29.00 KA-023 240 1.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E4 KE-019 7.91 KA-058 302 2.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E4 KE-019 11.80 KA-060 302 0.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E4 KE-019 12.19 KA-061 302 1.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E4 KE-019 14.96 KA-042 284 1.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E5 KE-026 9.80 KA-116 384 1.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E5 KE-026 11.85 KA-098 366 2.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E5 KE-026 12.16 KA-061 302 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E5 KE-026 12.73 KA-117 384 2.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E5 KE-026 13.23 KA-066 314 1.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E6 KE-035 9.93 KA-115 384 4.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Page 6 of 10
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E7 KE-043 22.45 KA-082 340 2.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E7 KE-043 26.83 KA-025 254 0.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E8 KE-049 12.92 KA-102 368 14.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E8 KE-049 16.08 KA-105 370 2.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E8 KE-049 16.83 KA-106 370 0.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E8 KE-049 21.50 KA-089 350 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E9 KE-077 14.85 KA-148 450 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E9 KE-077 16.23 KA-153 464 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E10 K005-82 9.80 [**] 457 0.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
E11 K005-92H [**] 1.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 7.88 KA-058 302 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 11.38 KA-059 302 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 12.1 KA-061 302 2.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 14.9 KA-042 284 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 19.2 KA-052 298 3.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 19.55 KA-036 283 2.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 21.35 KA-037 283 1.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 22.85 KA-121 386 0.2
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 23.75 KA-038 283 2.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 25.43 KA-040 283 2.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 26.73 KA-025 254 6.0
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 28.06 KA-022 240 1.9
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F2 KE-005 29.23 KA-023 240 1.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F3 KE-010 17.08 KA-159 512 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F3 KE-010 19.22 KA-048 290 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F3 KE-010 21.00 KA-062 304 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F3 KE-010 22.40 KA-082 340 1.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F3 KE-010 23.05 KA-157 500 0.7
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F3 KE-010 24.60 KA-035 282 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F3 KE-010 26.76 KA-162 531 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F4 KE-020 7.94 KA-058 302 5.1
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F4 KE-020 11.75 KA-060 302 0.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F4 KE-020 12.15 KA-061 302 5.4
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F4 KE-020 14.96 KA-042 284 3.6
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F5 KE-027 9.93 KA-116 384 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F5 KE-027 11.90 KA-098 366 0.8
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F5 KE-027 12.83 KA-117 384 1.5
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
F5 KE-027 13.31 KA-073 322 0.3
- ------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Page 7 of 10
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F6 KE-036 9.83 KA-115 384 1.4
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F6 KE-036 17.70 KA-111 380 0.1
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 7.26 KA-034 280 0.7
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 9.18 KA-028 260 0.2
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 12.91 KA-085 346 0.6
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 16.50 KA-063 310 0.2
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 18.68 KA-094 358 0,2
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 20.15 KA-045 288 2.0
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 21.10 KA-062 304 0.4
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F7 KE-044 22.45 KA-082 340 1.7
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F8 KE-070 10.05 KA-115 384 0.2
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F8 KE-070 12.95 KA-102 368 9.0
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F8 KE-070 13.38 KA-103 368 0.6
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F8 KE-070 16.06 KA-105 370 1.6
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F8 KE-070 16.83 KA-106 370 0.3
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F8 KE-070 26.36 KA-114 382 1.5
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F9 KE-055 none 0.0
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F10 K005-92A 14.80 [**] 527 1.0
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
F11 K005-92J [**] 1.0
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 5.95 KA-016 234 0.5
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 6.95 KA-084 344 0.4
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 12.08 KA-090 352 0.1
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 18.60 KA-047 290 0.3
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 19.33 KA-052 298 0.7
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 21.01 KA-062 304 0.3
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 22.36 KA-082 340 0.8
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G2 KE-006 26,76 KA-025 254 1.3
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G3 KE-012 19.30 KA-052 298 0.2
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G3 KE-012 22.43 KA-082 340 1.0
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G3 KE-012 24.58 KA-076 325 0.1
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G3 KE-012 25.03 KA-110 378 0.1
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G3 KE-012 26.78 KA-025 254 0.3
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G4 KE-021 10.38 KA-100 368 0.2
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G4 KE-021 15.23 KA-119 386 3.5
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G4 KE-021 15.78 KA-120 386 0.9
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G4 KE-021 23.58 KA-014 222 1.1
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
G4 KE-021 25.01 KA-074 322 3.3
- ------------------- ---------------- ---------------- ------------------ -------------- ----------------
Page 8 of 10
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G5 KE-065 3.18 KA-006 194 2.9
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G5 KE-065 9.96 KA-116 384 1.1
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G5 KE-065 11.20 KA-098 366 0.1
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G5 KE-065 12.86 KA-117 384 2.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G5 KE-065 13.36 KA-066 314 0.6
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G5 KE-065 14.76 KA-046 290 1.2
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G5 KE-065 25.00 KA-107 370 1.2
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G6 KE-037 15.26 KA-119 386 1.9
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G6 KE-037 15.76 KA-120 386 0.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G6 KE-037 25.06 KA-107 370 1.3
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G7 KE-069 28.28 KA-092 354 0.8
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G8 KE-071 6.01 KA-032 276 0.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G8 KE-071 10.20 KA-124 388 0.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G8 KE-071 12.76 KA-027 258 1.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G8 KE-071 14.80 KA-046 290 1.8
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G8 KE-071 18.66 KA-136 411 0.7
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G8 KE-071 21.63 KA-155 464 1.3
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 7.05 KA-011 207 0.1
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 9.31 KA-130 398 0.2
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 10.23 KA-015 232 0.1
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 12.76 KA-156 486 0.2
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 16.16 KA-008 196 0.3
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 17.90 KA-147 448 0.1
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 21.56 KA-144 446 0.2
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 22.51 KA-033 276 0.3
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 23.45 KA-KA-145 446 0.2
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G9 KE-072 25.00 KA-123 386 0.1
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G10 K005-92B 24.15 [**] 1183 1.0
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
G11 K005-92K [**] 848 1.0
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H2 KE-059 5.87 KA-096 362 2.0
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H2 KE-059 6.85 KA-084 344 2.8
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H2 KE-059 14.53 KA-019 240 0.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H2 KE-059 19.28 KA-048 290 0.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H2 KE-059 23.12 KA-043 284 0.6
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H2 KE-059 28.20 KA-091 354 1.1
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H3 KE-013 12.83 KA-102 368 5.5
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
H3 KE-013 22.95 KA-113 382 1.4
- ---------------- -------------- ----------- --------------------- ----------- ------------- ------------
Page 9 of 10
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 10.40 KA-100 368 0.7
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 11.95 KA-118 386 0.7
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 13.03 KA-102 368 1.1
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 15.21 KA-119 386 4.0
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 15.78 KA-120 386 2.0
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 16.90 KA-104 368 1.0
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 18.73 KA-094 358 1.1
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H4 KE-022 19.21 KA-099 366 1.1
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H5 KE-028 5.28 KA-067 318 0.2
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H5 KE-028 9.56 KA-003 168 0.5
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H5 KE-028 11.63 KA-098 366 2.6
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H5 KE-028 12.56 KA-117 384 1.1
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H5 KE-028 18.56 KA-094 358 0.1
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H6 KE-066 9.77 KA-115 384 6.8
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H6 KE-066 14.75 KA-046 290 0.4
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H6 KE-066 17.73 KA-111 380 0.4
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H6 KE-066 19.38 KA-112 380 0.3
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H6 KE-066 26.30 KA-114 382 0.2
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H7 KE-106 16.53 KA-063 310 0.2
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H7 KE-106 19.43 KA-081 340 0.3
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H7 KE-106 23.24 KA-043 284 2.6
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H7 KE-106 24.22 [**] 1183 1.9
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H7 KE-106 27.50 KA-007 194 0.7
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H7 KE-106 29.75 KA-131 398 1.2
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 9.25 KA-134 410 0.3
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 11.43 KA-101 368 0.3
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 13.36 KA-029 260 0.3
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 16.18 KA-008 196 0.9
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 18.16 KA-149 452 0.1
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 21.23 KA-129 392 0.3
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 23.65 KA-004 176 0.6
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 25.05 KA-109 374 1.3
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H8 KE-050 26.56 KA-088 348 0.8
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H9 KE-054 15.20 [**] 444 1.6
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H9 KE-054 18.96 unknown 444 0.2
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H10 K005-92C [**] 1.0
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
H11 K005-92L [**] 318 1.0
- --------------- --------------- ------------- -------------------- ------------ ------------ -----------
</TABLE>
Page 10 of 10
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT C
KOSAN PATENT RIGHTS
[**]
Confidential Information
Page 1 of 2
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT C (CONT)
KOSAN PATENT RIGHTS
[**]
Confidential Information
Page 2 of 2
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
EXHIBIT 10.12
AMENDMENT NUMBER 1 TO RESEARCH AND LICENSE AGREEMENT BY
AND BETWEEN KOSAN BIOSCIENCES AND R.W. JOHNSON
PHARMACEUTICAL RESEARCH INSTITUTE
This Amendment dated MAR 17, 2000 is made to the RESEARCH AND LICENSE AGREEMENT
(hereinafter called the "AGREEMENT"), made as of September 28, 1998 by and
between KOSAN BIOSCIENCES, INC., a corporation organized under California law
having its principal office at 3832 Bay Center Place, Hayward, California 94545
(hereinafter called "KOSAN");
ON THE ONE HAND, AND:
ORTHO MCNEIL PHARMACEUTICAL, INCORPORATED (hereinafter called
"ORTHO"), a company organized under Delaware law, having its principal office at
U.S. Route 202, Raritan, New Jersey 08869; and
the R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE (hereinafter called
"RWJPRI"), a division of Ortho McNeil Pharmaceutical, Incorporated, having its
principal office at U.S. Route 202, Raritan, New Jersey 08869 (ORTHO and RWJPRI
hereinafter collectively called "LICENSEE")
ON THE OTHER HAND,
WITNESSETH:
A. WHEREAS, KOSAN and LICENSEE have entered into the AGREEMENT
providing for a collaborative research drug discovery program as generally
described in the RESEARCH PLAN attached thereto as Appendix A;
B. WHEREAS, the RESEARCH PLAN provided for two projects to be
conducted by the parties, a [**] to be conducted over the [**], and an [**]
to be conducted over the [**], each with a provision for additional
CONTINGENT WORK, to be performed in the event a GO DECISION was made for the
Project;
C. WHEREAS, having completed the first twelve months of the RESEARCH
PROGRAM, the parties wish to fund the CONTINGENT WORK on the Fast Track PROJECT
and to reserve the rights to [**] under provisions of the AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the performance of
covenants herein contained, the parties agree to amend the AGREEMENT as follows:
1. Unless otherwise defined herein, all capitalized terms used herein shall have
the same meaning as set forth in the AGREEMENT.
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
2. In accordance with the terms of the AGREEMENT, for Year 2 of the RESEARCH
PROGRAM, RWJPRI shall fund [**] on the [**]. RWJPRI acknowledges that [**]
already been provided in Year 1 with payment therefor deferred until Year 2.
Thus, RWJPRI shall provide funding for [**] for the combined programs for
Year 2 in accordance with the terms of the AGREEMENT.
3. [**] shall be deemed an [**] and RWJPRI has made the $[**] ([**] Dollar)
payment due under Section 6.2.1. [**] shall be a reserved Compound under the
provisions Section 3.5.6 until such time as it is designated a Licensed
Compound under the Agreement or the end of the NON-EXCLUSIVE SCREENING
PERIOD, whichever shall first occur. 4. Except as amended herein, all of the
terms and conditions of the AGREEMENT shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and duly executed this Amendment AGREEMENT on the date(s) indicated below, to be
effective the day and year first above written.
For and on Behalf of KOSAN BIOSCIENCES, INC.
By: /s/ Daniel V. Sant
-----------------------------------------
Name: DANIEL V. SANT
---------------------------------------
Title: Chief Executive
Date: 17 MARCH 2000
---------------------------------------
For and on Behalf of THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE
By: /s/ P.A. Peterson
-----------------------------------------
Name: P.A. PETERSON, MD, PhD
---------------------------------------
Title: President
Date: MARCH 17, 2000
---------------------------------------
[**] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.12
AMENDMENT NUMBER 1 TO RESEARCH AND LICENSE AGREEMENT BY
AND BETWEEN KOSAN BIOSCIENCES AND R.W. JOHNSON
PHARMACEUTICAL RESEARCH INSTITUTE
This Amendment dated MAR 17, 2000 is made to the RESEARCH AND LICENSE AGREEMENT
(hereinafter called the "AGREEMENT"), made as of September 28, 1998 by and
between KOSAN BIOSCIENCES, INC., a corporation organized under California law
having its principal office at 3832 Bay Center Place, Hayward, California 94545
(hereinafter called "KOSAN");
ON THE ONE HAND, AND:
ORTHO MCNEIL PHARMACEUTICAL, INCORPORATED (hereinafter called
"ORTHO"), a company organized under Delaware law, having its principal office at
U.S. Route 202, Raritan, New Jersey 08869; and
the R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE (hereinafter called
"RWJPRI"), a division of Ortho McNeil Pharmaceutical, Incorporated, having its
principal office at U.S. Route 202, Raritan, New Jersey 08869 (ORTHO and RWJPRI
hereinafter collectively called "LICENSEE")
ON THE OTHER HAND,
WITNESSETH:
A. WHEREAS, KOSAN and LICENSEE have entered into the AGREEMENT
providing for a collaborative research drug discovery program as generally
described in the RESEARCH PLAN attached thereto as Appendix A;
B. WHEREAS, the RESEARCH PLAN provided for two projects to be conducted
by the parties, a Fast Track Project to be conducted over the first twelve
months, and an SAR Project to be conducted over the first twenty-four months,
each with a provision for additional CONTINGENT WORK, to be performed in the
event a GO DECISION was made for the Project;
C. WHEREAS, having completed the first twelve months of the RESEARCH
PROGRAM, the parties wish to fund the CONTINGENT WORK on the Fast Track PROJECT
and to reserve the rights to RWJ-351055 under provisions of the AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the performance of
covenants herein contained, the parties agree to amend the AGREEMENT as follows:
1. Unless otherwise defined herein, all capitalized terms used herein shall have
the same meaning as set forth in the AGREEMENT.
<PAGE>
2. In accordance with the terms of the AGREEMENT, for Year 2 of the RESEARCH
PROGRAM, RWJPRI shall fund 4 FTE's for the CONTINGENT WORK on the Fast Track
Project and 12 FTE's for the SAR PROJECT. RWJPRI acknowledges that one of the 4
FTE's has already been provided in Year 1 with payment therefor deferred until
Year 2. Thus, RWJPRI shall provide funding for 16 FTE's for the combined
programs for Year 2 in accordance with the terms of the AGREEMENT.
3. RWJ-351055 shall be deemed an FTE and RWJPRI has made the $250,000 (Two
Hundred Fifty Thousand Dollar) payment due under Section 6.2.1. RWJ-351055 shall
be a reserved Compound under the provisions Section 3.5.6 until such time as it
is designated a Licensed Compound under the Agreement or the end of the
NON-EXCLUSIVE SCREENING PERIOD, whichever shall first occur.
4. Except as amended herein, all of the terms and conditions of the AGREEMENT
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and duly executed this Amendment AGREEMENT on the date(s) indicated below, to be
effective the day and year first above written.
For and on Behalf of KOSAN BIOSCIENCES, INC.
By: /s/ Daniel V. Sant
-----------------------------------------
Name: DANIEL V. SANT
---------------------------------------
Title: Chief Executive
Date: 17 MARCH 2000
---------------------------------------
For and on Behalf of THE R.W. JOHNSON PHARMACEUTICAL RESEARCH INSTITUTE
By: /s/ P.A. Peterson
-----------------------------------------
Name: P.A. PETERSON, MD, PhD
---------------------------------------
Title: President
Date: 17 MARCH 2000
---------------------------------------
<PAGE>
EXHIBIT 10.13
SUBLEASE
THIS SUBLEASE ("Sublease"), dated January 6, 1999, for reference
purposes only, is entered into by and between LYNX THERAPEUTICS, INC., a
Delaware corporation ("Sublessor") and KOSAN BIOSCIENCES INCORPORATED, a
California corporation ("Sublessee").
RECITALS
A. Sublessor leases certain premises consisting of approximately
44,280 square feet in a building commonly known as 3832 Bay Center Place,
Hayward, California 94545 (the "Building"), pursuant to a certain Lease
Agreement dated June 28, 1993, between Spieker-Singleton #87, Limited
Partnership as landlord (hereinafter "Master Lessor"), and Sublessor, as tenant,
(as amended or otherwise modified from time to time, the "Master Lease"), a copy
of which is attached hereto as EXHIBIT A, together with certain improvements
therein and appurtenances thereto as described in the Master Lease (said
premises, together with said improvements and appurtenances, hereinafter the
"Premises"). Capitalized terms herein not otherwise defined herein shall have
the same meanings as provided in the Master Lease.
B. Sublessor desires to sublease to Sublessee, and Sublessee
desires to sublease from Sublessor a portion of the Premises consisting of
37,982 square feet, and more particularly shown on the layout attached at
EXHIBIT B hereto ("Sublease Premises") upon the terms and conditions provided
for herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Sublessor and Sublessee covenant and agree as follows:
AGREEMENT
1. SUBLEASE PREMISES. Sublessor hereby leases to Sublessee, and
Sublessee hereby leases from Sublessor, the Sublease Premises, upon and subject
to the terms and conditions set forth herein. In connection with its use of the
Sublease Premises, and to the extent Sublessor has the right under the Master
Lease, Sublessee shall have the right to use in common with Sublessor and any
other occupant of the Building the common areas outside the Building, including
the walkways, parking areas, loading and unloading areas, driveways and
entrances, as well as the common areas within the Building, including, the
hallways, stairways, common areas, restrooms, and other areas that may be
reasonably necessary for Sublessee's use of the Sublease Premises; provided,
however that Sublessee shall only have the nonexclusive right to use 152 of the
parking spaces leased to Sublessor pursuant to the Master Lease.
2. TERM.
(a) The term of this Lease shall commence on the later of
(i) February 1, 1999 or (ii) the date when the Sublessor has delivered
possession of the Sublease Premises to Sublessee (the "Commencement Date").
Sublessor shall use commercially reasonable efforts to cause the Commencement
Date to occur on February 1, 1999.
1.
<PAGE>
(b) Notwithstanding said Commencement Date, if for any
reason Sublessor cannot deliver possession of the Sublease Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Sublease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay Rent until possession of the Sublease Premises is
tendered to Sublessee. If the Commencement Date shall not have occurred by April
1, 1999, Sublessee shall have the right, until May 1, 1999, to terminate this
Sublease upon written notice to Sublessor, whereupon, any monies previously paid
or deposited by Sublessee to Sublessor shall promptly be refunded to Sublessee.
(c) The term of this Lease shall end on July 31, 2003;
PROVIDED, HOWEVER, that the term of this Sublease shall earlier terminate in the
event of the earlier termination of the Master Lease.
(d) If at any time during the term of this Sublease,
Sublessor determines to sublease all or any part of the remainder of the
Premises (the "Remaining Premises") other than the current sublease for the
Remaining Premises (the "Inex Sublease") with Inex Pharmaceuticals (U.S.A.),
Inc. ("Inex"), which includes a right to extend, then Sublessor shall notify
Sublessee in writing and Sublessee shall have ten (10) business days after
receipt of Sublessor's written notice to notify Sublessor in writing its
intention to sublease such Remaining Premises. The terms of any such subletting
of the Remaining Premises shall be on the same terms and conditions as this
Sublease, except that the rent shall be the greater of (i) fair market rent or
(ii) the rent payable during the previous period for the Sublease Premises. The
term "fair market rent" shall mean the rental rate for comparable space
(including all tenant improvements), in comparable business parks within a ten
(10) mile radius of the Building's perimeter, excluding San Mateo County. If
Sublessee timely provides Sublessor with notice of its election to sublease the
Remaining Premises within said ten (10)-business day period then the parties
shall consummate the sublease of such space by the preparation and execution of
any amendment to this Sublease within thirty (30) days after Sublessor's receipt
of Sublessee's notice. If Sublessee does not indicate in writing its election to
sublease such Remaining Premises within said ten (10)-business day period, then
Sublessor shall have the right to sublease such premises to a third party.
Nothing contained in this section shall be construed to give Sublessee the right
to sublease the Remaining Premises if Sublessor uses the Remaining Premises for
its own occupancy. If the parties are unable to agree upon the fair market rent
for the Remaining Premises within fifteen (15) days after Sublessee's exercise
of its right of first offer to sublease the Remaining Premises, then the fair
market rent shall be determined as follows: Sublessor and Sublessee shall each
appoint one (1) real estate appraiser, which appraisers together shall determine
the fair market rent for the Remaining Premises within fifteen (15) days of
their appointment. Sublessor and Sublessee agree to make their appointments
promptly. In the event the two appraisers selected by Sublessor and Sublessee
shall be unable to agree on the amount of fair market rent, they shall promptly
select a third appraiser and within fifteen (15) days after the third appraiser
is selected, the third appraiser shall submit his or her determination of the
then prevailing fair market rent. The fair market rent shall be the mean of the
two closest rental determinations. Each party shall bear the fees and expenses
of the appraiser it selects and one-half of the fees and expenses of the third
appraiser (if one is appointed pursuant to the terms hereof). All real
appraisers appointed shall be members of the American Institute of Real Estate
Appraisers and have at least five (5)
2.
<PAGE>
years experience appraising similar space located in commercial projects in the
vicinity of the Remaining Premises.
3. USE. Sublessee shall be permitted to use the Sublease Premises
consistent with the Permitted Use set forth in the Master Lease, and consistent
with the applicable requirements of the City of Hayward.
4. RENT.
(a) BASE RENT. Starting on the Commencement Date, Sublessee
shall pay as base rent ("Base Rent") for the Sublease Premises in advance, on or
before the first day of each month, without deduction or offset, monthly rent in
the amounts set forth below. Base Rent and Additional Rent (defined below) shall
be payable to Sublessor at the address stated herein for Sublessor. Base Rent
and Additional Rent shall collectively be referred to herein as "Rent." Rent for
any period during the term hereof which is for less than one month shall be a
pro rata portion of the monthly installment based on the number of days in the
month at issue.
<TABLE>
<CAPTION>
PERIOD MONTHLY RENT (EXCLUSIVE
OF BASIC OPERATING COST)
<S> <C>
02/01/99 - 01/31/00 $70,646.52
02/01/00 - 01/31/01 $72,545.62
02/01/01 - 01/31/02 $74,444.72
02/01/02 - 01/31/03 $76,343.82
02/01/03 - 07/31/03 $78,242.92
</TABLE>
(b) ADDITIONAL RENT. Sublessee shall pay to Sublessor, as
additional rent ("Additional Rent"), its pro rata share of the additional
amounts which Sublessor is required to pay under the Master Lease with respect
to the Premises, which are allocable to the term hereof, including, but not
limited to, Sublessor's Pro Rata share of Basic Operating Costs. In addition,
Sublessee shall pay to Sublessor as Additional Rent any costs and expenses
applicable to the Sublease Premises which are paid directly by Sublessor,
including, but limited to, personal property taxes and real property taxes on
tenant improvements.
5. SECURITY DEPOSIT. Upon mutual execution of this Sublease,
Sublessee shall deposit with Sublessor the amount of $156,485.84 as a security
deposit, which sum shall be held by Sublessor, without obligation for interest,
as security for the performance of Sublessee's covenants and obligations under
this Sublease, it being expressly understood and agreed that such deposit is not
an advance rental deposit or a measure of damages incurred by Sublessor in case
of Sublessee's default. Upon the occurrence of any event of default by Sublessee
beyond the applicable notice and cure period, Sublessor may, without prejudice
to any other remedy provided herein or provided by law, use such fund to the
extent necessary to cure such defaults hereunder, and any other damage, injury,
expense or liability caused by such event of default, and Sublessee shall pay to
Sublessor, within ten (10) days after Sublessee's receipt of written demand, the
amount so applied in order to restore the Security Deposit to its original
amount. Although the Security Deposit shall be deemed the property of Sublessor,
any remaining balance of such deposit shall be returned by Sublessor to
Sublessee at such time after termination of this
3.
<PAGE>
Sublease less any amounts that are needed to perform any of Sublessee's
obligations under this Sublease that have been unfulfilled by Sublessee.
6. AS-IS. Subject to Master Lessor's service, maintenance or repair
obligations under the Master Lease, the Sublease Premises and all improvements
will be taken over on an "as is" basis, provided Sublessor represents, warrants
and covenants (now and as of the Commencement Date) that all improvements to the
Sublease Premises made by the Sublessor shall remain on the Sublease Premises
(except the improvements and equipment listed on EXHIBIT E) and (I) have been
constructed, installed, operated and maintained in accordance with all
applicable laws, by-laws, rules, regulations, orders, permits and licenses and
(II) all plumbing, HVAC, electrical and other building systems within the
Sublease Premises are in good working order and repair. The improvements to the
Sublease Premises which shall remain at the Sublease Premises shall include the
existing de-ionized water system, lab benches and fume hoods installed by
Sublessor. Notwithstanding anything to the contrary contained herein, all
improvements to the Sublease Premises made by Sublessor (the "Sublessor
Improvements") shall at all times remain the property of Sublessor, subject only
to Sublessee's rights to use such improvements as part of the Sublease Premises
pursuant to this Sublease. Upon the expiration or sooner termination of this
Sublease, Sublessee shall vacate and surrender the Sublease Premises, in the
same condition, broom clean, and with all systems and improvements in good
working order as existed at the Commencement Date ordinary wear and tear
excepted; provided, however, that Sublessee's obligations to vacate and
surrender the Sublease Premises as provided herein shall be subject to Sections
23 and 24 of the Master Lease as incorporated herein.
7. MASTER LEASE. This Sublease shall be subject and subordinate to
all of the terms and provisions of the Master Lease, and Master Lessor shall
have all rights in respect of the Master Lease and the Premises as set forth
therein. Except for payments of Rent and Basic Operating Costs under Sections 6
and 7 of the Master Lease (which payments shall be made by Sublessor), and,
except as otherwise provided herein, Sublessee hereby agrees to perform for
Sublessor's benefit, during the term of this Sublease, all of Sublessor's
obligations under the Master Lease but only to the extent they relate to the
Sublease Premises which accrue during the term of this Sublease.
8. INCORPORATION OF MASTER LEASE.
(a) Except as otherwise provided in this Sublease, all of
the terms and provisions of the Master Lease are incorporated into and made a
part of this Sublease, and the rights and obligations of the parties under the
Master Lease are hereby imposed upon the parties hereto with respect to the
Sublease Premises, the Sublessor being substituted for the Landlord in the
Master Lease, the Sublessee being substituted for the Tenant in the Master Lease
and the Sublease Premises being substituted for the Premises in the Master Lease
provided, however, that the term "Landlord" in the following sections of the
Master Lease (i) shall mean Master Lessor, not Sublessor: 7.A, 7.B, 8.A, 10, 16,
17, 18, 23.C, 24, 29, and 44, and (ii) shall mean both Master Lessor and
Sublessor: 7E.
(b) Notwithstanding the foregoing:
4.
<PAGE>
(i) the following Paragraphs of the Master Lease are not
incorporated herein: Basic Lease Information (Lease Date, Tenant, Landlord,
Address of Landlord, Scheduled Term Commencement Date, Length of Term, Estimated
First Year Operating Cost, Tenant's Proportionate Share, Rent, Security Deposit)
1,2, 3, 19, 20, 37, 38, 39, 41, 42, 43 and Exhibits B, C, and D.
(ii) Each of the parties hereto shall fully perform all of
their respective obligations hereunder, and shall indemnify, defend, protect,
and hold harmless the other party from any and all liability, damages,
liabilities, claims proceedings, actions, demands and costs (including
reasonable attorneys' fees) resulting, directly or indirectly, from their
failure to perform their respective obligations.
(iii) Upon any termination of the Master Lease, this Sublease
shall also terminate. If Master Lessor seeks to terminate the Master Lease
because of a default or alleged default by Sublessor under the Master Lease
(other than a default or alleged default caused by the default by Sublessee
under this Sublease), Sublessor shall take all action required to reinstate the
Master Lease. Further, if Rent is abated under the Master Lease, Rent hereunder
shall also be abated in the same proportion.
(iv) Sublessor shall have no service, maintenance or repair
obligations with respect to the Sublease Premises except for its obligation to
use commercially reasonable efforts to enforce the obligations of Master Lessor
under the Master Lease. Sublessee hereby expressly waives the provisions of
subsection 1 of Section 1932 and Sections 1941 of the Civil Code of California.
Sublessor shall use commercially reasonable efforts to enforce Master Lessor's
service, maintenance or repair obligations under the Master Lease.
(v) Sublessee shall indemnify, defend, protect, and hold
Sublessor harmless from and against all actions, claims, demands, costs,
liabilities, losses, reasonable attorneys' fees, damages, penalties, and
expenses (collectively "Claims") which may be brought or made against Sublessor
or which Sublessor may pay or incur to the extent caused by (i) a breach of this
Sublease by Sublessee, (ii) any violation of law by Sublessee or its employees,
agents, contractors or invitees ("Agents") relating to the use or occupancy of
the Sublease Premises, or (iii) the negligence or willful misconduct of
Sublessee or its Agents. Sublessor shall indemnify, defend, protect, and hold
Sublessee harmless from and against all actions, claims, demands, costs,
liabilities, losses, reasonable attorneys' fees, damages, penalties and expenses
which may be brought or made against Sublessee or which Sublessee may pay or
incur to the extent caused by (i) the negligence or willful misconduct of
Sublessor or its Agents occurring on or about the Premises or Sublease Premises;
(ii) the failure by Sublessor to comply with or perform its obligations under
the Master Lease and/or this Sublease, and (iii) a breach by Sublessor of any of
its representations or warranties to Sublessee under this Sublease. As used
herein, "Hazardous Materials" means any substance or material which is
classified or considered to be hazardous or toxic under any present or future
federal, state, regional or local law relating to the use, storage, treatment,
existence, release, emission, discharge, generation, manufacture, disposal or
transportation of any such substances.
(vi) Sublessee shall indemnify, defend and hold harmless
Sublessor and Master Lessor from and against all claims, suits, judgments,
losses, costs, personal injuries,
5.
<PAGE>
damages, and expenses of every type and nature, to the extent caused by the
storage, use, release or disposal of Hazardous Materials on or about the
Premises by Sublessee or Sublessee's employees, contractors, agents or
licensees, except to the extent that any of the foregoing results from (i) the
willful misconduct or negligent acts or omissions of Sublessor, or any of its
agents, employees, contractors or licensees, or (ii) the willful misconduct or
negligent acts or omissions of Master Lessor, or any of its agents, employees,
contractors or licensees. Notwithstanding anything to the contrary in this
Sublease or Master Lease, Sublessee shall have no obligation to clean up or to
comply with any law regarding, or to reimburse, indemnify, defend or hold
harmless Sublessor or Master Lessor with respect to, any Hazardous Materials
discovered on the Sublease Premises which existed prior to the Commencement Date
of this Sublease.
(vii) Sublessor shall indemnify, defend and hold harmless
Sublessee from and against all claims, suits, judgments, losses, costs, personal
injuries, damages, and expenses of every type and nature, to the extent caused
by storage, use, release or disposal of Hazardous Materials on or about the
Sublease Premises or Premises by Sublessor or Sublessor's employees,
contractors, agents or licensees, except to the extent that any of the foregoing
results from the willful misconduct or negligent acts or omissions of the
Sublessee or Sublessee's employees or agents. Notwithstanding anything to the
contrary in this Sublease, Sublessor shall have no obligation to clean up or to
comply with any law regarding, or to reimburse, indemnify, defend or hold
harmless Sublessee with respect to, any Hazardous Materials which come to be
located on the Sublease Premises or Premises after the Commencement Date (except
if such Hazardous Materials are brought onto the Sublease Premises or Premises
by Sublessor).
(viii) Sublessor represents to Sublessee that (A) the Master
Lease is in full force and effect, (B) the copy of the Master Lease which is
attached to this Sublease as EXHIBIT A is a true, correct and complete copy of
the Master Lease, (C) to Sublessor's best knowledge, no default exists on the
part of Sublessor, or has there occurred any event which, with the giving of
notice or passage of time or both, could constitute such a default or event of
default, (D) to Sublessor's best knowledge, there are no pending or threatened
actions, suits or proceedings before any court or administrative agency against
Sublessor which could, in the aggregate, adversely affect the Sublease Premises
or of Sublessor to perform its obligations under the Sublease, and Sublessor is
not aware of any facts which might result in any actions, suits or proceedings,
and (E) to Sublessor's best knowledge (x) Sublessor has not discharged, disposed
of or released any Hazardous Materials in or about the Sublease Premises or
Premises except in compliance with applicable laws and no action, proceeding, or
claim is pending, or threatened concerning any Hazardous Materials arising in
connection with Sublessor's use of the Sublease Premises or Premises, and (y)
Sublessor has not transported, stored, used, manufactured, emitted, disposed of
or released, or exposed to its employees or others to, Hazardous Materials on or
about the Sublease Premises or Premises in violation of any law, rule,
regulation, treaty or statute promulgated by any governmental authority.
Sublessor shall immediately notify Sublessee of any release, emission or spill
of any Hazardous Materials on or about the Sublease Premises or Premises of
which it is aware which may in any way pose a material threat to the health or
safety of any person located in or about the Sublease Premises. Sublessor shall
deliver to Sublessee on the Commencement Date a hazardous waste certificate in
the form attached to the Master Lease as Exhibit C completely filled-out and
duly executed by Sublessor for the benefit of Sublessee and made effective as of
the Commencement Date. Sublessee shall immediately notify Sublessor of any
release, emission or spill of any Hazardous
6.
<PAGE>
Materials on or about the Sublease Premises of which it is aware which may in
any way pose a material threat to the health or safety of any person located in
or about the Sublease Premises. Sublessee shall deliver to Sublessor on the
Commencement Date a hazardous waste certificate in the form attached to the
Master Lease as Exhibit C completely filled-out and duly executed by Sublessee
for the benefit of Sublessor and made effective as of the Commencement Date.
(ix) The provisions and obligations of the foregoing Section
8(b)(v),(vi), and (vii) shall survive the termination of this Sublease.
(c) For the purposes of incorporating the terms and provisions of
the Master Lease into this Sublease, the Master Lease is hereby amended as
follows (references are to Sections of the Master Lease):
(i) Section 21B. of the Master Lease is deleted and replaced
with the following: Any Rent or other consideration realized by Sublessee under
any such sublease or assignment in excess of the Rent payable hereunder, after
amortization of (1) the reasonable cost of any improvements which Sublessee has
made to the Premises and (2) reasonable subletting and assignment costs, shall
be divided and paid, fifty percent (50%) to Sublessee, fifty percent (50%) to
Sublessor, after Master Lessor has been paid its share of such excess rent
pursuant to Section 21.B of the Master Lease.
9. BROKERAGE. Each party warrants and represents to the other that
other than Cornish & Carey Commercial, such party has not retained any other
real estate broker, finder or any other person whose services would form the
basis for any claim for any commission or fee in connection with this Sublease
or the transactions contemplated hereby. Each party agrees to save, defend,
indemnify and hold the other party free and harmless from any breach of its
warranty and representation as set forth in the preceding sentence, including
the other party's attorneys' fees.
10. SUBLESSOR'S OBLIGATIONS. Except as expressly otherwise provided
herein Sublessor shall have no obligation to Sublessee with respect to the
Premises or the performance by Master Lessor of any obligations of Master Lessor
under the Master Lease.
11. EARLY TERMINATION OF MASTER LEASE. If, without the fault of
Sublessor hereunder the Master Lease should terminate prior to the expiration of
this Sublease, Sublessor shall have no liability to Sublessee. To the extent
that the Master Lease grants Sublessor any discretionary right to terminate the
Master Lease, whether due to casualty, condemnation, or otherwise, Sublessor
shall not exercise such right at any time during the first forty two (42) months
of the term of this Sublease without the prior written consent of the Sublessee.
Commencing with the forty third (43rd) month, Sublessor shall be entitled to
exercise or not exercise any such discretionary right to terminate the Master
Lease in its complete and absolute discretion. In the event of a termination of
this Sublease due to casualty or condemnation, Sublessor shall be entitled to
all insurance proceeds for the Sublessor Improvements regardless of whether the
insurance covering the Sublessor Improvements is maintained by Sublessor or
Sublessee. In the event of a casualty or condemnation which does not result in a
termination of this Sublease, Sublessee shall receive all insurance proceeds for
the Sublessor Improvements (regardless of whether the insurance covering the
Sublessor Improvements is maintained by
7.
<PAGE>
Sublessor or Sublessee) and shall use such insurance proceeds to promptly
repair, restore or rebuild the Sublessor Improvements, subject to the
supervision and approval of Sublessor during the construction process.
12. QUIET ENJOYMENT. Sublessee shall peacefully have, hold and enjoy
the Subleased Premises, subject to the terms and conditions of this Sublease and
subject to the Master Lease, provided that Sublessee pays all rent and performs
all of Sublessee's covenants and agreements contained herein. In the event,
however, that Sublessor defaults in the performance or observance of any of
Sublessor's obligations under this Sublease or receives a notice of default from
Master Lessor under the Master Lease, then Sublessee shall give written notice
to Sublessor specifying in what manner Sublessor has defaulted. If such default
shall not be cured within a reasonable time, but in no event later than thirty
(30) days after Sublessor's receipt of such written notice from Sublessee
(except that if such default cannot be cured within said thirty (30) day period,
this period shall be extended for an additional reasonable time, provided that
Sublessor commences to cure such default within such thirty (30) day period and
proceeds diligently thereafter to effect such cure as quickly as possible), then
Sublessee shall be entitled, at Sublessee's option, to cure such default and
promptly collect from Sublessor Sublessee's reasonable expenses in so doing
(including, without limitation, reasonable attorneys' fees and court costs)
unless such default by Sublessor is caused by a default of Sublessee hereunder
(in which case Sublessor shall not be liable for Sublessee's costs to cure the
default). Sublessee shall not be required to wait the entire cure period
provided for herein if earlier action is required to prevent a termination by
Master Lessor of the Master Lease and Sublessor has failed to take such earlier
action. Nothing contained herein shall entitle Sublessee to act on behalf of
Sublessor or in Sublessor's name.
13. CONSENT OF MASTER LESSOR. If Sublessee desires to take any
action which requires the consent of Master Lessor pursuant to the terms of the
Master Lease, including, without limitation, the making of any alterations,
then, notwithstanding anything to the contrary herein, (a) Sublessor,
independently, shall have the same rights of approval or disapproval as Master
Lessor has under the Master Lease, (b) Sublessee shall not take any such action
until it obtains the consent of both Sublessor and Master Lessor, and (c)
Sublessee shall request that Sublessor obtain Master Lessor's consent on
Sublessee's behalf and Sublessor shall use commercially reasonable efforts to
obtain such consent, unless Sublessor and Master Lessor agree that Sublessee may
contact Master Lessor directly with respect to the specific action for which
Master Lessor's consent is required. Any consent required of Sublessor
conclusively shall be deemed reasonably withheld, if consent also is required of
the Master Lessor, and Master Lessor withholds Master Lessor's consent.
14. NO THIRD PARTY RIGHTS. The benefit of the provisions of this
Sublease is expressly limited to Sublessor and Sublessee and their permitted
successors and assigns. Under no circumstances will any third party be construed
to have any rights as a third party beneficiary with respect to any of said
provisions; PROVIDED, HOWEVER, that Master Lessor shall be entitled to the
benefit of Sublessee's assumption of Sublessor's obligations, as "Tenant" under
the Master Lease, pursuant to Section 5 above.
15. BOARD APPROVAL. This Sublease is subject to both the approval of
the Board of Directors of the Sublessor and the Board of Directors of the
Sublessee.
8.
<PAGE>
16. MASTER LESSOR CONSENT. This Sublease and Sublessor's and
Sublessee's obligations hereunder are conditioned upon having obtained the
written consent of the Master Lessor to this Sublease. If such consent has not
been obtained by Sublessor within thirty (30) days after the date of Sublessor's
execution of this Sublease, Sublessee may, within ten (10) days thereafter,
terminate this Sublease by written notice to Sublessor whereupon Sublessor shall
return to Sublessee all sums paid by Sublessee to Sublessor in connection with
its execution of this Sublease. Sublessor shall use commercially reasonable
efforts to obtain Master Lessor's consent to this Sublease as soon as
practicable.
17. COUNTERPARTS. This Sublease may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
all of which together shall constitute one and the same instrument.
18. SECURITY SERVICES. Sublessee, at its sole cost and expense,
shall maintain security services for the Sublease Premises. Such services shall
be provided on a 24-hour basis by a security company acceptable to Sublessor in
its reasonable discretion.
19. SURRENDER. Sublessee's obligation to surrender the Sublease
Premises shall be fulfilled if Sublessee surrenders possession of the Sublease
Premises in the condition existing at the Commencement Date, ordinary wear and
tear, Hazardous Materials existing at Commencement Date, and interior
improvements made by Sublessee which Sublessor states in writing may be
surrendered at the termination of the Sublease excepted; provided, however, that
Sublessee's obligations to vacate and surrender the Sublease Premises as
provided herein shall be subject to Sections 23 and 24 of the Master Lease as
incorporated herein.
20. ADDITIONAL AGREEMENT. Sublessee and Sublessor agree to use
commercially reasonable efforts to execute (and to cause Inex to execute), prior
to the Commencement Date, an Assignment and Assumption Agreement in the exact
form as EXHIBIT C attached hereto and incorporated herein by reference.
21. INITIAL SUBLESSEE IMPROVEMENTS. Subject to the consent and
approval of Master Lessor, and the requirements of Section 12 of the Master
Lease, Sublessor hereby consents to the construction by Sublessee of those
certain improvements to the Sublease Premises (the "Sublessee Improvements")
generally described in EXHIBIT D attached hereto and incorporated herein by
reference. Sublessor's consent as set forth herein is subject to approval by
Sublessor and Master Lessor of final plans and specifications for the Sublessee
Improvements.
22. MUTUAL WAIVER OF SUBROGATION. The waiver of subrogation
provision set forth in Section 9 of the Master Lease shall be deemed a three
party agreement binding among and inuring to the benefit of Sublessor, Sublessee
and Master Lessor (by reason of its consent to hereto).
9.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Sublease as of the
date first written above.
ADDRESS: SUBLESSOR:
3832 Bay Place LYNX THERAPEUTICS, INC.
Hayward, CA 94545
Attn: Edward C. Albini
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Chief Financial Officer
-------------------------------
By:
--------------------------------
Its:
-------------------------------
ADDRESS: SUBLESSEE:
KOSAN BIOSCIENCES INCORPORATED
By: /s/ Daniel V. Santi
--------------------------------
Its: CEO
-------------------------------
By: /s/ Michael S. Ostrach
--------------------------------
Its: VP and Asst Secretary
-------------------------------
<PAGE>
EXHIBIT A
[ATTACH COPY OF MASTER LEASE]
<PAGE>
BASIC LEASE INFORMATION
LEASE DATE: June 28, 1993
TENANT: Lynx Therapeutics, Inc.
ADDRESS OF TENANT: 3832 Bay Center Place
Hayward, CA 94545
LANDLORD: Spieker-Singleton #87, Limited
Partnership
ADDRESS OF LANDLORD: 6000 Stoneridge Mall Road, Suite 270
Pleasanton, CA 94588
PROJECT DESCRIPTION: An approximately 128,700 square foot
project consisting of four building
located at Breakwater Avenue and Bay
Center Place in Hayward, California,
known as BayCenter Business Park.
BUILDING DESCRIPTION: An approximately 44,280 square foot
building located at 3832 Bay Center
Place, Hayward, California
PREMISES: Approximately 44,280 square feet, more
or less, of office space located in
BayCenter Business Center, and more
commonly known as 3832 Bay Center Place
Hayward, California as outlined in red
on Exhibit "A" attached hereto.
PERMITTED USES: General office and research and
development, and manufacturing of
certain biotechnical and chemical
products.
OCCUPANCY DENSITY: 4 people per 1000 square feet of
occupied space
SCHEDULED TERM COMMENCEMENT DATE: August 1, 1993
LENGTH OF TERM: One Hundred Twenty (120) months
RENT:
<TABLE>
<CAPTION>
Occupancy
Month Level Base Rent
----- ----- ---------
<S> <C> <C> <C>
Base Rent: 1-2 15,000 sf Free of Base Rent
3-12 15,000 sf $.67/sf/mo NNN
13-24 30,000 sf $.67/sf/mo NNN
25-36 44,280 sf $.67/sf/mo NNN
37-60 44,280 sf $.72/sf/mo NNN
61-96 44,280 sf $.82/sf/mo NNN
97-120 44,280 sf $.90/sf/mo NNN
</TABLE>
Estimated First Year Basic Operating
Cost: $.14/sf/mo of occupied space
SECURITY DEPOSIT: $29,700.00
TENANTS PROPORTIONATE SHARE: Months 1-12 11.66% of Project
Months 13-24 23.31% of Project
Months 25-120 34.41% of Project
(Unless occupancy is adjusted as
described herein in Paragraph 1)
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
<PAGE>
TABLE OF CONTENTS
Page
BASIC LEASE INFORMATION 1
Table of Contents 2
1. Premises 3
2. Possession and Lease Commencement 3
3. Term 3
4. Use 3
5. Rules and Regulations 3
6. Rent 3
7. Basic Operating Cost 4
8. Insurance and Indemnification 5
9. Waiver of Subrogation 5
10. Landlord's Repairs and Services 5
11. Tenant's Repairs 5
12. Alterations 5
13. Signs 6
14. Inspection/Posting Notices 6
15. Utilities 6
16. Subordination 6
17. Financial Statements 6
18. Estoppel Certificate 6
19. Security Deposit 7
20. Tenant's Remedies 7
21. Assignment and Subletting 7
22. Quiet Enjoyment 7
23. Condemnation 7
24. Casualty Damage 7
25. Holding Over 8
26. Default 8
27. Liens 9
28. Substitution 9
29. Transfers by Landlord 9
30. Right of Landlord to Perform Tenant's Covenants 9
31. Waiver 9
32. Notices 10
33. Attorneys' Fees 10
34. Successors and Assigns 10
35. Force Majeure 10
36. Miscellaneous 10
37. Additional Provisions 10
EXHIBIT "A" Site Plan, Legal Description
EXHIBIT "B" Tenant Improvement Specifications
EXHIBIT "C" Hazardous Waste Certificate
EXHIBIT "D" First Right of Refusal
EXHIBIT "E" Exceltech Report dated March 1, 1988
<PAGE>
LEASE
THIS LEASE is made as of the 28TH day of JUNE, 1993, between
SPIEKER-SINGLETON #87, LIMITED PARTNERSHIP (herein after called
"Landlord") and LYNX THERAPEUTICS, INC. (hereinafter called
"Tenant").
PREMISES 1. Landlord leases to Tenant and Tenant leases from Landlord,
upon the terms and conditions hereinafter set forth, those
premises (the "Premises") cross-hatched outlined-in red on
Exhibit "A" and described in the Basic Lease Information.
The Premises may be all or part of the building (the
"Building") or of the project (the "Project") which may
consist of more than one building. The Building and Project
are outlined in blue and green respectively on Exhibit "A".
Notwithstanding the foregoing during the first two (2) years
of this Lease, in the event Tenant is actually occupying
more than the occupied space referred to in Basic Lease
Information, then Tenant shall pay for such additional
space on the same square footage cost as outlined.
POSSESSION
AND LEASE
COMMENCEMENT
C. This Lease shall commence August 1, 1993.
TERM 3. The Term of this Lease shall commence on the Term
Commencement Date and continue in full force and effect for
the number of months specified as the Length of and Term in
the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term
Commencement Date is a date other than the first day of the
calendar month the Term shall be the number of months of the
Length of the Term in addition to the remainder of the
calendar month following the Term Commencement Date.
USE 4. A. Tenant shall use the Premises for the Permitted Use and
for no other use or purpose without prior written consent of
Landlord. No increase in the Occupant Density of the
Premises shall be made without the prior written consent of
Landlord. Tenant and it employees, customers, visitors, and
licensees shall have the nonexclusive right to use, in
common with other parties occupying the Buildings or
Project, the parking areas and driveways of the Project,
including without limitation to non-exclusive use of four
parking stalls per 1,000 square feet occupied hereunder,
subject to such reasonable rules and regulations as Landlord
may from time to time prescribe.
B. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibration to emanate from the Premises,
nor take any action which would constitute a nuisance or
would disturb, obstruct or endanger any other tenants of the
Building or Project in which the Premises are situated or
unreasonably interfere with their use of their respective
premises. Tenant shall not receive, store or otherwise
handle any product, material or merchandise which is toxic,
harmful, explosive, highly inflammable or combustible unless
such is done in accordance with applicable rules and
regulations as determined by local, state and federal
authorities. Storage outside the Premises of materials,
vehicles or any other items Landlord deems objectionable is
prohibited without Landlord's prior written consent. Tenant
shall not use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purposes, nor
shall Tenant cause or maintain or permit any nuisance in, on
or about the Premises. Tenant shall not commit or suffer the
commission of any waste in, on or about the Premises. Tenant
shall not allow any sale by auction upon the Premises, or
place any loads upon the floors, walls, or ceilings which
endanger the structure, or place any harmful liquids in the
drainage system of the Building or Project. No waste,
materials or refuse shall be dumped upon or permitted to
remain outside the Premises except in trash containers
placed inside exterior enclosures designated for that
purpose by Landlord.
C. Tenant shall not use the Premises or permit anything to
be done in or about the Premises which will in any way
conflict with any law, stature, ordinance or governmental
rule or regulation now in force or which may hereafter be
enacted or promulgated. Tenant shall at its sole cost and
expense obtain any and all licenses or permits necessary for
Tenant's use of the Premises. Tenant shall promptly comply
with the requirements of any board of fire underwriters or
other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the
Premises. The judgement of any court of competent
jurisdiction or the admission of Tenant in any actions
against Tenant, whether Landlord by a party thereto or not,
that Tenant has so violated any such law, statute,
ordinance, rule, regulation or requirement, shall be
conclusive of such violation as between Landlord and Tenant.
Tenant shall not do or permit anything to be done in, on or
about the Premises, Building or Project, or upon any
contents therein or cause a cancellation of said insurance
or otherwise affect said insurance in any manner. Tenant
shall indemnify Landlord and hold Landlord harmless against
any loss, expense, damage, attorneys' fees or liability
arising out of the failure of Tenant to comply with any
applicable law or comply with the requirements as set forth
herein.
RULES AND 5. Tenant and Tenant's agents, employees, and invitees shall
REGULATIONS faithfully observe and comply with any reasonable rules and
regulations Landlord may from time to time prescribe in
writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the
Premises or Project. Landlord shall not be responsible to
Tenant for the non-compliance by any other tenant or
occupant of the Building or Project with any of the rules
and regulations.
RENT 6. Tenant shall pay to Landlord, without demand throughout the
term, Rent as specified in the Basic Lease Information,
payable in monthly installments in advance on or before the
first day of each calendar month, in lawful money of the
United States, without deduction or offset whatsoever to
Landlord at the address
-3-
<PAGE>
specified in the Basic Lease Information or to such other
firm or to such other place as the Landlord may from time to
time designate in writing. Rent for the first full month of
the Term shall be paid by Tenant upon Tenant's execution of
this Lease. If the obligation for payment of Rent commences
on other than the first day of a month, then Rent shall be
prorated and the prorated installment shall be paid on the
first day of the calendar month succeeding the Term
Commencement Date.
BASIC 7. A. BASIC OPERATING COST. In addition to the Base Rent
OPERATING required to be paid hereunder, Tenant shall pay as
COSTS additional Rent, Tenant's Proportionate Share, as defined in
the Basic Lease Information, of Basic Operating Cost in the
manner set forth below. Basic Operating Cost shall mean all
expenses and costs of every kind and nature which Landlord
shall pay or become obligated to pay, or would be required
to pay if the Project were fully occupied, because of or in
connection with management, maintenance, preservation and
operation of the Project and its supporting facilities
servicing the Project (determined in accordance with
generally accepted accounting principles, consistently
applied) including but not limited to the following:
(1) All real estate taxes, possessory interest taxes,
business or license taxes of fees, service payment in lieu
of such taxes or fees, annual or periodic license or use
fees, excises, transit charges, housing fund assessments,
open space charge, assessments, levies, fees or charges,
general and special, ordinary and extraordinary, unforeseen
as well as foreseen, of any kind (including fees "in-lieu"
of any such tax or assessment) which are assessed, levied,
charged, confirmed, or imposed by any public authority upon
the Project, its operations or the rent (or any proportion
or component thereof), except (a) inheritance or estate
taxes imposed upon or assessed against the Project, or any
part thereof or interest therein, and (b) taxes computed
upon the basis of the net income of Landlord or the owner of
any interest therein.
(2) All insurance premiums and costs, including but not
limited to, any deductible amounts, premiums and cost of
fire, casualty and liability coverage which Landlord is
required to carry pursuant to Section 8.A below, rental
abatement and special hazard insurance applicable to the
Project and Landlord's personal property used in connection
therewith; provided, however, that Landlord may, but shall
not be obligated to, carry special hazard insurance covering
losses caused by casualty not insured under standard fire
and extended coverage insurance, excluding earthquake
insurance obtained without Tenant's prior consent.
(3) Repairs, replacements and general maintenance for
the Premises, Building and project (except for those repairs
expressly the responsibility of Landlord, those repairs paid
for by proceeds of insurance or by Tenant or other third
parties, and alterations attribute solely to tenants of the
Project other than Tenant).
(4) All maintenance, janitorial and service agreements
and cost or supplies and equipment used in maintaining the
Premises, Building and Project and the equipment therein and
the adjacent sidewalks, driveways, parking and service
areas, including with out limitations to alarm service,
window cleaning, elevator maintenance, Building exterior
maintenance and landscaping.
(5) Utilities which benefit all or a portion of the
Premises.
(6) a management and accounting cost recovery equal to
ten percent (10%) of Basic Operating Cost.
In the event that the Project is not fully occupied during
any fiscal year of the Term as determined by Landlord, and
adjustment shall be made in computing the Basic Operating
Cost for such year so that Basic Operating Cost shall be
computed as though the building had bee one hundred percent
(100%) occupied; provided, however, that in no event shall
Landlord be entitled to collect in excess of one hundred
percent (100%) if the total Basic Operating Cost from all of
the tenants in the Project including Tenant.
To the extent commercially reasonable, Landlord will use
third party contractors to perform maintenance, repairs, and
other functions under this Paragraph. Landlord will
negotiate at arms length with these contractors, suppliers
and/or vendors to obtain competitive prices and Landlord
will use its effort during this lease to obtain competitive
pricing for services and products for which Tenant is
financially responsible under this Paragraph 7.
Notwithstanding the foregoing, Operating Costs shall not
include (i) depreciation on the Building, (ii) real estate
broker's commissions, (iii) interest, loan fees and other
carrying costs relating to any mortgage or deed of trust on
the Building or Project, (iv) costs, fines or penalties for
violations by Landlord of any governmental rule, (v) any
obligations of Landlord with respect to Hazardous Materials,
(vi) any amounts for services paid to entities related to
Landlord to the extent said amounts exceed the amounts that
would have been paid to unaffiliated entities for the same
services; (vii) any cost incurred to remedy any defects in
construction of the Building, (viii) any amounts for the
acquisition or maintenance of art work located in the
Building or Project or the cost of insurance thereon. If any
capital expense borne under Paragraph 7 is above ten
thousand dollars ($10,000) then the expense will be
amortized over the useful life with a ten percent (10%)
interest rate.
All costs and expenses shall be determined in accordance
with generally accepted accounting principles which shall be
consistently applied. Basic Operating Cost shall not include
specific costs incurred for the account of, separately
billed to and paid by specific tenants. Notwithstanding
anything herein to the contrary and instance wherein
Landlord, at Landlord's sole reasonable discretion, deems
Tenant to be responsible for any amounts greater than its
Proportionate Share, Landlord shall have the right to
allocate cost in any manner Landlord deems reasonably
appropriate.
B. PAYMENT OF ESTIMATED BASIC OPERATING COST. "Estimated
Basic Operating Cost" for any particular year shall mean
Landlord's estimate of the Basic Operating Cost for such
fiscal year made prior to commencement of such fiscal year
as hereinafter provided. Landlord shall have the right from
time to time to revise its fiscal year and interim
accounting periods so long as the periods as so revised are
reconciled with prior periods in accordance with generally
accepted accounting principles applied in a consistent
manner. During the last month of each fiscal year during the
Term, or as soon thereafter as practicable, Landlord shall
give Tenant written notice of the Estimate Basic Operating
Cost for ensuing fiscal year. Tenant shall pay Tenant's
Proportionate Share of the Estimated Basic Operating Costs
with installments on the first day of each calendar month
during such year, in advance. If at any time during the
course of the fiscal year, Landlord determines that Basic
Operating Cost will apparently vary from the then Estimated
Basic Operating Cost by more than ten percent (10%),
Landlord may, by written notice to Tenant, revise the
Estimate Basic Operating Cost for the balance of such fiscal
year and Tenant shall pay Tenant's Proportionate Share of
the Estimated Basic Operating Cost as so revised for the
balance of the then current fiscal year on the first of each
calendar month and there after.
C. COMPUTATION OF BASIC OPERATING COST ADJUSTMENT. "Basic
Operating Cost Adjustment" shall mean the difference between
Estimated Basic Operating Cost and Basic Operating Cost for
any fiscal year determined as hereinafter provided. Within
ninety (90) days after the end of each fiscal year, as
determined by Landlord, or as soon thereafter as possible,
Landlord shall deliver to Tenant a statement of Basic
Operating Cost for the fiscal year just ended accompanied by
a computation of Basic Operating Cost Adjustment. If such
statement shows that Tenant's payment based upon Estimated
Basic Operating Cost is less than Tenant's Proportionate
Share of Basic Operating Cost, then Tenant shall pay to
Landlord the difference within twenty (20) days after
receipt of such statement. If such statement shows that
Tenant's payments of Estimated Basic Operating Cost exceed
Tenant's Proportionate Share of Basic Operating Cost is less
than Tenant's Proportionate Share of Basic Operating Cost,
then Tenant shall pay to Landlord the difference within
twenty (20) days after receipt of such statement. If such
statement shows that Tenant's payments of Estimated Basic
Operating Cost exceed Tenant's Proportionate Share of Basic
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Operating Costs, then (provided that Tenant is not in
default under this Lease), Landlord shall pay to Tenant the
difference within Twenty (20) days of such statement. If
this Lease has been terminated or the Term hereof has
expired prior to the date of such statement. If this Lease
has been terminated or the Term hereof has expired prior to
the date of such statement, then the Basic Operating Cot
Adjustment shall be paid by the appropriate party within
twenty (20) days after the date of delivery of the
statement. Should this Lease commence or terminate at any
time other than the first day of the fiscal year, Tenant's
Proportionate Share of the Basic Operating Cost adjustment
shall be prorated by reference to the exact number of
calendar days during such fiscal year for which the Tenant
is obligated to pay Base Rent.
D. NET LEASE. This shall be net Lease and Base Rent shall be
paid to Landlord absolutely net of all costs and expenses
except as herein provided. The provisions for payment of
Basic Operating Cost and the Basic Operating Cost Adjustment
are intended to pass on to Tenant and reimburse Landlord for
all costs and expenses of the nature described in paragraph
7A incurred in connection with ownership and operation of
the Building or Project and such additional facilities now
and in subsequent years as may be determined by Landlord to
be necessary to the Building or Project.
E. TENANT AUDIT. Tenant shall have the right, at Tenant's
expense and upon not less than five(5) days prior written
notice to Landlord, to review at reasonable times, in
Landlord's office, Landlord's books and records applicable
to Tenant's Lease for purposes of verifying Landlord's
calculation of the Basic Operating Cost and Basic Operating
Cost Adjustment.
In the event that Tenant shall dispute the amount set fort
in any statement provided by Landlord under Paragraph 7B or
7C above, Tenant shall have the right, not later than twenty
(20) days following the receipt of such statement and upon
condition that Tenant shall first deposit with Landlord the
full amount in dispute, to cause Landlord's books and record
with respect to such fiscal year to be audited by certified
public accountants selected by Tenant and subject to
Landlord's reasonable right of approval. The Basic Operating
Cost Adjustment shall be appropriately adjusted on the basis
of such audit. If such audit discloses a liability for a
refund in excess of ten percent (10%) of Tenant's
Proportionate Share of the Basic Operating Cost Adjustment
previously reported, the cost of such audit shall be borne
by Landlord; otherwise the cost of such audit shall be paid
by Tenant. If Tenant shall not request an audit in
accordance with the provisions of this paragraph 7B within
twenty (20) days of receipt of Landlord's statement provided
pursuant to paragraph 7B or 7C, such statement shall be
final and binding for all purposes hereof.
INSURANCE AND 8. A. CASUALTY INSURANCE. Landlord agrees to maintain insurance
INDEMNIFI- insuring the Buildings of the Project of which the Premises
CATIONS are a part, against fire, lightning, extended coverage,
vandalism and malicious mischief in an amount not less then
eighty percent (80%) of the replacement cost thereof. Such
insurance shall be for the sole benefit of Landlord and
under its sole control. Landlord shall not be obligated to
insure any furniture, equipment, machinery, goods or
supplies not covered by this Lease which Tenant may keep or
maintain in the premises or any leasehold improvements,
additions or alterations which Tenant may make upon the
Premises.
B. LIABILITY INSURANCE. Tenant shall purchase at its own
expense and keep in force during this Lease a policy or
policies of comprehensive liability insurance, including
personal injury and property damage, in the amount of not
less than Five Hundred Thousand dollars ($500,000.00) for
property damage and Two Million Dollars ($2,00,000.00) per
occurrence for personal injuries or deaths of persons
occurring in or about the Premises and Project. Said
policies shall (1) name Landlord and if applicable, its
agent, and any party holding an interest to which this Lease
may be subordinated as additional insureds, (2) be issued by
an insurance company acceptable to Landlord and licenses to
do business in the State of California, and (3) provide that
said insurance shall not be cancelled unless thirty (30)
days prior written notice shall have been given to landlord.
Said policy or policies or certificates thereof shall be
delivered to Landlord by Tenant upon commencement of the
lease and upon each renewal of said insurance.
C. INDEMNIFICATION. Landlord shall not be liable to Tenant
for any loss or damage to person or property caused by
theft, fire, act of God, acts of a public enemy, riot,
strike, insurrection, war, court order, requisition or order
of governmental body or authority or for any damage or
inconvenience which may arise through repair or alteration
of any part of the Building or Project or failure to make
any such repair except to the extent caused by the
negligence or willful misconduct of Landlord and except as
expressly otherwise provided in paragraph 10 and 12. Tenant
shall indemnify Landlord and hold Landlord harmless from any
and all loss, cost, damage, injury or expense arising out of
or related to (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or
indirectly from the use of occupancy of the Premises, or
from any activities of Tenant, its agents, servants,
employees or anyone in or about the Premises or Project, or
form any cause whatsoever, (2) claims for work or labor
performed, or for materials or supplies furnished to or at
the request of Tenant or in connection with performance of
any work done for the account of Tenant within the Premises
or Project, and (3) claims arising from any breach or
default on the part of Tenant in the performance of any
covenant contained in this Lease. Such indemnity shall
include without limitation the obligation to provide all
costs of defense against any such claims including any
action or proceeding brought against Landlord. The foregoing
indemnity shall not be applicable to claims arising from the
active negligence or willful misconduct of Landlord.
Landlord shall defend, indemnify and hold harmless Tenant,
its agents, and any and all affiliates of Tenant including
without limitation, any corporations, or other entities
controlling, controlled by or under common control with
Tenant, from and against any and all claims or liabilities
arising from (i) the negligence or willful misconduct of
Landlord, its officers, employees, agents, visitors,
invitees or licenses, or (ii) any breach or default in any
material warranty or material representation of Landlord
hereunder or the performance of any material covenant on
Landlord's part to be performed hereunder. The provisions of
this paragraph shall survive the expiration or termination
of this Lease with respect to any claims or liability
occurring prior to such expiration or termination.
WAIVER OF 9. To the extent permitted by law and without affecting the
SUBROGATION coverage provided by insurance required to be maintained
hereunder, but subject to the approval of each insurance
carrier affected thereby. Landlord and Tenant each waive any
right to recover against the owner (a) damages for injury to
or death of persons, (b) damages to property, (c) damages to
the Premises or any part thereof, or (d) claims arising by
reason of the foregoing to the extent such damages or claims
are covered by insurance. This provision is intended to
waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of
subrogation on any insurance carrier. The coverage obtained
by each party pursuant to this Lease shall include, without
limitation, a waiver of subrogation by the carrier which
conforms to the revisions of this paragraph, but subject to
the approval of each insurance carrier affected thereby.
LANDLORD'S 10. Landlord shall at Landlord's expense maintain the structural
REPAIR AND soundness of the roof, foundations and exterior walls of the
SERVICES building in good repair, reasonable ware and tear excepted.
The term wall as used herein shall not include windows,
glass or plate glass, exterior doors, special store fronts
or office entries. The term roof as used herein shall not
include skylights, smoke hatches or roof vents. Landlord
shall perform on behalf of Tenant and other tenants of the
Project the maintenance of the public an common areas of the
Project including but not limited to the landscaped areas,
parking areas, driveways, the truck staging areas, rail spur
areas, fire sprinkler systems, sanitary and storm sewer
lines, utility services, electric and telephone
equipment servicing the Building(s), exterior lighting, and
anything which affects the operation and exterior appearance
of the Project.
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Tenant shall reimburse Landlord for all such costs in
accordance with Paragraph 7. Any damage caused by or repairs
necessitated by any act of Tenant may be repaired by
Landlord at Landlord's option and at Tenant's expense.
Tenant shall immediately give Landlord written notice of any
defect or need of repairs after which Landlord shall have
reasonable opportunity to repair same. Landlord in the
course of its maintenance and repairs shall use its best
efforts too minimize any interference with Tenant's
operations. Landlord's liability with respect to any
defects, repairs, or maintenance for which Landlord is
responsible under any of the provisions of this Lease shall
be limited to the cost of such repairs or maintenance.
Landlord in the course of its maintenance and repairs shall
use its best efforts to minimize any interference with
Tenant's operations. If Landlord fails to timely perform its
maintenance and repair obligations hereunder and, as a
consequence, Tenant's use of the Premises is substantially
impaired, Tenant, in addition to all other remedies
available hereunder and, as a consequence, Tenant's use of
the Premises is substantially impaired, Tenant, in addition
to all other remedies available hereunder or by law shall
have the right to cause such repair or maintenance to be
performed by Landlord.
TENANT'S 11. Tenant shall at Tenant's expense maintain all parts of the
REPAIRS Premises in a good clean and secure condition promptly
making all necessary repairs and replacements including but
not limited to all windows, glass, doors and any special
office entries, walls and wall finishes, floor covering,
heating, ventilating and air conditioning systems, truck
doors, dock bumpers, dock plates and levelers, roofing,
plumbing work and fixtures, downspouts, skylights, smoke
hatches and roof vents. Tenant shall at Tenant's expense
also perform regular removal of trash and debris. Tenant
shall, at its own expense, enter into a regularly scheduled
preventative maintenance/service contract with a maintenance
contractor for servicing all hot water, heating and air
conditioning systems and equipment within or serving the
Premises. The maintenance contractor and the contract must
be approved by Landlord. The service contract must include
all services suggested by the equipment manufacturer within
the operation/maintenance manual and must become effective
and a copy thereof delivered to Landlord within thirty (30)
days of the Term Commencement Date. Tenant shall not damage
any demising wall or disturb the integrity and support
provided by any demising wall and shall, at its sole
expense, immediately repair any damage to any demising wall
caused by Tenant or its employees, agents or invitees.
ALTERATIONS 12. Except with respect to the initial Tenant improvements
described in Exhibit B attached hereto, which improvements
Landlord by execution hereof hereby approves, Tenant shall
not make, or allow to be made, any structural alterations or
physical additions in, about or to the premises costing more
than Five Thousand Dollars ($5,000.00) in each instance and
cumulatively no more than Ten Thousand Dollars ($10,000.00)
each year without obtaining the prior written consent of
Landlord which consent of Landlord which consent shall not
be unreasonably withheld with respect to proposed
alterations and additions which (a) comply with all
applicable laws, ordinances, rules and regulations, (b) are
in Landlord's reasonable opinion compatible with the Project
and its mechanical, plumbing, electrical, and
heating/ventilation/air conditioning systems, and in
Landlord's reasonable opinion will not interfere with the
use and occupancy of any other portion of the Building or
Project by any other Tenant or its invitees. Specifically,
but without limiting the generality of the foregoing,
Landlord shall have the right of consent for all plans and
specifications for the alterations or additions subject to
this Section 12, construction means and methods, any
contractor or subcontractor to be employed on the work of
alterations or additions, and the time for performance of
such work. Tenant shall also supply to Landlord any
documents and information reasonably requested by Landlord
in connection with its consideration of a request for
approval hereunder. Tenant must have Landlord's written
approval and all appropriate permits and licenses prior to
the commencement of said alterations and additions. All
alterations and additions permitted hereunder other than the
initial Tenant improvements described in Exhibit "B" hereto
shall be made and performed by Tenant without cost or
expense to Landlord including any costs or expenses which
Landlord may incur in electing to have an outside agency
review said plans and specifications provided the cost to
Tenant of any such review shall not exceed Five Hundred
Dollars ($500.00). Landlord, by written notice at the time
it approves any such alterations, shall have the right to
required Tenant to remove any or all alterations, additions,
improvements and partitions made by Tenant and restore the
Premises to their original condition by the termination of
this Lease, by lapse of time or otherwise, all at Tenant's
expense provided Tenant shall have no obligation to remove
the initial tenant improvements described in Exhibit "B"
hereto. All such removals and restoration shall be
accomplished in a good workmanlike manner so as not to cause
any damage to the Premises or Project whatsoever. If
Landlord so elects, such alterations, physical additions or
improvements shall become the property of Landlord and
surrendered to Landlord upon the termination of this Lease
by lapse of time or otherwise; provided, however that this
clause shall not apply to trade fixtures or furniture owned
by Tenant. In addition to and wholly apart from its
obligation to pay Tenant's Proportionate Share of Basic
Operating Costs, Tenant shall be responsible for and shall
pay prior to delinquency any taxes or governmental service
fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other chargers imposed
upon, levied with respect to or assessed against its
personal property, on the value of its alterations,
additions or improvements and on its interest pursuant to
this Lease. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay
the amount thereof as invoiced to Tenant by Landlord.
SIGNS 13. All signs, notices and graphics of every kind or character,
visible in or from public view or corridors, the common
areas or the exterior of the Premises, shall be subject to
Landlord's prior written approval, which Landlord shall have
the right to withhold in its absolute and sole discretion.
Tenant shall not place or maintain any banners whatsoever or
any window decor in or on any exterior window or window
fronting upon any common areas or service area or upon any
truck doors or man doors without Landlord's prior written
approval which Landlord shall have the right to grant or
withhold in its absolute and sole discretion. Any
installation of signs or graphics on or about the Premises
and Project shall be subject to any applicable governmental
laws, ordinances, regulations and to any other requirements
imposed by Landlord. Tenant shall remove all such signs and
graphics by the termination of this Lease. Such
installations and removals shall be made in such manner as
to avoid injury to or defacement of the Premises, Building
or Project and any other improvements contained therein, and
Tenant shall repair any injury or defacement including
without limitation discoloration caused by such installation
or removal.
INSPECTION/ 14. After reasonable notice, except in the emergencies where no
POSTING such notice shall be required, Landlord, it's agents and
NOTICES representatives, shall have the right to enter the Premises
to inspect the same, to lean, to perform such work as may be
permitted or required hereunder, to make repairs or
alterations to the Premises or Project or to other tenant
spaces therein, to deal with emergencies, to post such
notices as may be permitted or required by law to prevent
the perfection of liens against Landlord's interest in the
Project or to exhibit the Premises to prospective tenants,
purchasers, encumbrances or others, or for any other purpose
as Landlord may deem necessary or desirable; provided,
however, that Landlord shall not unreasonably interfere with
Tenant's business operations. Tenant shall not be entitled
to any abatement of Rent by reason of the exercise of any
such right of entry. Six months prior to the end of the
lease, Landlord shall have the right to erect on the
Premises and/or Project a suitable sign indicating that the
Premises are available for lease. Tenant shall give written
notice to Landlord at least thirty (30) days prior to
vacating the premises and shall meet with Landlord for a
joint inspection of the Premises at the time of vacating the
Premises shall conclusively be deemed correct for purposes
of determining Tenant's responsibility for repairs and
restoration.
UTILITIES 15. Tenant shall pay for all water, gas, heat, air conditioning,
light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or from the Premises,
together with any taxes, penalties, surcharges or the like
pertaining thereto, and maintenance charges for utilities
and shall furnish all electric light bulbs, ballasts and
tubes used within the Premises. If any such services are not
separately
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metered to Tenant, Tenant shall pay a reasonable proportion,
as determined by Landlord, of all charges jointly serving
other premises, Landlord shall not be liable for any damages
directly or indirectly resulting from nor shall the Rent or
any monies owed Landlord under this Lease herein reserved be
abated by reason of (a) the installation, use or
interruption of use of any equipment used in connection with
the furnishing of any of the foregoing utilities and
services, (b) failure to furnish or delay in furnishing any
of the foregoing utilities and services, when such failure
or delay is caused by acts of God or the elements, labor
disturbances of any character, any other accidents or other
conditions beyond the reasonable control of Landlord, or (c)
the limitation, curtailment, rationing or restriction on use
of water, electricity, gas or any other form of energy or
any other service or utility whatsoever serving the Premises
or Project. Landlord shall be entitled to cooperate
voluntarily and in a reasonable manner in the efforts of
national, state or local government agencies or utility
suppliers in reducing energy or other resource consumption.
The obligation to make services available hereunder shall be
subject to the limitations of any such voluntary, reasonable
program.
SUBORDINATION 16. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a
subordination, this Lease shall be subject and subordinate
at all times to (a) all ground leases or underlying leases
which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project
are situated, or both, and (b) any mortgage or deed of trust
which may now exist or be placed upon said Project, land,
ground leases or underlying leases, or Landlord's interest
or estate in any of the said items, which is specified as
security. Notwithstanding the foregoing, Landlord shall have
the right to subordinate or cause to be subordinated any
such ground leases or underlying leases or any such liens to
this Lease. In the event that any ground lease or underlying
lease terminates for any reason or any mortgage or deed of
trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason. Tenant shall execute and deliver,
upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority
of subordination of this Lease with respect to any such
ground leases or underlying leases or any such mortgage or
deed of trust. Landlord will attempt to get a
non-disturbance agreement from any subsequent mortgagor on
the property.
FINANCIAL 17. At the request of Landlord, but not more than twice in any
STATEMENTS twelve (12) month period, Tenant shall provide to Landlord
its current financial statement or other information
discussing financial worth which Landlord shall use solely
for purposes of this Lease and in connection with the
ownership, management and disposition of the property
subject hereto.
ESTOPPEL 18. Tenant agrees from time to time within ten (10) days after
CERTIFICATES request of Landlord, to delivery to Landlord, or Landlord's
designee, an estoppel certificate stating that this Lease is
in full force and effect, the date to which Rent has been
paid, the unexpired portion of this Lease and such other
matters pertaining to this Lease as may be reasonably
requested by Landlord. Failure by Tenant to execute and
deliver such certificate shall constitute an acceptance of
the Premises and acknowledgement by Tenant that the
statements included are true and correct without exception.
Landlord and Tenant intend that any statement delivered
pursuant to this paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser
of the Project or any interest therein. The parties agree
that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement
for Landlord's execution of the Lease.
SECURITY 19. Tenant agrees to deposit with Landlord upon execution of
DEPOSIT this Lease, a Security Deposit as stated in the Basic Lease
Information which sum shall be held by Landlord, without
obligation for interest, as security for the performance of
Tenant's covenants and obligations under this Lease, it
being expressly understood and agreed that such deposit is
not an advance rental deposit or a measure of damages
incurred by Landlord in case of Tenant's default. Upon the
occurrence of any event of default by Tenant, Landlord may,
from time, without prejudice to any other remedy provided
herein or provided by law, use such fund to the extent
necessary to make good any arrears of Rent or other payments
due to Landlord hereunder and any other damage, injury,
expense or liability caused by such event of default, and
Tenant shall pay to Landlord, on demand, the amount so
applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be
deemed the property of Landlord, any remaining balance of
such deposit shall be returned by Landlord to Tenant at such
time after termination of this Lease that all of the
Tenant's obligations under this Lease have been fulfilled.
TENANT'S 20. Tenant shall look solely to Landlord's interest in the
REMEDIES Project for recovery of any judgement from Landlord.
Landlord, or if Landlord is a partnership, its partners
whether general or limited, or if it is a corporation, its
directors, officers of shareholders, shall never be
personally liable for any such judgement. Any lien obtained
to enforce any such judgement and any levy of execution
thereon shall be subject and subordinate to any lien,
mortgage or deed of trust on the Project.
ASSIGNMENT 21. A. Tenant shall not assign or sublet the Premises or any
AND part thereof without Landlord's prior written approval
SUBLETTING except as provided herein. If Tenant desires to assign this
Lease or sublet any or all of the Premises, Tenant shall
give Landlord written notice sixty (60) days prior to the
anticipated effective date of the assignment or sublease.
Landlord shall then have a period of thirty (30) days
following receipt of such notice to notify Tenant in writing
that Landlord elects to permit Tenant to assign this Lease
or sublet such space, subject, however, to Landlord's prior
written approval of the proposed assignee or subtenant and
of any related documents or agreements associated with the
assignment or sublease, such consent not to be unreasonably
withheld so long as the use of the Premises by such proposed
assignee or subtenant would be a Permitted Use and would not
in Landlord's opinion increase Occupant Density of the
Project, the proposed assignee or subtenant is of sound
financial condition, and the proposed assignment or sublease
would not be likely to result in any decrease in Rent. If
Landlord should fail to notify after having received
notification of such intent to sublease, Tenant in writing
of such election within said period, Landlord shall be
deemed to have approved the proposed assignee or subtenant.
B. Any Rent or other reconsideration realized by Tenant
under any such sublease or assignment in excess of the Rent
payable hereunder, after amortization of (1) the reasonable
cost of any improvements which Tenant has made to the
Premises and (2) reasonable subletting and assignment costs,
shall be divided and paid fifty percent (50%) to Tenant,
fifty percent (50%) to Landlord.
C. In any subletting or assignment undertaken by Tenant,
Tenant shall diligently seek to obtain the maximum rental
amount available in the marketplace for such subletting or
assignment.
D. For purposes of this Lease, and assignment or subletting
shall not include any assignment or sublease of all or any
portion of the Premises made to any entity which controls,
is controlled by, or is under common control with Tenant; to
any entity which results from a merger or consolidation with
Tenant (including any successor corporation); to any entity
engaged in a joint venture with Tenant; or to any entity
which acquires substantially all of the stock or assets of
Tenant, as a going concern, with respect to the business
that is being conducted in the Premises (hereinafter each
"Permitted Transfer"). In addition, a sale or transfer of
capital stock of Tenant shall be deemed a Permitted Transfer
if (1) such sale or transfer occurs in connection with any
bona fide financing or capitalization for the benefit of
Tenant, or (2) Tenant is a publicly traded corporation,
provided Landlord is in no worse position with respect to
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Landlord's economic security under this Lease.
Notwithstanding anything to the contrary contained in this
Lease, Landlord shall have no right of approval or consent
with respect to any Permitted Transfer, nor shall Landlord
have any right to any sums or other economic consideration
resulting from any Permitted Transfer.
Notwithstanding the foregoing, a transfer shall be a
"permitted transfer" only if Landlord is in no worse a
position with respect to Landlord's economic security under
this Lease (including payment of rent).
F. No assignment or subletting by Tenant shall relieve
Tenant of any obligations under this Lease. Any assignment
or subletting which conflicts with the provisions hereof
shall be void.
QUIET 22. Landlord represents that it has full right and authority to
ENJOYMENT enter into this Lease and that Tenant, upon paying the Rent
and performing its other covenants and agreements herein set
forth, shall peaceably and quietly have, hold and enjoy the
Premises for the Term hereof without hindrance or
molestation from Landlord, subject to the terms and
provisions of this Lease.
CONDEMNATION 23. A. If the whole or any substantial portion of the Project of
which the Premises are a part should be taken or condemned
for any public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the taking would prevent or
materially interfere with the Permitted Use of the Premises,
this Lease shall terminate and the Rent shall be abated
during the unexpired portion of this Lease, effective when
the physical taking of said Premises shall have occurred.
B. If a portion of the Project of which the Premises are a part
should be taken or condemned for any public use under any
governmental law, ordinance, or regulation, or by right of
eminent domain, or by private purchase in lieu thereof, and
this Lease is not terminated as provided in the subparagraph
23A above, this Lease shall not terminate, but the Rent
payable hereunder during the unexpired portion of the Lease
shall be reduced to such extent as may be fair and
reasonable under all of the circumstances.
C. Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever which may be
paid or made in connection with such taking or conveyance
and Tenant shall have no claim against Landlord or otherwise
for the value of any unexpired portion of this Lease.
Notwithstanding the foregoing paragraph, any compensation
specifically awarded Tenant for loss of business, Tenant's
personal property, the unamortized cost of any tenant
improvements or alterations, moving cost or loss of
goodwill, shall be and remain the property of Tenant.
CASUALTY 24. A. If the Premises should be damaged or destroyed by fire,
DAMAGE tornado or other casualty, Tenant shall give immediate
written notice thereof to Landlord. Within thirty (30)
days of such notice, Landlord shall notify Tenant whether
in Landlord's opinion such repairs can be made either (1)
within ninety (90) days, (2) in more than ninety (90)
days but in less than one hundred eighty (180) days, or
(3) in more than one hundred eighty (180) days from the
date of such notice; Landlord's determination shall be
binding on Tenant. If Landlord fails to complete the
repairs within one hundred fifty (150) days after the
date upon which Landlord is notified of such damage, such
period of time to be extended for delays caused by the
fault or neglect of Tenant or because of acts of God,
acts of public agencies, labor disputes, strikes, fires,
freight embargoes, rainy or stormy weather, inability to
obtain materials, supplies or fuels, or delay of the
contractors or subcontractors due to such causes or other
contingencies beyond the control of Landlord, Tenant may at
its option terminate this Lease by delivering written notice
of termination to Landlord whereupon this Lease shall
terminate thirty (30) days thereafter.
B. If the Premises should be damaged by fire, tornado or other
casualty but only to such extent that rebuilding or repairs
can in Landlord's estimation be completed within ninety (90)
days after the date upon which Landlord is notified by
Tenant of such damage, this Lease shall not terminate, and
Landlord shall at its sole cost and expense thereupon
proceed with reasonable diligence to rebuild and repair the
Premises to substantially the condition in which they
existed prior to such damage, except that Landlord shall not
be required to rebuild, repair or replace any part of the
partitions, fixtures, additions and other improvements which
may have been placed in, on or about the Premises by Tenant.
If the Premises are untenantable in whole or in part
following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be reduced to
such extent as may be fair and reasonable under all of the
circumstances.
C. If the Premises should be damaged by fire, tornado or
other casualty but only to such extent that rebuilding or
repairs can in Landlord's estimation be completed in more
than ninety (90) days but in less than one hundred eighty
(180) days, then Landlord shall have the option of either
(1) terminating the Lease by written notice given to
Tenant within thirty (30) days after the date upon which
Landlord is notified by Tenant of such damage, effective
upon the date of the occurrence of such damage, in which
event the Rent shall be abated during the unexpired
portion of the Lease, or (2) electing to rebuild or
repair the Premises to substantially the condition in
which they existed prior to such damage except that
Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, additions
and other improvements which may have been placed in, on
or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage,
the Rent payable hereunder during the period in which
they are untenantable shall be reduced to such extent as
may be fair and reasonable under all of the
circumstances. In the event that Landlord should fail to
complete such repairs and rebuilding within one hundred
eighty (180) days after the date upon which Landlord is
notified by Tenant of such damage, such period of time to
be extended for delays caused by the fault or neglect of
Tenant or because of acts of God, acts of public
agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain
materials, supplies or fuels, or delay of the contractors
or subcontractors due to such causes or other
contingencies beyond the reasonable control of Landlord,
Tenant may at its option terminate this Lease by
delivering thirty (30) days prior written notice of
termination to Landlord as Tenant's exclusive remedy,
whereupon all rights and obligations hereunder shall
cease and terminate.
D. If the Premises should be so damaged by fire, tornado, or
other casualty that rebuilding or repairs cannot in
Landlord's estimation be completed within one hundred eighty
(180) days after the date upon which Landlord is notified by
Tenant of such damage, this Lease shall terminate and the
Rent shall be abated during the unexpired portion of this
Lease, effective upon the date of the occurrence of such
damage.
E. Notwithstanding anything herein to the contrary, in the
event that holder of any indebtedness secured by a mortgage
or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then
Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within
fifteen (15) days after such requirement is made by any such
holder, whereupon
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all rights and obligations hereunder shall cease and
terminate.
F. The provision of Section 1942, Subdivision 2, and
Section 1933, Subdivision 4, of the Civil Code of California
is superseded by the foregoing.
G. In the event Landlord chooses to rebuild under this
Paragraph 24, Landlord agrees to do so without delay and
complete such rebuilding in as expeditious a manner as is
commercially reasonably given the circumstances.
HOLDING OVER 25. If Tenant shall retain possession of the Premises or any
portion thereof without Landlord's consent following the
expiration of the Lease or sooner termination for any
reason, then Tenant shall pay to Landlord for each day of
such retention one hundred fifty percent (150%) triple-the
amount of the daily rental for the first month prior to the
date of expiration or termination. Tenant shall also
indemnify and hold Landlord harmless from any loss or
liability resulting from delay by Tenant in surrendering the
Premises, including, without limitation, any claims made by
any succeeding tenant founded on such delay. Alternatively,
if Landlord gives notice of Landlord's consent to Tenant's
holding over, such holding over shall constitute renewal of
the Lease on whatever terms are specified in such notice.
Acceptance of Rent by Landlord following expiration or
termination shall not constitute a renewal of this Lease,
and nothing contained in this paragraph shall waive
Landlord's right of reentry or any other right. Unless
Landlord exercises the option hereby given to it, Tenant
shall be only a Tenant at sufferance, whether or not
Landlord accepts any Rent from Tenant while Tenant is
holding over without Landlord's written consent.
Additionally, in the event that upon termination of the
Lease, Tenant has not fulfilled its obligation with respect
to repairs and cleanup of the Premises or any other Tenant
obligations as set forth in this Lease, then Landlord shall
have the right to perform any such obligations as it deems
necessary at Tenant's sole cost and expense, and any time
required by Landlord to complete such obligations shall be
considered a period of holding over and the terms of this
paragraph shall apply provided Landlord diligently
undertakes to complete such work in a timely
manner.
DEFAULT 26. A. EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an event of default on the part of Tenant:
(1) ABANDONMENT. Vacation or abandonment of the premises
for a continuous period in excess of five (5) days. Tenant
waives any right of notice Tenant may have under Section
1951.3 of the Civil Code of the State of California, the
terms of this subparagraph 26A being deemed such notice to
Tenant as required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of
Rent or any other amount due and payable hereunder upon the
date when said payment is due, such failure continuing
without cure by payment of the delinquent Rent and late
charge or other obligations for a period of five (5) days
after written notice and demand; provided, however, that
except as expressly otherwise provided herein, Landlord
shall not be required to provide such notice more than twice
during any three (3) year period of the Term, the third such
non-payment in such period constituting default for all
purposes hereof without requirements of notice.
(3) OTHER OBLIGATIONS. Failure to perform any
obligations, agreement or covenant under this Lease other
than those matters specified in subparagraphs (1) and (2) of
this subparagraph 26A, such failure continuing for fifteen
(15) days after written notice of such failure, or such
longer period as Landlord reasonably determines to be
necessary to remedy such default, provided that Tenant shall
continuously and diligently pursue such remedy at all times
until such default is cured.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant
for the benefit of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary
petition by Tenant's creditors which involuntary petition
remains undischarged for a period of thirty (30) days. In
the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and
continue to perform the obligation of Tenant hereunder, such
trustee or Tenant shall, in such time period as may be
permitted by the bankruptcy court having jurisdiction, cure
all defaults of Tenant hereunder outstanding as of the date
of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord
of the continued performance of Tenant's obligations under
this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take
possession of substantially all of Tenant's assets of the
Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of ten (10) days
after the levy thereof.
(7) ATTACHMENT. The attachment, execution or other
judicial seizure of all or substantially all of Tenant's
assets of the Premises, if such attachment or other seizure
remains undismissed or undischarged for a period of twenty
(20) days after the levy thereof.
B. REMEDIES UPON DEFAULT.
(1) RENT. All failures to pay any monetary obligation
to be paid by Tenant under this Lease shall be construed as
obligations for payment of Rent.
(2) TERMINATION. In the event of the occurrence of any
event of default Landlord shall have the right, with or
without notice or demand, to immediately terminate this
Lease, and at any time thereafter recover possession of the
Premises or any part thereof and expel and remove therefrom
Tenant and any other person occupying the same, by any
lawful means, and again repossess and enjoy the Premises
without prejudice to any of the remedies that Landlord may
have under this Lease, or at law or equity by reason of
Tenant's default or of such termination.
(3) CONTINUATION AFTER DEFAULT. Even though Tenant has
breached this Lease and/or abandoned the Premises, this
Lease shall continue in effect for so long as Landlord does
not terminate Tenant's right to possession under paragraph
26B(2) hereof, and Landlord may enforce all its rights and
remedies under this Lease, including but not without
limitation, the right to recover Rent as it becomes due, and
Landlord, without terminating this Lease, may exercise all
of the rights and remedies of a Landlord under Section
1951.4 of the Civil Code of the State of California or any
successor code section. Acts of maintenance preservation or
efforts to lease the Premises or the appointment of a
receiver upon application of Landlord to protect Landlord's
interest under this Lease shall not constitute an election
to terminate Tenant's right to possession.
C. DAMAGES UPON TERMINATION. Should Landlord terminate this
Lease pursuant to the provisions of paragraph 26B(2) hereof,
Landlord shall have all the rights and remedies of a
Landlord provided by Section 1951.2 of the Civil Code of the
State of California, or successor code sections. Upon such
termination, in addition to any other rights and remedies to
which Landlord may be entitled under applicable law,
Landlord shall be entitled to recover from Tenant: (1) the
worth at the time of award of the unpaid Rent and other
amounts which had been earned at the time of termination,
(2) the worth at the time of award of the amount by which
the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of
such Rent loss that the Tenant proves could have been
reasonably avoided, (3) the worth at the time of award of
the amount by which the unpaid Rent for the balance of the
term after the time of award exceeds the
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amount of such Rent loss that the Tenant proves could be
reasonably avoided, and (4) any other amount necessary to
compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations under this
Lease or which, in the ordinary course of things, would be
likely to result therefrom. The "worth at the time of award"
of the amounts referred to in (1) and (2) above shall be
computed with interest at the maximum rate allowed by law.
The "worth at the time of award" of the amount referred to
in (3) above shall be computed by discounting such amount at
the Federal Discount Rate of the Federal Reserve Bank of
San Francisco at the time of the award plus one percent
(1%).
D. LATE CHARGE. In addition to its other remedies, Landlord
shall have the right without notice or demand to add to the
amount of any payment required to be made by Tenant
hereunder, and which is not paid on or before the date the
same is due, an amount equal to five percent (5%) of the
delinquency for each month or portion thereof that the
delinquency remains outstanding to compensate Landlord for
the loss of the use of the amount not paid and the
administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such
delinquencies would be difficult to compute and the amount
stated herein represents a reasonable estimate thereof.
E. REMEDIES CUMULATIVE. All rights, privileges and elections
or remedies of the parties are cumulative and not
alternative to the extent permitted by law and except as
otherwise provided herein.
LIENS 27. Tenant shall keep the premises free from liens arising out
of or related to work performed, materials or supplies
furnished or obligations incurred by Tenant or in
connection with work made, suffered or done by Tenant in
or on the Premises or Project. In the event that Tenant
shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record
by payment or posting of a proper bond, Landlord shall
have, in addition to all other remedies provided herein
and by law, the right, but not the obligation, to cause
the same to be released by such means as it shall deem
proper, including payment of the claim giving rise to
such lien. All sums paid by Landlord on behalf of Tenant
and all expenses incurred by Landlord in connection
therefore shall be payable to Landlord by Tenant on
demand with interest at the maximum rate allowable by
law. Landlord shall have the right at all times to post
and keep posted on the Premises any notices permitted or
required by law, or which Landlord shall deem proper, for
the protection of Landlord, the Premises, the Project and
any other party having an interest herein, from
mechanics' and materialmen's liens, and Tenant shall give
Landlord not less than ten (10) business days prior
written notice of the commencement of any work in the
Premises or Project which could lawfully give rise to a
claim for mechanics' or materialmen's lien.
SUBSTITUTION 28.
TRANSFERS BY 29. In the event of a sale or conveyance by Landlord of the
LANDLORD Project, the same shall operate to release Landlord from any
future liability upon any of the covenants or conditions,
express or implied, herein contained in favor of Tenant, and
in such event Tenant agrees to look solely to the
responsibility of the successor in interests of Landlord in
and to this Lease. This Lease shall not be affected by any
such sale and Tenant agrees to attorn to the purchaser or
assignee.
RIGHT OF 30. All covenants and agreements to be performed by Tenant under
LANDLORD TO any of the terms of this Lease shall be performed by Tenant
PERFORM at Tenants' sole cost and expense and without any abatement
TENANT'S of Rent. If Tenant shall fail to pay any sum of money, other
COVENANTS than Rent, required to be paid by it hereunder or shall fail
to perform any other act on its part to be performed
hereunder, and such failure shall continue for five (5)
days after notice thereof by Landlord, Landlord may, but
shall not be obligated to do so, and without waiving or
releasing Tenant from any obligations of the Tenant, make
any such payment or perform any such act on the Tenant's
part to be made or performed. All sums so paid by
Landlord and all necessary incidental costs together with
interest thereon at the maximum rate permitted by law
from the date of such payment by the Landlord shall be
payable to Landlord on demand, and Tenant covenants to
pay such sums, and Landlord shall have, in addition to
any other right or remedy of Landlord, the same right and
remedies in the event of the nonpayment thereof by Tenant
as in the case of default by Tenant in the payment of the
Rent.
WAIVER 31. If either Landlord or Tenant waives the performance of any
term, covenant or condition contained in this Lease, such
waiver shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition
contained herein. The acceptance of Rent by Landlord shall
not constitute a waiver of any preceding breach by Tenant of
any term, covenant or condition or this Lease, regardless of
Landlord's knowledge of such preceding breach at the time
Landlord accepted such Rent. Failure by either party
Landlord to enforce any of the terms, covenants or
conditions of this Lease for any length of time shall not be
deemed to waive or to decrease the right of said party
Landlord to insist thereafter upon strict performance by the
other Party--Tenant. Waiver of by either party Landlord-of
any term, covenant or condition contained in this Lease may
only be made by a written document signed by said party-
Landlord.
NOTICES 32. Each provision of this Lease or of any applicable
governmental laws, ordinances, regulations and other
requirements with reference to the sending, mailing or
delivery of any notice or the making of any payment by
Landlord or Tenant to the other shall be deemed to be
complied with when and if the following steps are taken:
A. All Rent and other payments required to be made by Tenant
to Landlord hereunder shall be payable to Landlord at the
address set forth in the Basic Lease Information, or at such
other address as Landlord may specify from time to time by
written notice delivered in accordance herewith. Tenant's
obligation to pay Rent and any other amounts to Landlord
under the terms of this Lease shall not be deemed satisfied
until such Rent and other amounts have been actually
received by Landlord.
B. All notices, demands, consents and approvals which may or
are required to be given by either party to the other
hereunder shall be in writing and shall be deemed to have
been fully given when deposited in the United States mail,
certified or registered, postage prepaid, and addressed to
the party to be notified at the address for such party
specified in the Basic Lease Information or to such other
place as the party to be notified may from time to time
designate. Tenant appoints as its agent to receive the
service of all default notices and notice of commencement of
unlawful detainer proceedings the person in charge of or
apparently in charge of or occupying the Premises at the
time, and, if there is no such person, then such service may
be made by attaching the same on the main entrance of the
Premises.
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<PAGE>
ATTORNEYS 33. In the event either party places the enforcement of this
FEES Lease, or any part thereof, or the collection of any Rent
due, or to become due hereunder, or recovery of the
possession of the Premises in the hands of an attorney or
files suit upon the same, the prevailing party shall recover
its reasonable attorneys' fees and court costs.
SUCCESSORS 34. This Lease shall be binding upon and inure to the benefit of
AND ASSIGNS Landlord, its successors and assigns, and shall be binding
upon and inure to the benefit of Tenant, its successors,
and to the extent assignment may be approved by Landlord
hereunder, Tenant's assigns.
FORCE 35. Whenever a period of time is herein prescribed for action to
MAJEURE be taken by Landlord, Landlord shall not be liable or
responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to
strike, riots, acts of God, shortages of labor or materials,
war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the
control of Landlord. Whenever a period of time is herein
prescribed for action as to non-monetary obligations to be
taken by Tenant, Tenant shall not be liable or responsible
for, and there shall be excluded from the computation for
any such period of time, any delays due to strike, riots,
acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other
causes of any kind whatsoever which are beyond the control
of Tenant.
MISCEL- 36. A. The term "Tenant" or any pronoun used in place thereof
LANEOUS shall indicate and include the masculine or feminine, the
singular or plural number, individuals, firms or
corporations, and their and each of their respective
successors, executors, administrators and permitted assigns,
according to the context hereof.
B. Time is of the essence regarding this Lease and all of
its provisions.
C. This Lease shall in all respects be governed by the laws
of the State of California.
D. This Lease, together with its exhibits, contains all the
agreements of the parties hereto and supercedes any previous
negotiations.
E. There have been no representations made by the Landlord
or understandings made between the parties other than those
set forth in this Lease and its exhibits.
F. This Lease may not be modified except by a written
instrument by the parties hereto.
G. If, for any reason whatsoever, any of the provisions
hereof shall be unenforceable or ineffective, all of the
other provisions shall be and remain in full force and
effect.
ADDITIONAL 37. RIGHT OF FIRST REFUSAL. Provided Tenant is not, and has not
PROVISIONS been, in default of any terms and conditions of this Lease,
Tenant shall have a prior right of refusal to Lease existing
space as it becomes available in the Project, provided no
other Tenant has a pre-existing prior on right on such
space. Upon notification by Landlord either orally or in
writing of the availability of space, Tenant shall have
seven (7) days to notify Landlord of Tenant's desire to
exercise Tenant's prior right of refusal on the terms and
conditions offered by Landlord. In the event Tenant fails to
give Landlord notice of Tenant's election to lease the
additional space within the time period, Tenant shall have
no further right, title or interest in the space provided
Landlord shall not lease said space to any other entity or
individual on terms and conditions that are materially more
favorable to the tenant under such lease than those offered
to Tenant without first offering the space to Tenant upon
the more favorable terms and conditions, whereupon Tenant
shall have seven (7) days to notify Landlord of Tenant's
desire to exercise Tenant's prior right of first refusal
upon the more favorable terms and conditions. In the event
Landlord leases said space, then Tenant shall have the same
prior right of first refusal, as specified in this Section
37, when and if said space becomes available again during
this lease term. If, on the other hand, Tenant exercises its
prior right of refusal in the manner prescribed, Tenant
shall immediately deliver to Landlord payment for the first
month's rent for the space (in the manner as provided for in
this Lease), and the lease for the space shall be
consummated without delay in accordance with the terms and
conditions set forth in the lease offer.
38. OPTION TO RELEASE. While this Lease is in full force and
effect, provided that Tenant is not at such time in default
of any of the terms, covenants and conditions hereof, and
Tenant has never been in material default of this lease,
Tenant shall have the right and option to extend the term
hereof on the premises for two (2) additional periods of
five (5) years each, except that the monthly rental and
terms for said release shall be at the fair market rates
and prevailing terms then in effect on equivalent
properties, of equivalent size, in equivalent areas (but in
no event will the rent be less than the immediately previous
rental rate). Notice of Tenant's intention to exercise the
option must be given to Landlord in writing at least one
hundred eighty (180) days prior to the expiration of the
term.
This option shall apply only to the primary tenant and not
to an assignee or subtenant of Tenant, except for those
parties pre-approved, if any, as assignees or sublessees.
39. TERMINATION OPTION. Notwithstanding anything herein to the
contrary, Tenant shall have one (1) option to terminate
this Lease effective on the last day of month thirty-six
(36) ("early termination date") provided that Tenant
notifies Landlord in writing of its intent to do so prior to
the last day of month twenty-four (24) and pays to
Landlord the cost of all unamortized costs funded by
Landlord including tenant improvements and commission, plus
all abated rent and reduced rent as a result of less than
the occupancy of the entire building during the first two
(2) years of the lease plus an additional two (2) years of
future rent on the entire premises.
40. SIGNAGE. Notwithstanding the provisions of Section 13 above,
Tenant shall have the right to install monument signage
allowed by the City of Hayward, consistent with the
existing signage in BayCenter Business Park, and with the
prior written approval of Landlord.
41. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide and pay
Tenant a tenant improvement allowance of One Hundred
Seventy-Seven Thousand One Hundred Twenty Dollars
($177,120.00) upon completion of the tenant improvements
specified in Exhibit B herein and submission of a bonafide
invoice evidencing an obligation of Tenant to pay for such
completed work by a competent general contractor and receipt
of final lien releases.
42. LANDLORD WARRANTY. To the best of Landlord's knowledge,
Landlord represents and warrants to Tenant that as of the
date hereof and as of the Term Commencement Date, (a) the
Building and all Building systems are and shall be in good
working condition, structurally sound and free from latent
defects, (b) the Premises and the Building do not violate
any ordinance, rule, code (including without limitation the
requirements of the Americans with Disabilities Act),
covenants or restrictions of record as are applicable to the
Building or the Premises or regulation of any government
agency, and Landlord has not received notice of any possible
violation.
43. HAZARDOUS MATERIALS. Landlord represents and warrants that
the attached Exceltech report dated March 1, 1988
(Exhibit B) is the most recent report obtained by Landlord
concerning Hazardous Materials with respect to the Project.
To the best of Landlord's knowledge Landlord is unaware of
the presence of any Hazardous Materials on the Project that
is in violation of applicable laws. In the event of (a) any
breach of the foregoing representation and warranty or (b)
the occurrence, release or threatened release of any
Hazardous
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Materials on or about the Premises, Building or Project that
is caused by Landlord, or its employees or (c) the presence
of any Hazardous Materials caused by any previous occupant
of the Building that is required by local, state or federal
law to be remediated, then Landlord shall protect,
indemnify, defend and hold Tenant harmless from and against
any costs of clean-up of such Hazardous Materials. The
provisions of this section shall survive the termination of
this Lease.
44. HAZARDOUS MATERIALS. Tenant shall (i) not cause or permit
any "Hazardous Material" (as hereinafter defined) to be
brought upon, kept, or used in or about the Premises by
Tenant, its agents, employees, contractors or invitees in
any manner which shall cause contamination of the Premises
or adjacent property. If Tenant breaches the obligations
stated in the preceding sentence, or if the presence of
Hazardous Material on the Premises caused or permitted by
Tenant results in contamination of the Premises or any
adjacent property, then Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims, judgments,
damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the
Premises and/or adjacent property, damages for the loss or
restriction on use of rentable or useable space or of any
amenity of the Premises and/or adjacent property, damages
arising from any adverse impact on marketing of the Premises
and/or adjacent property, and sums paid in settlement of
claims, attorneys' fees, consultant fees and expert fees)
which arise during or after the Lease Term or any Extended
Term as a result of such contamination. This indemnification
of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal, or restoration
work required by any federal, state or local governmental
agency or subdivision because of Hazardous Material present
in the soil or ground water on or under the Premises and/or
adjacent property. Without limiting the foregoing, if the
presence of any Hazardous Material on the Premises caused or
permitted by Tenant results in any contamination of the
Premises and/or adjacent property, Tenant shall promptly
take all actions at its sole expense as are necessary to
return the Premises and/or adjacent property to the
condition existing prior to the introduction of any such
Hazardous Material to the Premises and/or adjacent property;
provided that Landlord's approval of such actions shall
first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have
any material adverse long-term or short-term effect on the
Premises and/or adjacent property. As used herein, the term
"Hazardous Material" means any hazardous or toxic substance,
material, or waste, or any substance, materiel or waste
which is or becomes regulated by any local governmental
authority, the State of California or the United States
Government. Upon expiration or earlier termination of this
Lease, Tenant shall duly execute and deliver to Landlord a
certificate (the "Hazardous Waste Certificate") in the form
on Exhibit C attached hereto. In the event Tenant shall fail
to so deliver the Hazardous Waste Certificate, such failure
shall, without further notice or the passage of time,
constitute a default under the Lease and shall entitle
Landlord to retain the entire security deposit held by
Landlord, to be applied toward payment of the cost of
assessing the presence of Hazardous Material on the Premises
and/or adjacent property, and toward payment of all loss,
cost, liability, damage and expense of Landlord arising as a
result of any such contamination and toward such other costs
and expenses of Landlord as Landlord may designate in its
sole discretion. Nothing contained herein shall be deemed
or construed to limit the liability of Tenant to Landlord
hereunder for the breach of any covenant of Tenant under
this Paragraph 44. The provisions of this Paragraph 44
shall survive the expiration or earlier termination of this
Lease and Tenant's surrender the Premises to Landlord.
45. LEASE EFFECTIVE DATE. Submission of this instrument for
examination or signature by Tenant does not constitute a
reservation or option for lease, and it is not effective as
a lease or otherwise until execution by Landlord and Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this
Lease the day and year first above written.
"LANDLORD"
SPIEKER-SINGLETON #87, LIMITED PARTNERSHIP
BY /s/ Peter H. Schnugg
------------------------------------
Peter H. Schnugg
Its Agent for Owner
--------------------------------------
"TENANT"
LYNX THERAPEUTICS, INC.
BY /s/ Sam Eletr
------------------------------------
Print Name SAM ELETR
-----------------------------
Its CEO & CHAIRMAN
-----------------------------
<PAGE>
SITE PLAN
Future Phase II
[MAP]
<PAGE>
EXHIBIT B
I. OPEN OFFICE
Lynx Therapeutics' officing policy is democratic in nature, areas or
bullpens may be defined by moveable partitions. The furniture is
freestanding. All ranks of employees receive the same space allocation.
There will not be any new construction related to the open office areas
except painting of existing finishes.
II. R&D CHEMISTRY
R&D Chemistry will consist of organic chemistry and supporting
instrumentation spaces. The laboratories will have on the order of
.50-1.0 fume hoods/person. Laboratory finishes will be chemical
resistive epoxy (walls, worksurfaces) and sheet vinyl (flooring). All
spaces will comply with 1991 Uniform Building Code requirements for
laboratories.
III. MOLECULAR BIOLOGY
Molecular Biology spaces will be less fume hood intensive (one hood/8
persons) than Chemistry. Laboratory finishes will be similar to those
in Chemistry. All spaces will comply with 1991 Uniform Building Code
requirements for Laboratories.
IV. MANUFACTURING
Lynx's manufacturing process involves small scale chemical
manufacturing of synthetic DNA products. Processes are bulk formation,
synthesis, chromatography, filtration and precipitation. Finishes will
be chemical resistant epoxy paint (walls) and sheet vinyl flooring. The
flooring in the bulk formulation areas will be a more durable material,
such as troweled epoxy or quarry tile.
V. HVAC
It is presumed, because of the fume hood intensity and air change
requirements of laboratory and manufacturing spaces that modification
and supplements to the existing HVAC system will be required. At this
time the extent of this work is undetermined. The laboratory spaces
require 100% make up air. The office HVAC systems can be recirculating
with make up per ASHRAE standards. Structural work will occur as
necessary to add new HVAC equipment on the roof.
<PAGE>
VI. PLUMBING
Existing PVC and copper process piping may be reused, however the
systems will be expanded to reach the laboratory areas adjacent to the
existing laboratory core. Central services include vacuum, argon and
deionized and non potabic water. Domestic water will be supplied to
eyewashes and safety showers per Cal OSHA standards. Existing drain
systems will be expanded to serve new laboratory locations.
Manufacturing process piping will include stainless steel solvent
delivery. All chemical wastes are collected and disposed of by Lynx and
are not part of the drainage system.
Sinks will be provided at a ration of approximately one per four lab/
manufacturing personnel.
VII. ELECTRICAL
The existing 7,000 ampere service appears sufficient to handle the
anticipated loads. Paver requirements are low voltage, 120/208 VAC.
Relocation of existing distribution equipment is expected. Main
distribution panels will remain in place.
Lighting levels in laboratory and manufacturing will be upgraded from
existing office levels. All lighting will comply with the requirements
of Title XXIV, the California Energy Code.
<PAGE>
[IMAGE]
<PAGE>
[IMAGE]
<PAGE>
EXHIBIT C
HAZARDOUS WASTE CERTIFICATE
, 1993
SPIEKER PARTNERS
6000 Stoneridge Mall Road, Suite 270
Pleasanton, CA 94588
RE: That certain lease ("Lease") dated _______, 1993 between Spieker-Singleton
#87, a Limited Partnership ("Landlord"), and Lynx Therapeutics, ("Tenant"),
covering certain real property and improvements thereon located in the
County of Alameda, State of California and more commonly known as 3832 Bay
Center Place, Hayward, California (the "Premises"), as amended.
Gentlemen:
The undersigned, LYNX THERAPEUTICS, as Tenant under the above-captioned Lease,
hereby certifies to the best of Tenant's knowledge and after the inspection of
the Premises by a qualified third party to Landlord that, as of the date hereof,
there are no Hazardous Materials (as such term is defined in the Lease) in or
about the Premises caused by Tenant's use or occupancy or caused by any visitors
to the Building or anyone whatsoever connected to, affiliated with, or
delivering to, or working on behalf, the Tenant.
Tenant hereby acknowledges its continuing obligation under PARAGRAPH 44
(Hazardous Materials Provisions) of the lease, notwithstanding the expiration or
other termination of the Lease term, to indemnify, defend and hold Landlord
harmless from and against any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses (as more fully set forth in said PARAGRAPH
44) as a result of the presence of Hazardous Material brought upon, kept or used
in or about the Premises by Tenant, its agents, employees, contractors or
invitees.
The undersigned understands that Landlord will be relying upon the statements
of Tenant contained herein in Landlord's continued maintenance and operation
of the Premises.
Lynx Therapeutics, a
- --------------------------------------------
By:
---------------------------------
Its:
---------------------------------
By:
---------------------------------
Its:
---------------------------------
<PAGE>
EXHIBIT D
FIRST RIGHT OF REFUSAL ON ADJACENT PROPERTY
In consideration of that Lease Agreement between Spieker-Singleton #87,
Limited Partnership, and Lynx Therapeutics, Inc. "Lynx", the general partners
of Spieker-Singleton #115, Limited Partnership and any of its affiliated
successors, "S-S #115", does hereby grant to Lynx the following first right
of refusal on two parcels of land totalling 7.1 acres at Whitesell Road and
BayCenter Place, Hayward, California, APN #439-99-73 and APN #439-99-77 (the
"Land").
Provided Lynx is not and has not been in default of any terms and conditions
of the Lease, then Lynx will have the following option on the above
referenced land. In the event Landlord intends to offer for lease on a build
to suit basis a project on such land, S-S #115 will first offer the right to
Lynx to lease such a project on the same terms and conditions as Landlord
intends to offer to a third party. Landlord's obligation to extend such offer
to Lynx shall however be limited to only those times and situations where
Lynx's financial condition permits the financing of such build to suit on
customary and reasonable terms and conditions offered by Landlord. If Lynx is
otherwise able to secure financing for such a project reasonably acceptable
to Landlord, then Landlord shall be obligated to extend such offer to Lynx.
Lynx shall have seven (7) days to notify S-S #115 of Lynx's desire to
exercise the prior right of refusal on the terms and conditions offered by
S-S #115. In the event S-S #115 intends to offer the Land for sale, S-S #115
will first offer to sell it to Lynx. Lynx shall have seven (7) days to notify
S-S #115 of Lynx's desire to purchase the Land on the terms S-S #115 has
offered and a contract shall be entered into immediately thereafter. In the
event that Landlord intends to offer the Land for sale or lease to an
unaffiliated third party on terms fifteen percent (15%) more advantageous
than Landlord previously offered to Lynx, Landlord will first offer to sell
the Land to Lynx or lease a build to suit to on such more favorable terms and
Lynx shall have seven (7) days to notify S-S #115 of Lynx's desire to
purchase the Land or lease a build to suit on these terms and a contract
shall be entered into immediately thereafter.
By: /s/ [ILLEGIBLE]
---------------------
Its: Agent for Owner
<PAGE>
EXHIBIT B
[ATTACH LAYOUT OF PREMISES SUBLEASED]
<PAGE>
EXHIBIT B
[Floorplan]
<PAGE>
EXHIBIT C
FORM OF
ASSIGNMENT AND ASSUMPTION
OF SUBLEASE OBLIGATIONS
THIS ASSIGNMENT AND ASSUMPTION OF SUBLEASE OBLIGATIONS (this
"Assignment") is dated as of _________, 1998 by and among LYNX THERAPEUTICS,
INC., a Delaware corporation ("Assignor"), KOSAN BIOSCIENCES INCORPORATED, a
California corporation ("Assignee") and INEX PHARMACEUTICALS (U.S.A.), INC.,
a Washington corporation ("Subtenant").
WHEREAS, Assignor is sublessor under that certain Sublease dated
__________, 1998, by and between Assignor and Subtenant (the "Inex
Sublease"), respecting certain premises (the "Premises") with a street
address of 3832 Bay Road, Hayward, California, as more particularly described
therein, whereby Assignor subleased to Subtenant approximately 6,298 square
feet of the Premises (the "Inex Premises") and agreed to provide certain
services to Subtenant pursuant to the terms of the Inex Sublease;
WHEREAS, Assignor subleased the remainder of the Premises (the
"Remaining Premises") to Assignee pursuant to that certain Sublease between
Assignor and Assignee dated of even date herewith (the "Kosan Sublease"), such
that Assignor will no longer have possession of any part of the Premises;
WHEREAS, Assignor desires to assign to Assignee the service obligations
accruing under the Inex Sublease for the period (referred to herein as the
"Service Period") commencing on the "Commencement Date" (as defined in the Kosan
Sublease) and ending on the date of the termination of the term of the Kosan
Sublease, and Assignee desires to assume such service obligations;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Assignor, Assignee, and Subtenant
agree as follows:
1. ASSIGNMENT OF SERVICE OBLIGATIONS.
Subject to the terms, conditions and limitations set forth in this
Assignment, the Inex Sublease and the underlying master lease ("Master Lease")
between Assignor, as tenant, and Spieker-Singleton #87, Limited Partnership, as
landlord ("Master Lessor"), Assignor hereby assigns and Assignee hereby assumes
all of Assignor's rights and obligations to perform the following services
("Services") during the Service Period under Section 6(c)(ii) of the Inex
Sublease: gas, electricity, HVAC and HVAC maintenance service, waste management
and recycling, house vacuum, RODI water system, and emergency power. Subtenant
agrees to reimburse Assignee for fourteen and 22/100 percent (14.22%) of the
costs incurred by Assignee with respect to the Services; provided, however that
one hundred percent (100%) of any Services performed or provided for the sole
benefit of Subtenant (as reasonably determined by Assignee)
14.
<PAGE>
or as a result of any negligent act or omission of Subtenant or any of its
agents, employees, contractors or invitees, shall be reimbursed by Subtenant to
Assignee. Such reimbursement shall be made by Subtenant within ten (10) days
after its receipt of a written notice from Assignee stating the cost incurred by
Assignee for the Services. If requested, Assignee shall provide Subtenant with
reasonable, supporting back-up detail for such costs. Subtenant acknowledges
that payment to Assignee for the Services is an obligation accruing under the
Inex Sublease. Accordingly, if Subtenant fails to make a required reimbursement
payment to Assignee within the ten (10)-day time period described above, such
failure shall be deemed a default under the Inex Sublease. In the event of such
a default under the Inex Sublease, Assignor shall promptly commence and
prosecute an unlawful detainer action against Subtenant pursuant to the Sublease
for failure of Subtenant to pay rent. In addition, any reimbursement payment
which is not paid by Subtenant within the foregoing ten (10)-day period will
accrue interest at the daily rate of ten percent (10%) or the maximum rate
allowable by law, whichever is less, until paid to Assignee.
2. ASSUMPTION OF OBLIGATIONS.
Assignee does hereby accept this assignment and, for the benefit of
Assignor and Subtenant, expressly assumes and agrees to provide the Services
during the Service Period to the Remaining Premises, subject to the terms and
conditions set forth in this Assignment, it being understood that (i)
Assignee shall have no obligations under this Assignment unless and until the
Commencement Date shall occur, and (ii) Assignee shall have no liability or
responsibility with respect to any Services first arising and accruing during
any time period other than the Service Period. Notwithstanding anything to
the contrary contained in this Assignment or the Inex Sublease, there shall
be no abatement of rent under the Inex Sublease or liability of Assignee or
Assignor on account of any injury or interference with Subtenant's business
(including loss of profits) with respect to any cessation of utilities or the
performance of any Services. Assignee shall not be responsible for repairs
required by an accident, fire or other peril, or for damage caused to any
part of the Inex Premises or the Remaining Premises by any act, negligence or
omission of Subtenant or its agents, contractors, employees or invitees. It
is an express condition precedent to all obligations of Assignee with respect
to the Services that Subtenant shall have notified Assignee of the need for
such Services.
3. WAIVER OF SUBROGATION.
The waiver of subrogation provisions set forth in Section 9 of the
Master Lease shall be deemed a four-party agreement binding among and inuring to
the benefit of Assignor, Assignee, Subtenant and Master Lessor (by reason of its
consent to the Kosan Sublease).
4. MISCELLANEOUS.
This Assignment shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, successors and assigns. If either
party brings an action or legal proceeding with respect to this Assignment, the
prevailing party shall be entitled to recover its reasonable attorneys' fees and
costs. All captions contained in this Assignment are for convenience of
reference only and shall not affect the construction of this Assignment. This
Assignment shall be governed by California law. If any one or more of the
provisions of this Assignment shall be invalid, illegal or unenforceable in any
respect, the validity, legality and
15.
<PAGE>
enforceability or the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
Executed as of the date first above written.
ASSIGNOR:
LYNX THERAPEUTICS, INC.
By:
-----------------------------------
Its:
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
ASSIGNEE:
KOSAN BIOSCIENCES INCORPORATED
By:
-----------------------------------
Its:
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
SUBTENANT:
INEX PHARMACEUTICALS (U.S.A.) INC.
By:
-----------------------------------
Its:
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
16.
<PAGE>
EXHIBIT D
[GENERAL DESCRIPTION OF SUBLESSEE IMPROVEMENTS]
17
<PAGE>
EXHIBIT D
1. OFFICE
Kosan Biosciences intends to improve the existing open office space
with the addition of approximately 14+ hard-walled executive offices
and one to two executive conference rooms. The office improvements may
also require a partitioning wall, which will subdivide the now existing
open office space. An additional access door between the office and R &
D areas may also be required.
2. R & D CHEMISTRY
The Chemistry laboratories will have approximately 1 fume hood per
person. Maintaining this ratio may require the addition of
approximately 10 fume hoods and corresponding HVAC improvements.
3. FERMENTATION
Kosan expects to improve the now existing engineering space and
possibly an additional 1000 sq. ft. to accommodate fermentation
equipment for the production of research and/or GMP grade products.
This improvement will require, but is not limited to, the installation
of central steam generating equipment and associated plumbing, drainage
plumbing and channels, waste disposal equipment, HVAC improvements and
ducting, plumbed central gases, routing of electrical and water lines,
alteration to the existing drop ceiling, and upgrade of flooring to
epoxy resin.
<PAGE>
EXHIBIT E
IMPROVEMENTS AND EQUIPMENT TO BE REMOVED BY SUBLESSOR
Bio safety Cabinets
Portable Equipment
Un-interruptible Power Supplies
Dehumidification Units/Condensers
Autoclave
Glassware Washer
Glassware Dryer
Warehouse Racks
Data Networking Equipment, less cabling
Critical equipment monitoring system
Laminar Flow Hoods
Library racks
De-ionized water system purification bottles
18.
<PAGE>
EXHIBIT 10.14
<PAGE>
CONSENT TO SUBLEASE AGREEMENT
This Consent to Sublease Agreement (this "Agreement") is made as of
September 17, 1999 by and among Spieker Properties, L.P., a California limited
partnership ("Master Landlord"), Lynx Therapeutics, Inc., a Delaware corporation
("Sublandlord"), and Kosan Biosciences Incorporated, a California corporation
("Subtenant").
Recitals
This Agreement is made with regard to the following facts:
A. Master Landlord and Sublandlord, as tenant, entered into a
Lease dated June 28, 1993, (the "Master Lease"), for premises located at 3832
Bay Center Place, Hayward, California (the "Premises") in the office building
commonly known as Bay Center II Business Park, Building A (the "Building").
Initially capitalized terms not otherwise defined herein shall have the same
meanings as described in the Lease.
B. Under the terms of Paragraph 21 of the Master Lease,
Sublandlord has requested Master Landlord's consent to the Amendment to Sublease
Agreement dated September 15, 1999, between Sublandlord and Subtenant (the
"Sublease"), which would sublease to Subtenant a portion of the Premises, as
more particular described in the Amendment to Sublease (the "Subleased
Premises"). A copy of the Amendment to Sublease is attached to this Agreement as
Exhibit A.
C. Master Landlord is willing to consent to the Sublease on the
terms and conditions contained in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and for valuable consideration, the receipt and sufficiency of
which are acknowledged by the parties, the parties agree as follows.
1. MASTER LANDLORD'S CONSENT. Master Landlord consents
to the Sublease. This consent is granted only on the terms and conditions stated
in this Agreement. Master Landlord is not bound by any of the terms, covenants,
or conditions of the Sublease. The Sublease is subject and subordinate to the
Master Lease.
2. LIMITS OF CONSENT.
2.1 NONRELEASE OF SUBLANDLORD; FURTHER
TRANSFERS; RECAPTURE RIGHTS. Neither the Sublease nor this Agreement will:
(a) release Sublandlord from any
liability, whether past, present or future, under the Master Lease;
(b) alter the primary liability of
Sublandlord to pay the Rent and perform all of Tenant's obligations under the
Master Lease (including the payment of all bills rendered by Master Landlord for
charges incurred by Subtenant for services and materials supplied to the
Subleased Premises);
(c) be construed as a waiver of Master
Landlord's right to consent to any proposed transfer after the date hereof by
Sublandlord under the Master Lease or Subtenant under the Sublease, or as a
consent to any portion of the Subleased Premises being used or occupied by any
other party; or
(d) limit Master Landlord's right, in
the event of a proposed future sublease, to recapture any portion of the
Premises, including the Subleased Premises, affected by that proposed sublease,
as provided in Paragraph 21 of the Master Lease.
Master Landlord may consent to the subsequent
sublease and assignment of the Sublease or any amendments or modifications to
the Sublease without notifying Sublandlord or anyone else liable under the
Master Lease, including any guarantor of the Master Lease, and without obtaining
their consent. No such action by
-1-
<PAGE>
Master Landlord will relieve those persons from any liability to Master Landlord
or otherwise with regard to the Subleased Premises. Notwithstanding the
foregoing, nothing contained herein shall diminish any obligation of Subtenant
to obtain Sublandlord's approval prior to taking any such actions.
3. RELATIONSHIP WITH MASTER LANDLORD
3.1 EFFECT OF SUBLANDLORD DEFAULT UNDER MASTER
LEASE. If Sublandlord defaults in the performance of its obligations under the
Master Lease, Master Landlord may, without limiting its other rights and
remedies, by notice to Sublandlord and Subtenant, elect to receive and collect,
directly from Subtenant, all rent and any other sums owing and to be owed under
the Sublease, as further set forth in Section 3.2 below.
3.2 MASTER LANDLORD'S ELECTION TO RECEIVE RENTS.
Master Landlord will not, as a result of the Sublease, or as a result of the
collection of rents or any other sums from Subtenant under Section 3.1 above, be
liable to Subtenant for any failure of Sublandlord to perform any obligation of
Sublandlord under the Sublease.
Sublandlord irrevocably authorizes and directs
Subtenant, on receipt of any written notice from Master Landlord stating that a
default exists in the performance of Sublandlord's obligations under the Master
Lease, to pay to Master Landlord the rents and any other sums due and to become
due under the Sublease. Sublandlord agrees that Subtenant has the right to rely
on any such statement from Master Landlord, and that Subtenant will pay those
rents and other sums to Master Landlord without any obligation or right to
inquire as to whether a default exists and despite any notice or claim from
Sublandlord to the contrary. Sublandlord will not have any right or claim
against Subtenant for those rents or other sums paid by Subtenant to Master
Landlord. Master Landlord will credit Sublandlord with any rent received by
Master Landlord under this assignment, but the acceptance of any payment on
account of rent from Subtenant as the result of a default by Sublandlord will
not: (a) be an attornment by Master Landlord to Subtenant or by Subtenant to
Master Landlord; (b) be a waiver by Master Landlord of any provision of the
Master Lease; or (c) release Sublandlord from any liability under the terms,
agreements, or conditions of the Master Lease. No payment of rent by Subtenant
directly to Master Landlord, regardless of the circumstances or reasons for that
payment, will be deemed an attornment by Subtenant to Master Landlord in the
absence of a specific written agreement signed by Master Landlord to that
effect.
3.3 MASTER LANDLORD'S ELECTION OF TENANT'S
ATTORNMENT. In the event the Master Lease is terminated prior to the expiration
of the term of the Sublease, Master Landlord shall have the right, pursuant to
notice to Subtenant, to succeed to Sublandlord's interest in the Sublease and
cause Subtenant to attorn to Master Landlord. Master Landlord will assume the
obligation of Sublandlord under the Sublease from the time of the exercise of
the option, but Master Landlord will not be:
(a) liable for any rent paid by
Subtenant to Sublandlord more than one month in advance, or any security deposit
paid by Subtenant to Sublandlord;
(b) liable for any act or omission of
Sublandlord under the Master Lease or for any default of Sublandlord under the
Sublease which occurred prior to the Master Landlord's assumption;
(c) subject to any defenses or offsets
that Subtenant may have against Sublandlord which arose prior to Master
Landlord's assumption; or
(d) bound by any changes or
modifications made to the Sublease without the written consent of Master
Landlord.
4. CONSIDERATION FOR SUBLEASE. Sublandlord and Subtenant
represent and warrant that there are no additional payments of rent or any other
consideration of any type which has been paid or is payable by Subtenant to
Sublandlord in connection with the Sublease, other than as disclosed in the
Sublease.
-2-
<PAGE>
5. GENERAL PROVISIONS
5.1 BROKERAGE COMMISSION. Sublandlord and
Subtenant agree that Master Landlord will not be liable for any brokerage
commission or finder's fee in connection with the consummation of the Sublease
or this Agreement. Sublandlord and Subtenant will protect, defend, indemnify,
and hold Master Landlord harmless from any brokerage commission or finder's fee
in connection with the consummation of the Sublease or this Agreement, and from
any cost or expense (including attorney fees) incurred by Master Landlord in
resisting any claim for any such brokerage commission or finder's fee. The
provisions of this Section 5.1 shall survive the expiration or earlier
termination of the Sublease and this Agreement.
5.2 NOTICE. Any notice that may or must be given
by any party under this Agreement will be delivered (i) personally, (ii) by
certified mail, return receipt requested, or (iii) by a nationally recognized
overnight courier, addressed to the party to whom it is intended. Any notice
given to the Master Landlord, Sublandlord or Subtenant shall be sent to the
respective address set forth on the signature page below, or to such other
address as that party may designate for service of notice by a notice given in
accordance with the provisions of this Section 5.2.
5.3 CONTROLLING LAW. The terms and provisions of
this Agreement will be construed in accordance with, and will be governed by,
the laws of the State of California.
5.4 ENTIRE AGREEMENT; WAIVER. This Agreement
constitutes the final, complete and exclusive statement between the parties to
this Agreement pertaining to the terms of Master Landlord's consent to the
Sublease, supersedes all prior and contemporaneous understandings or agreements
of the parties, and is binding on and inures to the benefit of their respective
heirs, representatives, successors and assigns.
5.5 WAIVER OF JURY TRIAL; ATTORNEY FEES. If any
party commences litigation against any other party for the specific performance
of this Agreement, for damages for the breach hereof or otherwise for
enforcement of any remedy hereunder, the parties waive any right to a trial by
jury and, in the event of any commencement of litigation, the prevailing party
shall be entitled to recover from the applicable party such costs and reasonable
attorney fees as may have been incurred.
5.6 COUNTERPARTS. This Agreement may be executed
and acknowledged in two or more counterparts, each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
agreement.
-3-
<PAGE>
The parties have executed this Agreement as of the above date.
Master Landlord:
SPIEKER PROPERTIES, L.P., Master Landlord Address:
a California limited partnership
2200 Powell Street
By: Spieker Properties, Inc., Suite 325
a Maryland corporation, Emeryville, CA 94608
its general partner
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: Senior Vice President
---------------------------------------
Sublandlord:
Lynx Therapeutics, Inc. Sublandlord Address:
a Delaware corporation
25861 Industrial Blvd.
Hayward, CA 94544
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: Chief Financial Officer
---------------------------------------
Subtenant:
Kosan Biosciences, Inc. Subtenant Address:
a California corporation
3832 Bay Center Place
Hayward, CA 94544
By: /s/ [ILLEGIBLE]
----------------------------------------
Its: COO
---------------------------------------
-4-
<PAGE>
AMENDMENT TO SUBLEASE
This AMENDMENT TO SUBLEASE (this "Amendment") is dated as of this 15th
day of September, 1999 by and between LYNX THERAPEUTICS, INC., a Delaware
corporation ("Sublessor") and KOSAN BIOSCIENCES INCORPORATED, a California
corporation ("Sublessee").
RECITALS
A. Sublessor and Sublessee entered into a Sublease dated January
6, 1999 (the "Sublease"), for premises (the "Sublease Premises") with a street
address of 3832 Bay Center Place, Hayward, California, and more particularly
described in the Sublease;
B. Pursuant to the terms of the Sublease, Sublessee desires to
sublease from Sublessor the Remaining Premises (as defined therein), which
represents the balance of the Premises leased by Sublessor under the Master
Lease.
C. Sublessor and Sublessee now desire to amend the Sublease to
include the Remaining Premises on the terms and conditions set forth herein.
Capitalized terms used in this Amendment and not otherwise defined shall have
the meanings assigned to them in the Sublease.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublessor and Sublessee hereby
agree as follows:
1. SUBLEASE PREMISES. Commencing on the later of (i) September
15, 1999, or (ii) the date on which Sublessor has delivered possession of the
Remaining Premises to Sublessee in the condition required by this Amendment (the
"Expansion Date"), the term "Sublease Premises" shall mean the Premises (as
defined in the Master Lease) and Exhibit B to the Sublease shall be deleted.
Sublessor shall use commercially reasonable efforts to deliver possession of the
Remaining Premises to Sublessee in the condition required hereunder on September
15, 1999, or as soon thereafter as practicable. Commencing on the Expansion
Date, Sublessee shall have the nonexclusive use of all parking spaces leased to
Sublessor pursuant to the Master Lease. Notwithstanding said Expansion Date, if
for any reason Sublessor cannot deliver possession of the Remaining Premises to
Sublessee on Said date, Sublessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Sublease or the
obligations of Sublessee or Sublessor hereunder or extend the term hereof, but
in such case Sublessee shall not be obligated to pay Rent or perform any other
obligations hereunder with respect to the Remaining Premises until possession of
the Remaining Premises is tendered to Sublessee. If the Expansion Date shall not
have occurred by October 1, 1999, Sublessee shall have the right, until November
1, 1999, to terminate this Amendment upon written notice to Sublessor,
whereupon, any monies previously paid or deposited by Sublessee to Sublessor
hereunder shall promptly be refunded to Sublessee, and the Sublease shall be
deemed unchanged by this Amendment.
<PAGE>
2. RENT. Commencing on the Expansion Date, the Base Rent schedule
set forth in Section 4(a) of the Sublease shall be deleted and replaced with the
following:
<TABLE>
<CAPTION>
MONTHLY RENT (EXCLUSIVE
PERIOD OF BASIC OPERATING COST)
<S> <C> <C>
Expansion Date - 01/31/00 $82,360.80
02/01/00 - 01/31/01 $90,809.82
02/01/01 - 01/31/02 $93,338.72
02/01/02 - 01/31/03 $95,552.72
02/01/03 - 07/31/03 $97,766.72
</TABLE>
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment based on the number of
days in the month at issue. Commencing on the Expansion Date, Sublessee's pro
rata share (for purposes of calculating Additional Rent) shall be 100%, it being
understood that Sublessee shall have no responsibility or liability for any
Additional Rent obligations under the Sublease or this Amendment arising out of
or related to any period of time prior to the Expansion Date. Upon mutual
execution of this Amendment, Sublessee shall deposit with Sublessor the amount
of $11,714.28 to be applied as a credit towards the first installment(s) of Base
Rent due on and after the Expansion Date.
3. SECURITY DEPOSIT. Upon mutual execution of this Amendment,
Sublessee shall deposit with Sublessor the amount of $39,047.60, which amount
shall be added to the Security Deposit and held by Sublessee in accordance with
the terms of Section 5 of the Sublease.
4. REMAINING PREMISES TAKEN AS-IS. Subject to Master Lessor's
service, maintenance or repair obligations under the Master Lease, the Remaining
Premises and all improvements will be taken over by Sublessee on the Expansion
Date on an "as is" basis, provided Sublessor represents, warrants and covenants
(now and as of the Expansion Date) that (i) all improvements to the Remaining
Premises made by the Sublessor shall remain on the Remaining Premises and (X)
have been constructed, installed, operated and maintained in accordance with all
applicable laws, by-laws, roles, regulations, orders, permits and licenses and
(Y) all plumbing, HVAC, electrical and other building systems within the
Remaining Premises are in good working order and repair and all other
improvements currently in the Remaining Premises shall remain in the Remaining
Premises, and (ii) the prior subtenant in the Remaining Space, Inex
Pharmaceuticals (U.S.A.) has obtained all required "closure" from the necessary
governmental agencies regarding its storage, use, disposal, transportation or
handling of any Hazardous Materials in the Remaining Space. Except as set forth
in the foregoing sentence, all provisions of the Sublease regarding the Sublease
Premises shall apply to the Remaining Premises (including, without limitation,
Sublessee's surrender obligations under Section 6 thereof, provided that the
point of reference for Sublessee's surrender obligations for the Remaining
Premises shall be the condition of such premises on the Expansion Date), it
being understood that Sublessee shall have no liability or responsibility under
the Sublease or this Amendment with respect to any claims, damages, costs,
expenses or liabilities arising out of the occupancy, use or condition of the
Remaining Premises during any period of time prior to the Expansion Date, unless
caused by Sublessee or clue to Sublessee's negligence or willful misconduct.
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<PAGE>
5. AMENDMENT TO SUBLEASE. Section 20 and Exhibit C of the
Sublease are hereby deleted.
6. BROKERAGE. Each party to this Agreement acknowledges that R.
Randolph Scott ("Scott") of Cornish & Carey Commercial Realty acts as a real
estate broker for Sublessor and may be entitled to a commission as a result of
this Amendment. In the event Scott is entitled to a commission, Sublessor agrees
that Sublessee shall bear no responsibility whatsoever for any commissions due
to Scott. Notwithstanding anything to the contrary set forth above, each party
to this Agreement warrants and represents to the other that, such party has not
retained any other real estate broker, finder or any other person whose services
would form the basis for any claim for any commission or fee in connection with
this Amendment or the transactions contemplated hereby. Each party agrees to
save, defend, indemnify and hold the other party free and harmless from any
breach of its warranty and representation as set forth in the preceding
sentence, including the other party's attorneys' fees.
7. CONDITION PRECEDENT TO SUBLEASE AMENDMENT. This Amendment and
the parties' obligations hereunder are subject to the receipt by Sublessor of
the Master Lessor's consent to this Amendment. If such consent has not been
obtained by Sublessor within thirty (30) days after the date of Sublessor's
execution of this Amendment, Sublessee may, within ten (10) days thereafter,
terminate this Amendment by written notice to Sublessor whereupon Sublessor
shall return to Sublessee all sums paid by Sublessee to Sublessor in connection
with its execution of this Amendment and the Sublease shall be deemed unchanged
by this Amendment. Sublessor shall use commercially reasonable efforts to obtain
Master Lessor's consent to this Amendment as soon as practicable.
8. RATIFICATION. The Sublease, as amended by this Amendment, is
hereby ratified by Sublessor and Sublessee and Sublessor and Sublessee hereby
agree that the Sublease, as so amended, shall continue in full force and effect.
9. MISCELLANEOUS.
(a) VOLUNTARY AGREEMENT. The parties have read this
Amendment and the mutual releases contained in it, and on the advice of counsel
they have freely and voluntarily entered into this Amendment.
(b) ATTORNEY'S FEES. If either party commences an action
against the other party arising out of or in connection with this Amendment, the
prevailing party shall be entitled to recover from the losing party reasonable
attorney's fees and costs of suit.
(c) SUCCESSORS. This Amendment shall be binding on and
inure to the benefit of the parties and their successors.
(d) COUNTERPARTS. This Amendment may be signed in two or
more counterparts. When at least one such counterpart has been signed by each
party, this Amendment shall be deemed to have been fully executed, each
counterpart shall be deemed to be an original, and all counterparts shall be
deemed to be one and the same agreement.
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<PAGE>
(e) TENANT IMPROVEMENTS. Subject to the consent and
approval of Master Lessor and the requirements set forth in Section 12 of the
Master Lease, Sublessor hereby consents to Sublessee's modification of the
exhaust ducts and installation of 220 voltage electrical outlets in rooms 130
and 131 (collectively, the "Rooms") of the Remaining Premises to make the Rooms
more suitable for its operations. Notwithstanding anything to the contrary set
forth above, Sublessee shall obtain Sublessor's prior written approval for any
further modifications of the Rooms or the Remaining Premises including, but not
limited to, the installation of fume hoods in rooms 126 and 127 of the Remaining
Premises.
IN WITNESS WHEREOF, Sublessor and Sublessee have executed this
Amendment as of the date first written above.
SUBLESSOR:
LYNX THERAPEUTICS, INC., a Delaware
corporation
By: [ILLEGIBLE]
----------------------------------------
Its: Chief Financial Officer
---------------------------------------
SUBLESSEE:
KOSAN BIOSCIENCES INCORPORATED, a
California corporation
By: /s/ Michael Ostrach
----------------------------------------
Its: Chief Operating Officer, V.P.
---------------------------------------
4
<PAGE>
EXHIBIT 10.15
MASTER EQUIPMENT LEASE NO. 0033
Under this Master Equipment Lease No. 0033 (the "Lease"), dated as of September
3, 1996, PHOENIX LEASING INCORPORATED, a California corporation ("Lessor"),
hereby leases to KOSAN BIOSCIENCES, INC., a California corporation ("Lessee"),
and Lessee hereby leases from Lessor, the equipment (herein called "Equipment")
which is described on the schedule attached hereto or any subsequently-executed
schedule entered into by Lessor and Lessee and which incorporates this Lease by
reference. Any such schedules shall hereinafter individually be referred to as a
"Schedule" and collectively be referred to as the "Schedules." Lessor hereby
leases the Equipment to Lessee upon the following terms and conditions:
1. TERM OF AGREEMENT. The term of this Lease begins on the date set
forth above and shall continue thereafter and be in effect so long as and at any
time any Schedule entered into pursuant to this Lease is in effect. The Initial
Term and rent payable with respect to each leased item of Equipment shall be as
set forth in and as stated in the respective Schedule(s). The terms of each
Schedule hereto are subject to all conditions and provisions of this Lease as it
may at any time be amended. Each Schedule shall constitute a separate and
independent lease and contractual obligation of Lessee and shall incorporate the
terms and conditions of this Master Equipment Lease and any additional
provisions contained in such Schedule. In the event of a conflict between the
terms and conditions of this Lease and any additional provisions of such
Schedule, the additional provisions of such Schedule shall prevail with respect
to such Schedule only.
2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be
cancelled or terminated except as expressly provided herein. This Lease
(including all Schedules to this Lease) constitutes a net lease and Lessee
agrees that its obligations to pay all rent and other sums payable hereunder
(and under any Schedule) and the rights of Lessor and assignee in and to such
rent and other sums, are absolute and unconditional and are not subject to any
abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged
to be due to, or by reason of, any past, present or future claims which Lessee
may have against Lessor, any assignee, the manufacturer or seller of the
Equipment, or against any person for any reason whatsoever.
3. LESSOR COMMITMENT. So long as no Event of Default or event which
with the giving of notice or passage of time, or both, could become an Event
of Default has occurred or is continuing, Lessor agrees to lease to Lessee
the groups of Equipment described on each Schedule, subject to the following
conditions: (i) that in no event shall Lessor be obligated to lease Equipment
to Lessee hereunder where the aggregate purchase price of all Equipment
leased to Lessee hereunder would exceed One Million Dollars ($1,000,000)
("Commitment"); (ii) the amount of Equipment purchased by Lessor at any one
time shall be at least equal to Twenty-five Thousand Dollars ($25,000) except
for a final advance which may be less than Twenty-five Thousand Dollars
($25,000); (iii) Lessor shall not be obligated to purchase Equipment
hereunder after June 30, 1998; (iv) all Lease documentation required by
Lessor has been executed by Lessee or provided by Lessee no later than
September 30, 1996; (v) the equipment described on the Schedule is acceptable
to Lessor; (vi) with respect to each funding, Lessee has provided to Lessor
each of the closing documents and other items described in Exhibit A hereto
(which documents shall be in form and substance acceptable to Lessor) and
which list may be modified for each subsequent funding; (vii) there is no
material adverse change in Lessee's condition, financial or otherwise, as
determined by Lessor, and Lessee so certifies, from (yy) the date of the most
recent financial statements delivered by Lessee to Lessor prior to execution
of this Lease, to (zz) the date of the proposed lease of the Equipment;
(viii) at the time of all fundings, Lessee is performing according to its
business plan
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<PAGE>
referred to as "Detailed Budget Report, July through December 1996 dated
6/30/96, and Balance Sheet Projections for July through December, 1996, dated
June 30, 1996; Balance Sheet Projections for July through December 1996 to be
provided by Lessee in a monthly format, and Income Statement and Balance Sheet
Projections for years 1997 and 1998 to be provided by Lessee in a monthly
format," all as may be amended from time to time, in form and substance
acceptable to Lessor (collectively, "Business Plan") which Business Plan is
viable only through June 30, 1998; (ix) Lessor or its agent has inspected and
placed identification labels on the Equipment; (x) Lessee shall offer to Lessor,
on an exclusive basis, all lease transactions for equipment contemplated by
Lessee until expiration of all Schedules; however if Lessor declines to finance
any such transaction or Lessee and Lessor cannot agree upon terms, then Lessee
shall be free to seek such financing from any other third party; and (xi) Lessor
has received in form and substance acceptable to Lessor: (a) Lessee's interim
financial statements signed by a financial officer of Lessee; (b) evidence of
Lessee's Two Million One Hundred Thirty-Four Thousand Five Hundred Thirty-Nine
Dollars ($2,134,539) cash position as of June 30, 1996; and (c) Lessee's
corporate resolution authorizing the transaction set forth herein.
4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the
Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is to
purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY
OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR, LESSEE LEASES THE
EQUIPMENT "AS IS" AND WITH ALL FAULTS. (b) If the Equipment is not properly
installed, does not operate as represented or warranted by Vendor or is
unsatisfactory for any reason, Lessee shall make any claim on account thereof
solely against Vendor and shall, nevertheless, pay Lessor all rent payable under
this Lease, Lessee hereby waiving any such claims as against Lessor. Lessor
hereby agrees to assign to Lessee solely for the purpose of making and
prosecuting any said claim, to the extent assignable, all of the rights which
Lessor has against Vendor for breach of warranty or other representation
respecting the Equipment. Lessor shall have no responsibility for delay or
failure to fill the order. (c) Lessee understands and agrees that neither the
Vendor nor any salesman or other agent of the Vendor is an agent of Lessor. No
salesman or agent of Vendor is authorized to waive or alter any term or
condition of this Lease, and no representations as to the Equipment or any other
matter by the Vendor shall in any way affect Lessee's duty to pay the rent and
perform its other obligations as set forth in this Lease. (d) Lessee hereby
requests Lessor to purchase Equipment from Vendor and to lease Equipment to
Lessee on the terms and conditions of the Lease set forth herein. (e) Lessee
hereby authorizes Lessor to insert in this Lease and each Schedule hereto the
serial numbers and other identification data of the Equipment when determined by
Lessor.
5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and
warrants that (a) it is a corporation in good standing under the laws of the
state of its incorporation, and duly qualified to do business, and will remain
duly qualified during the term of this Lease, in each state where the Equipment
will be located, as specified on each Schedule hereto; (b) it has full authority
to execute and deliver this Lease and perform the terms hereof, and this Lease
has been duly authorized and constitutes valid and binding obligations of Lessee
enforceable in accordance with its terms; (c) this Lease will not contravene any
law, regulation or judgment affecting Lessee or result in any breach of any
agreement or other instrument binding on Lessee; (d) no consent of Lessee's
shareholders or holder of any indebtedness, or filing with, or approval of, any
governmental agency or commission, is a condition to the performance of the
terms hereof; (e) there is no action or proceeding pending or threatened against
Lessee before any court or administrative agency which might have a materially
adverse effect on the business, financial condition or operations of Lessee; (f)
no deed of trust, mortgage or third party interest arising
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<PAGE>
through Lessee will attach to the Equipment or the Lease; (g) the Equipment will
remain at all times under applicable law, removable personal property, free and
clear of any lien or encumbrance in favor of Lessee or any other person,
notwithstanding the manner in which the Equipment may be attached to any real
property; (h) all credit, financial and any other information submitted to
Lessor herewith or any other time is true and correct; and (i) Lessee has
provided, or will provide if requested, Lessee's tax identification number.
6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing,
rigging, transportation and installation charges for the Equipment and Lessor
may separately invoice Lessee for such charges. Lessee has selected the
Equipment itself and shall arrange for delivery of Equipment so that it can be
accepted in accordance with Section 7 hereof. Lessee hereby agrees to indemnify
and hold Lessor harmless from any claims, liabilities, costs and expenses,
including reasonable attorneys' fees, incurred by Lessor arising out of any
purchase orders or assignments executed by Lessor with respect to any Equipment
or services relating thereto.
7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and
dated Acceptance Notice attached to each Schedule hereto (a) acknowledging the
Equipment has been received, installed and is ready for use and (b) accepting it
as satisfactory in all respects for the purposes of this Lease. Lessor is
authorized to fill in the Rent Start Date on each Schedule in accordance with
the foregoing.
8. LOCATION; INSPECTION; LABELS. Equipment shall be delivered to and
shall not be removed from the Equipment "Location" shown on each Schedule
without Lessor's prior written consent, which "Location" shall in all events be
within the Untied States. Lessor shall have the right to inspect Equipment at
any reasonable time. Lessee shall be responsible for all labor, material and
freight charges incurred in connection with any removal or relocation of such
Equipment which is requested by the Lessee and consented to by Lessor, as well
as for any charges due to the installation or moving of the Equipment. The
rental payments shall continue during any period in which the Equipment is in
transit during a relocation. Lessor or its agent shall mark and label Equipment,
which labels shall state Equipment is owned by Lessor, and Lessee shall keep
such labels on the Equipment as labeled by Lessor or its agent.
9. EQUIPMENT MAINTENANCE. (a) GENERAL. Lessee will locate or base
each item of Equipment where designated in an Acceptance Notice and will
reasonably permit Lessor to inspect such item of Equipment and its
maintenance records. Lessee will at its sole expense comply with all
applicable laws, rules, regulations, requirements and orders with respect to
the use, maintenance, repair, condition, storage and operation of each item of
Equipment. Except as required herein, Lessee will not make any addition or
improvement to any item of Equipment that is not readily removable without
causing material damage to any item or impairing its original value or
utility. Any addition or improvement that is so required or cannot be so
removed will immediately become the property of Lessor. (b) SERVICE AND
REPAIR. With respect to computer equipment, other than personal computers,
Lessee has entered into, and will maintain in effect, Vendor's standard
maintenance contract or another contract satisfactory to Lessor for a period
equal to the term of each Schedule and extensions thereto which provides for
the maintenance of the Equipment and repairs and replacement parts thereof in
good condition and working order, all in accordance with the terms of such
maintenance contract. Lessee shall have the Equipment certified for the
Vendor's standard maintenance agreement prior to delivery to Lessor upon
expiration of this Lease. With respect to any other Equipment, Lessee will,
at its sole expense, maintain and service, and repair any damage to, each
item of Equipment in a manner consistent with prudent industry practice and
Lessee's own practice so that such item of Equipment is at all times (i) in
the same condition as when delivered to Lessee,
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<PAGE>
except for ordinary wear and tear, (ii) in good operating order for the function
intended by its manufacturer's warranties and recommendations.
10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the
Equipment through use, operation or otherwise. Lessee hereby indemnifies and
holds harmless Lessor from and against all claims, loss of rental payments,
costs, damages, and expenses relating to or resulting from any loss, damage
or destruction of the Equipment, any such occurrence being hereinafter called
a "Casualty Occurrence." On the first rental payment date following such
Casualty Occurrence, or, if there is no such rental payment date, thirty (30)
days after such Casualty Occurrence, Lessee shall (i) repair the Equipment,
returning it to good operating condition or (ii) replace the Equipment with
identical equipment in good condition and repair, the title to which shall
vest in Lessor and which thereafter shall be subject to the terms of this
Lease; or (iii) pay to Lessor (a) any unpaid accrued amounts relating to such
Equipment due Lessor under this Lease up to the date of the Casualty
Occurrence, and (b) a sum equal to the Casualty Value as set forth in the
Casualty Value table attached to each Schedule hereto for such Equipment.
Upon the making of such payment, the term of this Lease as to each unit of
Equipment with respect to which the Casualty Value was paid shall terminate.
11. GENERAL INDEMNITY. Lessee will protect, indemnify and save harmless
Lessor from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses, imposed upon or incurred by or
asserted against Lessor or any assignee of Lessor by Lessee or any third party
by reason of the occurrence or existence (or alleged occurrence or existence) of
any act or event relating to or caused by the Equipment, including but not
limited to, consequential or special damages of any kind, or any failure on the
part of Lessee to perform or comply with any of the terms of this Lease. In the
event that any action, suit or proceeding is brought against Lessor by reason of
any such occurrence, Lessee, upon request of Lessor, will at Lessee's expense
resist and defend such action, suit or proceeding or cause the same to be
resisted and defended by counsel designated and approved by Lessor. Lessee's
obligations under this Section 11 shall survive the expiration of this Lease
with respect to acts or events occurring or alleged to have occurred prior to
the return of the Equipment to Lessor at the end of the Lease term.
12. INSURANCE. Lessee at its expense shall keep the Equipment insured
for the entire term and any extensions of this Lease against all risks for at
least the replacement value of such Equipment and shall provide for a loss
payable endorsement to Lessor or any assignee of Lessor. Lessee shall maintain
comprehensive general public liability insurance with respect to loss or damage
for personal injury, death or property damage in an amount not less than
$2,000,000 per occurrence, naming Lessor or any assignee of Lessor as additional
insured. Such insurance shall contain insurer's agreement to give thirty (30)
days written notice to Lessor before cancellation or material change of any
policy of insurance. Lessee will provide Lessor and any assignee of Lessor with
a certificate of insurance from the insurer evidencing Lessor's or such
assignee's interest in the policy of insurance. Such insurance shall cover any
Casualty Occurrence to any unit of Equipment. Notwithstanding anything in
Section 10 or this Section 12 to the contrary, this Lease and Lessee's
obligations hereunder and under each Schedule shall remain in full force and
effect with respect to any unit of Equipment which is not subject to a Casualty
Occurrence. If Lessee fails to provide or maintain insurance as required herein,
Lessor shall have the right, but shall not be obligated to obtain such
insurance. In that event, Lessee shall pay to Lessor the cost thereof.
13. TAXES. Lessee agrees to reimburse Lessor for, (or pay directly if
instructed by Lessor), and agrees to indemnify and hold Lessor harmless from,
all fees (including,
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<PAGE>
but not limited to, license, documentation, recording and registration fees),
and all sales, use, gross receipts, personal property, occupational, value
added or other taxes, levies, imposts, duties, assessments, charges, or
withholdings of any nature whatsoever, together with any penalties, fines,
additions to tax, or interest thereon (all of the foregoing being hereafter
referred to as "Impositions") except same as may be attributable to Lessor's
income, arising at any time prior to or during the term of this Lease, or
upon termination or early termination of this Lease and levied or imposed
upon Lessor directly or otherwise by any Federal, state or local government
in the United States or by any foreign country or foreign or international
taxing authority upon or with respect to (i) the Equipment, (ii) the
exportation, importation, registration, purchase, ownership, delivery,
leasing, possession, use, operation, storage, maintenance, repair, return,
sale, transfer of title, or other disposition thereof, (iii) the rentals,
receipts, or earnings arising from the Equipment, or any disposition of the
rights to such rentals, receipts, or earnings, (iv) any payment pursuant to
this Lease, and (v) this Lease or the transaction or any part thereof.
Lessee's obligations under this Section 13 shall survive the expiration of
this Lease with respect to acts or events occurring or alleged to have
occurred prior to the return of the Equipment to Lessor at the end of the
Lease term.
14. PAYMENT BY LESSOR. If Lessee shall fail to make any payment or
perform any act required hereunder, then Lessor may, but shall not be required
to, after such notice to Lessee as is reasonable under the circumstances, make
such payment or perform such act with the same effect as if made or performed by
Lessee. Lessee will upon demand reimburse Lessor for all sums paid and all costs
and expenses incurred in connection with the performance of any such act.
15. SURRENDER OF EQUIPMENT. Upon termination or expiration of this
Lease, with respect to each group of Equipment, Lessee will forthwith surrender
the Equipment to Lessor delivered in as good order and condition as originally
delivered, reasonable wear and tear excepted. Lessor may, at its sole option,
arrange for removal and transportation of the Equipment provided that Lessee's
obligations under Sections 10, 11 and 12 shall not be released. Lessee shall
bear all expenses of delivering (which include, but are not limited to, the
de-installation, insurance, packaging and transportation of) the Equipment to
Lessor's location or other location within the United States as Lessor may
request. In the event Lessee fails to deliver the Equipment as directed above,
all obligations of Lessee under this Lease, including rental payments, shall
remain in full force and effect until Lessee delivers the Equipment to Lessor.
16. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUCH CONSENT
NOT TO BE UNREASONABLY WITHHELD, LESSEE SHALL NOT (a) ASSIGN, TRANSFER, PLEDGE,
HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, EQUIPMENT, OR ANY INTEREST
THEREIN, OR (b) SUBLET OR LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER
THAN LESSEE OR LESSEE'S EMPLOYEES. LESSOR MAY ASSIGN THIS LEASE OR GRANT A
SECURITY INTEREST IN ANY OR ALL EQUIPMENT, OR BOTH, IN WHOLE OR IN PART TO ONE
OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO LESSEE. If Lessee is
given notice of such assignment it agrees to acknowledge receipt thereof in
writing and Lessee shall execute such additional documentation as Lessor's
assignee shall require. Each such assignee and/or secured party shall have all
of the rights, but none of the obligations, of Lessor under this Lease, unless
such assignee or secured party expressly agrees to assume such obligations in
writing. Lessee shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that Lessee may have against Lessor.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lessor, or its assignees, secured parties, or their
agents or assigns, shall not interfere with Lessee's right to quietly enjoy use
of Equipment subject to the terms and conditions of this Lease. Subject to the
foregoing, this Lease inures to the benefit of and is binding upon the
successors and
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<PAGE>
assignees of the parties hereto. Lessee acknowledges that any such assignment by
Lessor will not materially change Lessee's duties or obligations under the Lease
or increase any burden of risk on Lessee.
17. DEFAULT. (a) EVENT OF DEFAULT. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Lessee's
failure to pay any monies due to Lessor hereunder or under any Schedule beyond
the fifth (5th) day after the same is due; (ii) Lessee's failure to comply with
its obligations under Section l2 or Section 16; (iii) Lessee's failure to comply
with or perform any term, covenant, condition, warranty or representation of
this Lease or any Schedule hereto or under any other agreement between Lessee
and Lessor or under any lease of real property covering the location of
Equipment if such failure to comply or perform is not cured by Lessee within
thirty (30) days of receipt of notice thereof; (iv) seizure of the Equipment
under legal process; (v) the filing by or against Lessee of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors; (vi) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by Lessee, or any guarantor ("Guarantor") under any guaranty executed in
connection with this Lease ("Guaranty"), for the benefit of its creditors, the
appointment of a receiver or trustee for Lessee or any Guarantor for any of
Lessee's or Guarantor's assets, the institution by or against Lessee or any
Guarantor of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up of the affairs of Lessee or any
Guarantor, PROVIDED that in the case of all such involuntary proceedings, same
are not dismissed within sixty (60) days after commencement; or (vii) the making
by Lessee or any Guarantor of a transfer of all or a material portion of
Lessee's or Guarantor's assets or inventory not in the ordinary course of
business.
(b) REMEDIES. If any Event of Default shall have occurred:
(i) Lessor may proceed by appropriate court action or actions either at
law or in equity to enforce performance by Lessee, of the applicable covenants
of this Lease, or to recover damages therefor; or
(ii) Lessee will, without demand, on the next rent payment date
following the Event of Default, pay to Lessor as liquidated damages which the
parties agree are fair and reasonable under the circumstances existing at the
time this Lease is entered into, and not as a penalty, an amount equal to the
Casualty Value of the Equipment set forth in Exhibit C together with any rent or
other amounts past due and owing by Lessee hereunder; and
(iii) Lessor may, without notice to or demand upon Lessee;
(a) Take possession of the Equipment and lease or sell the
same or any portion thereof, for such period, amount, and to such entity as
Lessor shall elect. The proceeds of such lease or sale will be applied by Lessor
(A) first, to pay all costs and expenses, including reasonable legal fees and
disbursements, incurred by Lessor as a result of the default and the exercise of
its remedies with respect thereto, (B) second, to pay Lessor an amount equal to
any unpaid rent or other amounts past due and payable plus the Casualty Value,
to the extent not previously paid by Lessee, and (C) third, to reimburse Lessee
for the Casualty Value to the extent previously paid. Any surplus remaining
thereafter will be retained by Lessor.
(b) Take possession of the Equipment and hold and
keep idle the same or any portion thereof.
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<PAGE>
Lessee agrees to pay all internal and out-of-pocket costs of
Lessor related to the exercise of its remedies, including direct costs of its
in-house counsel and out-of-pocket legal fees and expenses. At Lessor's request,
Lessee shall assemble the Equipment and make it available to Lessor at such
location as Lessor may designate. Lessee valves any right it may have to redeem
the Equipment.
Repossession of any or all Equipment shall not terminate this
Lease or any Schedule unless Lessor notifies Lessee in writing. Any amount
required to be paid under this Section shall be increased by a service charge at
the rate of 2.0% per month, or the highest rate of interest permitted by
applicable law, whichever is less, accruing from the date the Casualty Value or
other amounts are payable hereunder until such amounts are paid.
None of the above remedies is intended to be exclusive, but each
is cumulative and in addition to any other remedy available to Lessor, and all
may be enforced separately or concurrently.
18. LATE PAYMENTS. Lessee shall pay to Lender an amount equal to the
greater of 10% per month of all amounts owed Lessor by Lessee which are not paid
when due or $100, but in no event an amount greater than the highest rate
permitted by applicable law. If such funds have not been received by Lessor at
Lessor's place of business or by Lessor's designated agent by the date such
funds are due under this Lease, Lessor shall bill Lessee for such charges.
Lessee acknowledges that invoices for rentals due hereunder are sent by Lessor
for Lessee's convenience only. Lessee's non-receipt of an invoice will not
relieve Lessee of its obligation to make rent payments hereunder.
19. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses
including reasonable attorney's fees and the fees of the collection agencies,
incurred by Lessor in enforcing any of the terms, conditions or provisions
hereof.
20. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall be and remain
personal property of Lessor, and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this Lease, notwithstanding
the manner in which it may be attached or affixed to real property, and upon
termination or expiration of the Lease term, Lessee shall have the duty and
Lessor shall have the right to remove the Equipment from the premises where the
same be located whether or not affixed or attached to the real property or any
building, at the cost and expense of Lessee.
21. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Equipment without Lessor's prior written consent, which shall not be
given for changes that will affect the reliability and utility of the Equipment
or which cannot be removed without damage to the Equipment, or which in any way
affect the value of the Equipment for purposes of resale or re-lease.
22. FINANCING STATEMENT. Lessee will execute financing statements
pursuant to the Uniform Commercial Code. Lessee authorizes Lessor to file
financing statements signed only by Lessor (where such authorization is
permitted by law) at all places where Lessor deems necessary.
23. MISCELLANEOUS. (a) Lessee shall provide Lessor with such corporate
resolutions, financial statements and other documents as Lessor shall request
from time to time. (b) Lessee represents that the Equipment is being leased
hereunder for business purposes. (c) Time is of the essence with respect to this
Lease. (d) Lessee shall keep
-7-
<PAGE>
its books and records in accordance with generally accepted accounting
principles and practices consistently applied and shall deliver to Lessor its
annual audited financial statements, unaudited monthly financial statements to
include any financial information given to Lessee's Board of Directors, and
signed by an officer off Lessee and such other unaudited financial statements as
may be reasonably requested by Lessor. (e) 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.
24. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service and shall be directed, as the
case may be, to Lessor at 2401 Kerner Boulevard, San Rafael, California 94901,
Attention: Asset Management and to Lessee at 1450 Rollins Road, Burlingame, CA
94019, Attention: Joana Voglino.
25. ENTIRE AGREEMENT. Lessee acknowledges that Lessee has read this
Lease, understands it and agrees to be bound by its terms, and further agrees
that it and each Schedule constitute the entire agreement between Lessor and
Lessee with respect to the subject matter hereof and supersedes all previous
agreements, promises, or representations. The terms and conditions hereof shall
prevail notwithstanding any variance with the terms of any purchase order
submitted by the Lessee with respect to any Equipment covered hereby.
26. AMENDMENT. This Lease may not be changed, altered or modified
except by an instrument in writing signed by an officer of the Lessor and the
Lessee.
27. WAIVER. Any failure of Lessor to require strict performance by
Lessee or any waiver by Lessor of any provision herein shall not be construed as
a consent or waiver of any other breach of the same or any other provision.
28. SEVERABILITY. If any provision of this Lease is held invalid, such
invalidity shall not affect any other provisions hereof.
29. JURISDICTION AND WAIVER OF JURY TRIAL. This Lease shall be governed
by and construed under the laws of the State of California. It is agreed that
exclusive jurisdiction and venue for any legal action between the parties
arising out of this Lease shall be in the Superior Court for Marin County,
California, or, in cases where Federal diversity jurisdiction is available, in
the United States District Court for the Northern District of California.
LESSEE, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY
JURY IN ANY ACTION BROUGHT ON 0R WITH RESPECT TO THIS LEASE, ANY SCHEDULE, OR
ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH.
30. NATURE 0F TRANSACTION. Lessor makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
31. SECURITY INTEREST. (a) One executed copy of the Lease will be
marked "Original" and all other counterparts will be duplicates. To the extent,
if any, that this Lease constitutes chattel paper (as such term is defined in
the Uniform Commercial Code as in effect in any applicable jurisdiction) no
security interest in the lease may be created in any documents other than the
"Original" (b) There shall be only one original of each Schedule and it shall be
marked "Original," and all other counterparts will be duplicates. To the extent,
if any, that any Schedule(s) to this Lease constitutes chattel paper (or as such
term is defined in the Uniform Commercial Code as in effect in any
-8-
<PAGE>
applicable jurisdiction) no security interest in any Schedule(s) may be created
in any documents other than the "Original."
32. SUSPENSION OF OBLIGATIONS. The obligations of Lessor hereunder will
be suspended to the extent that it is hindered or prevented from complying
therewith because of labor disturbances, including but not limited to strikes
and lockouts, acts of God, fires, storms, accidents, failure of the manufacture
to deliver any item of Equipment, governmental regulations or interference, or
any cause whatsoever non within the sole and exclusive control of Lessor.
33. SOFTWARE. For the term of this Lease, and so long as no Event of
Default has occurred and is continuing, Lessor hereby assigns to Lessee all of
Lessor's rights under any License Agreement executed by Lessor in connection
with the Equipment (except for any right of Lessor to be reimbursed for the
License Fee). Lessee agrees to be bound by the provisions of any such License
Agreement and to perform all obligations of Lessor (except Lessor's payment
obligations) thereunder. Lessee acknowledges that all of Lessee's obligations
under the Lease with respect to the Equipment will apply equally to the
software, including but not limited to Lessee's obligation to pay rent to
Lessor.
34. COMMITMENT FEE. Lessee has paid to Lessor a commitment fee ("Fee")
of Ten Thousand Dollars ($10,000). The Fee shall be applied by Lessor first to
reimburse Lessor for all out-of-pocket UCC search costs, inspections and
appraisal fees incurred by Lessor, and then proportionally to the first month's
rent for each Schedule here under in the proportion that the purchase price of
the Equipment leased pursuant to the Schedule bears to Lessor's entire
commitment. However, the portion of the Fee which is not applied to rental shall
be non-refundable except if Lessor defaults in its obligations pursuant to
Section 3.
35. FINANCE LEASE. The parties agree that this lease is a "Finance
Lease" as defined by section 10-103(a)(7) of the California Commercial Code
(Cal.Com.C.). Lessee acknowledges either (a) that Lessee has reviewed and
approved any written Supply Contract (as defined by Cal.Com.C. Section
10-103(a)(25)) covering Equipment purchased from the "Supplier" (as defined by
Cal.Com.C. Section 10-103(a)(24)) thereof for lease to Lessee or (b) that Lessor
has informed or advised Lessee, in writing, either previously or by this Lease
of the following: (i) the identity of the Supplier; (ii) that the Lessee may
have rights under the Supply Contract; and (iii) that the Lessee may contact the
Supplier for a description of any such rights Lessee may have under the Supply
Contract. Lessee hereby waives any rights and remedies Lessee may have under
Cal.Com.C. Sections 10-508 through 522.
36. ADJUSTMENT OF INITIAL LEASE RATE FACTOR. For any Schedule funded,
from July 1,1997 through June 30, 1998 (each a "Rate Adjustment Schedule")
Lessor and Lessee agree that the initial lease rate factor of 2.58% ("the
Initial Lease Eats Factor"), will be adjusted based on the Funding Treasury Note
Rate, as defined below. Lessor and Lessee agree that for each twenty (20) basis
points that the Funding Treasury Note Rate, is greater than 5.56%, the Initial
Lease Rate Factor for the applicable Adjusted Rate Schedule shall be adjusted as
sat forth in the table on Exhibit B hereto and shall remain constant for that
Adjusted Rate Schedule. Lessor and Lessee agree that in no event shall the
Initial Lease Rate Factor be adjusted to be lass than 2.58% for any Adjusted
Rate Schedule.
The term "Funding Treasury Note Rate" shall mean the average of
the yields to maturity of all "Govt. Bonds & Notes" as set forth in the "Ask
Yld." column of the Wall Street Journal, Western Edition, "Treasury Bonds, Notes
& Bills" report published on the
-9-
<PAGE>
date which is 15 business days prior to the funding date for each Adjusted Rate
Schedule under this Lease, having a maturity three years from the month in which
the funding date for any such Adjusted Rate Schedule occurs. If there is no such
government bond/note having such maturity three years from the month in which
the funding date for any such Adjusted Rate Schedule occurs, the Funding
Treasury Note Rate shall be the average of such yields to maturity of any such
government bonds/notes so listed in the gall Street Journal having a maturity in
the succeeding month which is closest to three years from the month in which the
funding date occurs.
37. PURCHASE OR RENEWAL REQUIREMENT FOR ALL SCHEDULES TO MASTER
EQUIPMENT LEASE. At the expiration of the Initial Term for Schedule No. 1, and
notwithstanding anything to the contrary in the Lease, upon 90 days prior
written notice to Lessor, Lessee shall purchase AS-IS, WHERE-IS all, but not
less than all, of the Equipment covered under all Schedules to this Lease at the
expiration of the Initial Term for each such Schedule for an amount equal to
twenty percent (20%) of the Equipment's original purchase price, whereupon
Lessor shall issue to Lessee a Bill of Sale for the Equipment transferring it to
Lessee without any representation or warranty whatsoever.
In the event Lessee does not provide 90 days prior written notice as specified
above, Lessee shall be deemed to have selected No. 1 above for all Schedules to
the Lease.
Lessee shall be responsible for all applicable taxes in connection with any
purchase of Equipment by Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
PHOENIX LEASING INCORPORATED KOSAN BIOSCIENCES INC.
By: /s/ [ILLEGIBLE] By: /s/ Joana Voglino
----------------------- ------------------------
Title: V.P. Title: CFO-OPTS. MGR.
-------------------- ---------------------
Headquarters Location:
1450 Rollins Road
Burlingame, CA 94019
County of San Mateo
Exhibit A - Closing Memorandum
Exhibit B - Rate Adjustment Table
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<PAGE>
Exhibit A
to MASTER EQUIPMENT LEASE
Dated September 3, 1996
CLOSING MEMORANDUM
1.* Duly executed Master Equipment Lease marked "Original."
2. Duly executed Schedule marked "Original."
3. Duly executed Certificate of Acceptance. [EXECUTE UPON ACCEPTANCE OF
EQUIPMENT]
4. Insurance Certificates.
5.* Resolutions of Lessee's Board of Directors, including an incumbency
certificate.
6.* Copy of Lessee's articles of incorporation including all
amendments, certified by the Secretary of Lessee as being true and
complete and in full force and effect.
7.* Certificate from the Secretary of State of Lessee's state of
incorporation, from the state in which Lessee's chief executive
office is located, if different, and from each state where Lessee is
qualified to do business, stating Lessee is in good standing or is
authorized to transact business, as the case may be, dated not more
than thirty days prior to the first purchase of Equipment.
8. Real Property Waiver.**
9. UCC Financing Statements.
10. Bill of Sale (for Sale-Leaseback Equipment).
11. UCC search.
12.* Payment of Commitment Fee.
13. Equipment List, in form and substance satisfactory to Lessor.
14. Lessee's most recent financial statements.
15. Certificate of Chief Financial Officer stating that no event of
default has occurred, there is no adverse change in the financial
condition of Lessee and that the Equipment is free of any
encumbrances.
16.* California Civil Code Section 3440 Filing and Published Notice.
17. See Section 3 of Master Equipment Lease for additional preconditions
to closing.
* First Schedule Only.
** Required if any Equipment is a fixture, i.e., attached to real
property, or located in certain states.
<PAGE>
EXHIBIT B TO MASTER EQUIPMENT LEASE NO. 0033
<TABLE>
<CAPTION>
FUNDING TREASURY NOTE RATE INITIAL LEASE RATE FACTOR
-------------------------- -------------------------
<S> <C>
6.560% 2.58%
6.760% 2.59%
6.960% 2.60%
7.160% 2.61%
7.360% 2.62%
7.560% 2.63%
7.760% 2.64%
7.960% 2.65%
8.160% 2.66%
8.360% 2.67%
8.560% 2.68%
8.760% 2.69%
8.960% 2.70%
9.160% 2.71%
9.360% 2.72%
9.560% 2.73%
9.760% 2.74%
9.960% 2.75%
10.160% 2.76%
10.360% 2.77%
10.560% 2.78%
10.760% 2.79%
10.960% 2.80%
11.160% 2.81%
11.360% 2.82%
11.560% 2.83%
11.760% 2.84%
11.960% 2.85%
12.160% 2.86%
12.360% 2.87%
12.560% 2.88%
12.760% 2.89%
12.960% 2.90%
13.160% 2.91%
13.360% 2.92%
</TABLE>
plus .01% increase in the Initial lease Rate Factor for every
additional 20 basis point increase in Funding Treasury Note
Rate.
Lessor' s Lessee's
Iitials Iitials /s/ [INITIALS]
--------- ----------
<PAGE>
EXHIBIT 10.16
[LETTERHEAD]
MASTER LOAN AND SECURITY AGREEMENT
Master Loan and Security Agreement No. S6880 Dated August 25, 1998
FINOVA Technology Finance, Inc. ("we," "us" or "FINOVA") is willing to make a
loan (the "Loan") to Kosan Bioscience, Inc. ("you" or "Borrower") under the
terms and conditions contained in this Master Loan and Security Agreement (this
"Master Agreement"). The Loan will be secured by the Collateral described in any
schedule to this Agreement (a "Schedule"). The Collateral also includes any
replacement parts, additions and accessories that you may add to the Collateral,
as well as any proceeds of sale, lease or rental of the Collateral. We may treat
any Schedule as a separate loan and security agreement containing all of the
provisions of this Loan and Security Agreement.
1. THE CREDIT
We may make the Loan in more than one advance (an "Advance", each of which shall
be evidenced by a "Schedule"). All of the Schedules, taken together, will make
up the Loan. We will only make the Loan to you if all the conditions in this
Master Agreement have been met to our satisfaction. We will rely on your
representations and warranties, contained in this Master Agreement, in making
the Loan. The terms of this Agreement will each apply to the Loan.
- - USE OF PROCEEDS. You will use the proceeds of the Loan to pay for the
Collateral. We may pay the Supplier (whom you have chosen) of the
Collateral directly from the Loan proceeds. The Supplier will deliver
the Collateral to you at your expense. You will properly install the
Collateral at your expense at the location(s) indicated in the Schedule.
If you have already paid for the Collateral, we will pay the Loan proceeds
to you or to another person that you may designate in writing.
- - NOTES. Your obligation to repay the Loan and to pay interest on the Loan
will be evidenced by Notes. Each Note will be dated the date of the
Schedule to which the Advance evidenced by the Note is related.
- - TERM. The Term of each Schedule (and the related Advance) begins upon the
date that we make payment for the Collateral covered under each Schedule
(the "Closing Date"). The Term continues until you fully perform all of
your obligations under this Agreement and each Schedule and the related
Note(s). If the Collateral is not delivered, installed and accepted by you
by the date indicated in the Schedule, we may terminate this Agreement and
the Schedule as to the Collateral that was not delivered, installed and
accepted by giving you 10 days written notice of termination. Any advance
Loan payment you may have paid us is nonrefundable, even if the Term never
starts or if we rightfully terminate this Agreement or the Schedule.
- - LOAN ACCOUNT. We will keep a loan account on our books and records (which
are computerized) for the Loan. We will
<PAGE>
record all payments of principal and interest in the loan account. Unless
the entries in the loan account are clearly in error, the loan account will
definitively indicate the outstanding principal balance and accrued
interest on the Loan. We may send you loan account statements from time to
time or upon your request.
- - PAYMENTS. The scheduled loan payments (the "Payments") are indicated on the
Schedule. The Payments are payable periodically as specified on the
Schedule from time to time (for example, monthly). The Schedule also
indicates whether the Payments are payable "in advance" or "in arrears."
You agree that you owe us the total of all of these Payments over the Term
of the Schedule.
- - FIRST PAYMENT. The first Payment is due at the beginning of the Term or at
a later date that we agree to in writing. Subsequent Payments are due on
the thirtieth day of each successive period (except the next following
period if Payments are payable in arrears) until you pay us in full all of
the Payments and any other charges or expenses you owe us.
- - INTEREST. Prior to maturity of a Schedule, you will pay us interest on each
Schedule at the Interest Rate indicated in the Schedule. "Maturity" means
the scheduled maturity or any earlier date on which we accelerate the Loan.
The Payment amount indicated in the Schedule includes interest at this
Interest Rate. Interest is calculated in advance using a year of 360 days
with twelve months of 30 days.
- - DEFAULT INTEREST RATE. After Maturity of the Loan you will pay us interest
at a rate of four (4%) percent per year above the Interest Rate. This is
referred to as the "Default Rate."
- - INTERIM PAYMENT. If an Advance is made on a day other than the thirtieth or
thirty-first day of a period, you will also pay us an interim Payment on
the first Payment date. The interim Payment will be for the period from the
beginning of the Term until the twenty-ninth day of the period in which the
Advance is made, unless the Advance is made on the thirty-first day of a
period. If the Advance is made on the thirty-first day of a period, the
interim Payment will be for the period from the beginning of the Term
through and including the twenty-ninth day of the next following period.
The Interim Payment will be calculated the same way as the regular Payments
but pro rata on a daily basis for the number of days for which the interim
Payment is due.
- - USURY. You and we intend to obey the law. If the Interest Rate charged
would exceed the maximum legal rate, you will only have to pay the maximum
legal rate. You do not have to pay any excess interest over and above the
maximum legal rate of interest. However, if it later becomes legal for you
to pay all or part of any excess interest, you will then pay it to us upon
our request.
- - PAYMENT DETAILS. You will make all payments due under this Master Agreement
by 12:00 P.M., Connecticut time, on the day they are due. You will make all
payments in US Dollars (US$) in immediately available funds. We do not have
to make or give "presentment, demand, protest or notice" to get paid. You
waive "presentment, demand, protest and notice."
- - APPLICATION OF PAYMENTS. Each payment under this Master Agreement is to be
applied in the following order: first, to any fees, costs, expenses and
charges you may owe us; second, to any interest due; and third to the
principal balance.
-2-
<PAGE>
- - PREPAYMENT. You may not prepay the Loan, in whole or in part, unless this
is specifically permitted by Exhibit A to this Agreement. If prepayment is
permitted by Exhibit A to this Master Agreement, you will give us at least
30 days advance written notice of prepayment. You will pay us the
prepayment premium indicated in the Schedule(s). You will also pay us all
accrued and unpaid interest through the date of prepayment, as well as all
outstanding fees, costs, expenses and charges then due. Of course, you will
also pay the entire outstanding principal balance of the Loan. Once you
give us a notice of prepayment, that notice is final and irrevocable. If we
accelerate the Loan following an Event of Default, you will also owe us a
prepayment premium calculated as if the Loan were prepaid on the date of
acceleration. If no prepayment is permitted, the premium due upon
acceleration will be five (5%) percent of the outstanding principal
balance.
- - YOUR OBLIGATION TO PAY US ALL PAYMENTS IS ABSOLUTE AND UNCONDITIONAL. YOU
ARE NOT EXCUSED FROM MAKING THE PAYMENTS, IN FULL, FOR ANY REASON. YOU
AGREE THAT YOU HAVE NO DEFENSE FOR FAILURE TO MAKE THE PAYMENTS AND YOU
WILL NOT MAKE ANY COUNTERCLAIMS OR SETOFFS TO AVOID MAKING THE PAYMENTS.
2. SECURITY INTEREST
- - You grant us a security interest in the Collateral. The Collateral secures
the full and timely payment and performance of all of your obligations to
us and to FINOVA Capital Corporation under this Master Agreement and any
other agreement, loan or lease that you may have with us or FINOVA Capital
Corporation (the "Obligations"). You also grant us a security interest in
any additional collateral identified in any Schedule. Any additional
collateral is considered to be "Collateral" and it secures all of the
Obligations.
- - If we request, you will put labels supplied by us stating "PROPERTY OF
FINOVA" on the Collateral where they are clearly visible.
- - You give us permission to add to this Master Agreement or any Schedule the
serial numbers and other information about the Collateral.
- - You give us permission to file this Master Agreement or a Uniform
Commercial Code financing statement, at your expense, in order to perfect
our security interest in the Collateral. You also give us permission to
sign your name on the Uniform Commercial Code financing statements where
this is permitted by law.
- - 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 Agreement 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 Master
Agreement.
- - At your expense, you will defend our first priority security interest in
the Collateral against, and keep the Collateral free of, any legal process,
liens, other 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.
- - You will notify us at least 15 days before you change the address of your
principal executive office.
-3-
<PAGE>
- - You will promptly sign and return additional documents that we may request
in order to protect our first priority security interest in the Collateral.
- - The Collateral is personal property and will remain personal property. You
will not incorporate it into real estate and will not do anything that will
cause the Collateral to become part of real estate or a fixture without
lender's prior consent.
3. CONDITIONS OF LENDING
- - See our Commitment Letter to you dated August 24, 1998, which you and we
consider to be a part of this Master Agreement. The terms and conditions of
the Commitment Letter continue following the making of the first Advance.
However, if there is a conflict between the terms and conditions of this
Master Agreement, any Schedule or any Note and the terms and conditions of
the Commitment Letter, then you and we agree that the terms and conditions
of this Agreement, the Schedules and the Notes control over the Commitment
Letter terms and conditions.
- - Before we disburse any proceeds of any Advance, we also require the
following:
- - That no payment is past due to us under any other agreement, loan or lease
that you or any guarantor have with us or with FINOVA Capital Corporation.
- - That you are complying with all terms of this Agreement.
- - That we have received all the documents we requested, including the signed
Schedule, Note 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
financial condition that you disclosed to us in your application for
credit.
4. REPRESENTATIONS AND WARRANTIES
You represent and warrant to us as follows:
- - 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.
- - You have supplied us with information about the Collateral. You promise to
us that the amount of our Advance as to each item of Collateral is no more
than the fair and usual price for this kind of Collateral, taking into
account any discounts, rebates and allowances that you or any affiliate of
yours may have been given for the Collateral.
- - 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.
-4-
<PAGE>
- - 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.
5. COVENANTS
You agree to do the following things (or not to do the following things if so
stated) until full payment of all amounts due to us under this Agreement, the
Schedules and the Notes:
CARE, USE, LOCATION AND ALTERATION OF THE COLLATERAL
- - You will make sure that the Collateral is maintained in good operating
condition, and that it is serviced, repaired and overhauled when this is
necessary to keep the Collateral 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.
- - You will maintain service logs for the Collateral and permit us to inspect
the Collateral, the service logs and service reports. You give us
permission to make copies of the service logs and service reports.
- - We will give you prior notice if we, or our agent, want to inspect the
Collateral 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 Collateral, but only for one inspection per year. If we find
during an inspection that you are not complying with this Master Agreement,
you will pay our travel, meals and lodging costs, our salary costs, and the
costs and fees of our agents for reinspection. You will promptly cure any
problems with the Collateral that are discovered during our inspection.
- - You will use the Collateral only for business purposes. You will obey all
legal and regulatory requirements in your use of the Collateral.
- - You will make all additions, modifications and improvements to the
Collateral that are required by law or government regulation. Otherwise,
you will not alter the Collateral without our written permission. You will
replace all worn, lost, stolen or destroyed parts of the Collateral with
replacement parts that are as good or better than the original parts. The
new parts will become subject to our security interest upon replacement.
- - You will not remove the Collateral from the location indicated in the
Schedule without our written permission
YEAR 2000 COMPLIANT
- - 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 shall provide to
us assurance reasonably acceptable to us that your computer-based systems,
embedded microchips and other processing capabilities are year 2000
compatible.
RISK OF LOSS
- - You have the complete risk of loss or damage to the Collateral. Loss or
damage to the Collateral will not relieve you of your obligation to make
the Payments.
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- - If any Collateral is lost or damaged, you have two choices (although if you
are in default under this Master Agreement, we and not you will have the
two choices). The choices are:
(1) Repair or replace the damaged or lost Collateral so that, once again, the
Collateral is in good operating condition and we have a perfected first
priority security interest in it.
(2) Pay us the casualty value specified in Exhibit B attached. Once you have
paid us this amount and any other amount that you may owe us, we will
release our security interest in the damaged or lost Collateral and you (or
your insurer) may keep the Collateral for salvage purposes, on an "AS IS,
WHERE IS" basis.
INSURANCE
- - Until you have made all Payments to us under this Master Agreement, the
Schedules and the Notes, you will keep the Collateral insured. The amount
of insurance, the coverage, and the insurance company must be acceptable to
us.
- - 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.
- - Insurance proceeds may be used to repair or replace damaged or lost
Collateral or to pay us the present value of the Payments, as provided
above.
- - 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 Collateral.
TAXES
- - You will pay all sales, use, excise, stamp, documentary and ad valorum
taxes, license, recording and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession, use,
lease or rental of the equipment or on the Loan.
- - You will pay all taxes (other than our federal or state net income taxes)
imposed on you or on us regarding the Payments.
- - You will reimburse us for any of these taxes that we pay or advance.
- - You will file and pay for any personal property taxes on the Collateral.
FINANCIAL STATEMENTS
- - During the Term you will promptly give copies of 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.
These financial statements will be prepared according to generally accepted
accounting principles, consistently applied.
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<PAGE>
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.
6. DEFAULTS
- - You are in default if any of the following happens:
- - You do not pay us, when it is due, any Payment or other payment that you
owe us under this Master Agreement, any Schedule, Note or that you owe
under any other agreement, loan or lease that you have with us or with
FINOVA Capital Corporation.
- - 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.
- - You do something you are not permitted to do, or you fail to do anything
that is required of you, under this Master Agreement, any Schedule or any
other lease, loan or other financial arrangement that you have with us.
- - An event of default occurs for any other lease, loan or obligation of yours
(or any guarantor) that exceeds $25,000.
- - You or any guarantor file bankruptcy, or involuntary bankruptcy is filed
against you or any guarantor.
- - You or any guarantor are subject to any other insolvency proceeding other
than bankruptcy (for example, a receivership action or an assignment for
the benefit of creditors).
- - Without our permission, you or any guarantor sell all or a substantial part
of its assets, merge or consolidate, or a majority of your voting stock or
interests (or any guarantor's voting stock or interests) is transferred.
- - 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.
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:
- - "Accelerate" the Loan balance under any or all Notes. This means that we
may require you to immediately pay us all Payments for the entire Term for
any or all Schedules.
- - Require you to immediately pay us all amounts that you are required to pay
us for the entire Term of any other agreements, loans or leases that you
have with us.
- - Sue you for all payments and other amounts you owe us plus the Prepayment
Premium (see Section 1 above).
- - Require you at your expense to assemble the Collateral at a location we
request in the United States of America.
- - Remove and repossess the Collateral from where it is located, without
demand or notice, or make the Collateral inoperable. We have your
permission to remove any physical obstructions to removal of the
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<PAGE>
Collateral. We may also disconnect and separate all Collateral from other
property. No court order, court hearing or "legal process" will be required
for us to repossess the Collateral. You will not be entitled to any damages
resulting from removal or repossession of the Collateral. We may use, ship,
store, repair or lease any Collateral that we repossess. We may sell any
repossessed Collateral at private or public sale. You give us permission to
show the Collateral to buyers at your location free of charge during normal
business hours. If we do this, we do not have to remove the Collateral from
your location. If we repossess the Collateral and sell it, we will give you
credit for the net sale price, after subtracting our costs of repossessing
and selling the Collateral. If we rent the Collateral to somebody else, we
will give you credit for the net rent received, after subtracting our costs
of repossessing and renting the Collateral, but the credit will be
discounted to present value using a discount rate equal to the Default
Rate. The credit will be applied against what you owe us under this Master
Agreement, the Schedules, the Notes and any other agreements, loans or
leases that you have with us. If the credit exceeds the amount you owe
under this Master Agreement, the Schedule, the Notes and any other
agreements, loans or leases that you have with us, we will refund the
amount of the excess to you.
- - Return conditions: Following an Event of Default, at our request you will
return the Collateral, 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 5 above. The Collateral
will not be subject to any liens when it is returned. All advertising
insignia will be removed and the finish will be painted or blended so that
nobody can see that advertising insignia used to be there.
- - You will pack or crate the Collateral 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 Collateral.
- - At our request, you will provide us with up to 60 days free storage of the
Collateral at your location, and will let us (or our agent) have access to
the Collateral in order to inspect it and sell it.
- - You will pay us what it costs us to repair the Collateral if you do not
return it in the required condition.
You will also pay us for the following:
- - All our expenses of enforcing our remedies. This includes all our expenses
to repossess, store, ship, repair and sell the Collateral.
- - Our reasonable attorney's fees and expenses.
- - Default interest on everything you owe us from the date of your default to
the date on which we are paid in full at the Default Rate.
You realize that the damages we could suffer as a result of your default are
very uncertain. This is why we have agreed with you in advance on the Default
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
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<PAGE>
these payments are not "penalties" or "forfeitures."
LATE FEES. 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 was originally due. The late fee will be six (6%)
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.
7. EXPENSES AND INDEMNITIES
PERFORMING YOUR OBLIGATIONS IF YOU DO NOT
If you do not perform one or more of your obligations under this Master
Agreement or a Schedule or Note, 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 Rate on that amount. These will be additional "Payments" that you
will owe us and you will pay them at the same time that your next Payment is
due.
- - You will indemnify us, defend us and hold us harmless for any and all
claims, expenses and attorney's fees concerning or arising from the
Collateral, this Agreement, or any Schedule or Note, or your breach of any
representation or warranty. It includes any claims concerning the
manufacture, selection, delivery, possession, use, operation or return of
the Collateral.
- - This obligation of yours to indemnify us continues even after the Term is
over.
8. MISCELLANEOUS
WE MAY ASSIGN OR GRANT A SECURITY INTEREST IN THIS AGREEMENT, ANY SCHEDULE, ANY
NOTE OR ANY PAYMENTS WITHOUT YOUR PERMISSION. THE PERSON TO WHOM WE ASSIGN IS
CALLED THE "ASSIGNEE." THE ASSIGNEE WILL NOT HAVE ANY OF OUR OBLIGATIONS UNDER
THIS MASTER AGREEMENT. YOU WILL NOT BE ABLE TO RAISE ANY DEFENSE, COUNTERCLAIM
OR OFFSET AGAINST ASSIGNEE.
AFTER ASSIGNMENT YOU MAY "QUIETLY ENJOY" THE USE OF THE COLLATERAL SO LONG AS
YOU ARE NOT IN DEFAULT.
UNLESS YOU RECEIVE OUR WRITTEN PERMISSION, YOU MAY NOT ASSIGN OR TRANSFER YOUR
RIGHTS UNDER THIS MASTER AGREEMENT OR ANY SCHEDULE. YOU ALSO ARE NOT ALLOWED TO
LEASE OR RENT THE COLLATERAL OR LET ANYBODY ELSE USE IT UNLESS WE GIVE YOU OUR
WRITTEN PERMISSION.
WE DID NOT MANUFACTURE OR SUPPLY THE COLLATERAL. WE ARE NOT A DEALER IN THE
COLLATERAL. INSTEAD, YOU CHOSE THE COLLATERAL.
WE DO NOT MAKE ANY WARRANTY AS TO THE COLLATERAL. 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.
WE WILL NOT BE RESPONSIBLE FOR LOSS, DAMAGE, OR INJURY TO YOU OR ANYBODY ELSE AS
A RESULT OF ANY DEFECTS, HIDDEN OR OTHERWISE, IN
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<PAGE>
THE COLLATERAL 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.
If the Collateral is unsatisfactory, you will continue to pay us all Payments
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. 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 Master
Agreement or any Schedule or Note, or give up any of our rights.
ACCEPTANCE BY FINOVA, GOVERNING LAW, JURISDICTION, VENUE, SERVICE OF PROCESS,
WAIVER OF JURY TRIAL.
THIS MASTER AGREEMENT WILL ONLY BE BINDING WHEN WE HAVE ACCEPTED IT IN WRITING.
THIS MASTER AGREEMENT IS GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF
ARIZONA (NOT INCLUDING THE "CHOICE OF LAW" DOCTRINE), THE STATE IN WHICH OUR
OFFICE IS LOCATED IN WHICH FINAL APPROVAL OF THE TERMS OR CONDITIONS OF THIS
MASTER AGREEMENT OCCURRED AND FROM WHICH DISBURSEMENT OF THE LOAN PROCEEDS WILL
BE ORDERED. HOWEVER, IF THIS MASTER AGREEMENT IS UNENFORCEABLE UNDER ARIZONA
LAW, IT WILL INSTEAD BE GOVERNED BY THE LAWS OF THE STATE IN WHICH THE
COLLATERAL IS LOCATED.
YOU MAY ONLY SUE US IN A FEDERAL OR STATE COURT THAT IS LOCATED IN MARICOPA
COUNTY, ARIZONA. THIS APPLIES TO ALL LAWSUITS UNDER ALL LEGAL THEORIES,
INCLUDING CONTRACT, TORT AND STRICT LIABILITY. YOU CONSENT TO THE PERSONAL
JURISDICTION OF THESE ARIZONA COURTS. YOU WILL NOT CLAIM THAT MARICOPA COUNTY,
ARIZONA, IS AN "INCONVENIENT FORUM" OR THAT IT IS NOT A PROPER "VENUE."
WE MAY SUE YOU IN ANY COURT THAT HAS JURISDICTION. WE MAY SERVE YOU WITH PROCESS
IN A LAWSUIT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO YOUR ADDRESS
INDICATED AFTER YOUR SIGNATURE BELOW.
YOU AND WE EACH WAIVE ANY RIGHT YOU OR WE MAY HAVE TO A JURY TRIAL IN ANY
LAWSUIT BETWEEN YOU AND US.
NOTICES. We may give you written notice in person, by mail, by overnight
delivery service, or by fax. Notice will be send to your address below your
signature. Mail notice will be effective three (3) days after we mail it with
prepaid postage to the address stated. 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.
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<PAGE>
You may give us notice the same way that we may give you notice.
This Master Agreement benefits our successors and assigns. This Master Agreement
benefits only those successors and assigns of yours that we have approved in
writing.
This Master Agreement binds your successors and assigns. This Master Agreement
binds only those successors and assigns of ours that clearly assume our
obligations in writing.
TIME IS OF THE ESSENCE OF THIS MASTER AGREEMENT
This Master Agreement, all of the Schedules and the Notes and the Commitment
Letter are together the entire agreement between you and us concerning the
Collateral.
Only an employee of FINOVA who is authorized by corporate resolution or policy
may modify or amend this Loan or any Schedule or Note 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 Borrower under this Agreement,
then each of you is jointly and severally liable for your obligations under this
Master Agreement.
This Master Agreement 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 Master Agreement is unenforceable, then that provision
must be deleted. Only unenforceable provisions are to be deleted. The rest of
this Master Loan Agreement will remain as written.
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.
LENDER: BORROWER:
FINOVA TECHNOLOGY FINANCE INC. KOSAN BIOSCIENCES, INC.
10 WATERSIDE DRIVE 1450 ROLLINS ROAD
FARMINGTON, CT 06032-3065 BURLINGAME, CA 94010
BY: /s/ Linda A. Moschitto BY: /s/ Daniel V. Santi
------------------------ -------------------------
PRINTED NAME: Linda A. Moschitto PRINTED NAME: DANIEL V. SANTI
-------------------- ----------------
TITLE: Director - Contract Administration TITLE: Chairman
-------------------------------------- ------------
FAX NUMBER: (860) 676-1814 Taxpayer ID# 94321-7016
DATE ACCEPTED: 9/24/98 FAX NUMBER: (650) 343-2931
DATED: 9/18/98
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<PAGE>
STATE OF CALIFORNIA
COUNTY OF SAN MATEO
I acknowledge that DANIEL V. SANTI, who stated that he is CHAIRMAN
of the Borrower named above, signed this Master Loan and Security Agreement in
my presence today: 09/18/98. He acknowledged to me that his signature on this
Master Loan and Security Agreement was authorized by a valid resolution or other
valid authorization from Borrower's board of directors or other governing body.
/s/ Kenneth E. Constantino
---------------------------
Notary Public
[SEAL]
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<PAGE>
EXHIBIT A
Prepayment Schedule
To
Master Loan and Security Agreement No. S6880
The Prepayment premium shall be determined by multiplying the outstanding
principal balance of the Loan by the percentage amount shown below which
corresponds with the month during the Term in which the prepayment is to be
made:
<TABLE>
<CAPTION>
Month of term Percentage Amount
------------- -----------------
<S> <C>
1 through 24 No Prepayment
25 through 36 2.75%
37 through 48 1.50%
</TABLE>
Borrower (initial) /s/ [INITIALS]
--------
Lender (initial)
----------
<PAGE>
EXHIBIT B
Casualty Value Schedule
To
Master Loan and Security Agreement No. S6880
The Casualty Value for the Collateral (or any item thereof) shall be determined
by multiplying the outstanding principal balance of the Loan by the percentage
amount shown below which corresponds with the month during the Term in which the
determination is to be made:
<TABLE>
<CAPTION>
Month of Term Percentage Amount
------------- -----------------
<S> <C>
1 through 12 4.25%
13 through 24 3.25%
25 through 36 2.75%
37 through 48 1.50%
Borrower (initial) /s/ [INITIALS]
----------
Lender (initial)
-----------
</TABLE>
<PAGE>
EXHIBIT 10.17
<PAGE>
[LETTERHEAD]
August 24, 1998 REVISION #2
-----------
Mr. Michael Ostrach
Vice President - Corporate Development
Kosan Biosciences, Inc.
1450 Rollins Road
Burlingame, CA 94010
Dear Mr. Ostrach:
Subject to all the terms and conditions hereof and receipt by us of all
documents requested by us, in form and substance satisfactory to us and our
counsel, we are prepared to enter into the following loan transaction (the
"Loan").
BORROWER OR "YOU": Kosan Biosciences, Inc.
LENDER OR "WE" OR "US": FINOVA Technology Finance, Inc.
TERM OF LOANS: 48 consecutive months
MAXIMUM LOAN AMOUNT: $2,000,000 in one or more advances (each an
"Advance") to finance your purchase of
certain laboratory, office and production
equipment and tenant improvements acceptable
to us (the "Equipment"), plus softcosts
related thereto not to exceed 20% of the
amount of each Advance.
Not more than $773,116 in Advances may be
made unless and until receipt by us of
confirmation of a signed collaboration
agreement (in form and substance acceptable
to us) with Johnson & Johnson (or another
entity acceptable to us) which will provide
an aggregate of no less than $6,000,000 of
projected revenue. The initial Advance of
$484,116, plus $289,000 for a Varian NMR
when delivered and accepted shall comprise
the $773,116 total above referenced.
COLLATERAL: The due payment and performance of all
of your present and future obligations to us
shall be secured by a first and only
perfected security interest in and to all of
the Equipment, together with all proceeds
of, and accessions and additions to,
substitutions for, and all replacements of,
any of the foregoing, whether cash or
non-cash, including, but not limited to,
insurance proceeds (collectively, the
"Collateral")
COLLATERAL LOCATION: Burlingame, CA
ANTICIPATED CLOSING DATES: August 1998 through June 30, 1999
CLOSING DATE: The date on which all conditions to the Loan
for the Initial Advance and all future
Advances are satisfied by you and the Loan
proceeds are disbursed to you or to other
persons at your
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direction. The Initial Advance and all
further Advances shall be evidenced by one
or more promissory notes (each a "Note").
Each Advance shall not be less than $100,000
secured by delivered and accepted Equipment.
No Closing Dates shall occur after June 30,
1999.
MONTHLY LOAN PAYMENTS: Each Note shall be payable in 48 consecutive
monthly payments of principal and interest
each equal to 2.332% of the Advance, subject
to adjustment, payable monthly in advance,
and followed by one payment equal to 12.5%
of the Advance. The first Monthly Loan
Payment shall be payable on the Closing Date
of each Advance.
ADJUSTMENT TO MONTHLY
LOAN PAYMENTS: If, on the second business day preceding
the Closing Date for each Advance, the
highest yield for four-year U.S. Treasury
Notes as published in THE WALL STREET
JOURNAL is greater than the yield on June
23, 1998, the first 48 Monthly Loan Payments
shall be increased to reflect such change in
yield. The yield as of June 23, 1998 was
5.56%. As of the Closing Date for each
Advance, the Monthly Loan Payments shall be
fixed for the entire term.
INTERIM PAYMENTS: In addition to the Monthly Loan Payments,
interim payments shall accrue for each day
from each Closing Date until the
twenty-ninth day of the same month (27th day
of the month of each Advance in the case of
February) unless the Advance is made on the
thirtieth or thirty-first day of a month. If
the Closing Date is the thirty-first day of
a month, the interim payment shall accrue
from the Closing Date until the twenty-ninth
day of the next following month. If the
Closing Date is the thirtieth day of a
month, there shall be no interim payment.
The interim payment for each day shall be
1/30 of the adjusted interest rate
multiplied by the amount of the Advance and
shall be payable on the Closing Date.
DOCUMENTATION: 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, the Notes, a loan and
security agreement, the Letter of Credit (if
required), landlord and mortgagee's waivers
and consents, assignments, insurance
policies, UCC Financing Statements, and such
other documents or other agreements and as
we and our counsel deem appropriate
(collectively, the "Loan Documents").
LETTER OF CREDIT,
OTHER LOAN PROVISIONS
AND COVENANTS: A. LOAN PROVISIONS. The Loan
Documents shall include the usual
provisions and covenants in our loan
agreements, cross default and cross
collateralization provisions to all
your Loans, and such other or
different provisions and covenants
that are customarily included in
agreements of this kind.
2
<PAGE>
B. MINIMUM CASH REQUIREMENT; LETTER OF
CREDIT. You shall at all times
maintain a minimum of unrestricted
cash or cash equivalents of at least
$5,000,000 (the "Minimum Cash
Requirement").
In the event you at any time fail to
maintain the Minimum Cash
Requirement, you shall open an
Irrevocable Letter of Credit, in
form and substance satisfactory to
us, issued by a Bank satisfactory to
us, in our favor as beneficiary (the
"Letter of Credit") , or provide us
as Collateral cash or cash
equivalents, acceptable to us, in an
amount equal to fifty (50%) percent
of the then current outstanding
principal balance of the Loan. The
failure to provide the Letter of
Credit or other Collateral shall be
an event of default. At month
twenty-four of the initial Loan, we
will review your current financial
condition and future outlook.
Following the review, we may in our
sole discretion, reduce or waive the
Minimum Cash Requirement for the
remainder of the term of the Loans.
C. INSURANCE. The Loan Documents shall
provide for you, at all times to
procure and maintain, or cause to be
procured and maintained, policies of
insurance, in such form, of such
type and with insurers satisfactory
to us.
D. FINANCIAL REPORTING. You shall
deliver to us or cause to be
delivered to us your quarterly
financial statements within 45 days
following the end of each respective
fiscal quarter and annual financial
statements for you within 90 days
following the end of each respective
fiscal year. All annual financial
statements shall be prepared in
accordance with GAAP and be audited
by a reputable firm of certified
public accountants acceptable to us,
and shall be accompanied by a
certificate executed by such
certified public accountants to the
effect that you have complied with
all covenants contained in the Loan
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 respective chief financial
officer.
E. ADDITIONAL REPRESENTATIONS. It shall
be a condition precedent to the
closing of each Advance that no
payment due us is past due, whether
as a lessee, a borrower, a guarantor
or in some other capacity; that the
you are in compliance with the
provisions of this Commitment; that
all information requested by us and
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<PAGE>
all documentation then required by
our counsel has been received by us,
including resolutions of your Board
of Directors authorizing the
transactions contemplated by this
Commitment; that you are not in
default under any material contract
to which you are a party or by which
it or your property is bound; that
there has not been any material
adverse change or threatened
material adverse change in your
financial or other condition,
business, operations, properties,
assets or prospects since December
31, 1997 or from the written
information that has been supplied
to us by you or any manufacturer of
the Equipment prior to the date of
this Commitment; that there shall be
no actual or threatened conflict
with, or violation of, any
regulatory statute, standard or rule
relating to you, your present or
future operations, or the Equipment,
the violation of which would have a
material adverse effect on your
financial condition; and that we
receive an opinion of your counsel
satisfactory to us.
All information supplied by you
shall be correct in all material
respects 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 by
you in the Loan Documents. 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 and reflects
all discounts, rebates and
allowances for the Equipment given
to you or any of your affiliate by
you by the manufacturer, supplier or
anyone else including, without
limitation, discounts for
advertising, prompt payment, testing
or other services.
FEES AND EXPENSES: You shall be responsible for our reasonable
fees and expenses in connection with the
transaction, including UCC filing, due
diligence search fees and the expenses of
our counsel to respond to any requested
modifications or changes to the Lender's
standard documentation. We shall use our
best efforts to notify you when the Fees and
Expenses reach $1,500; however, our failure
to do so is not intended to limit the fees
and expenses set forth herein.
COMMITMENT FEE: Simultaneously with the acceptance of this
Commitment, you shall pay us a
non-refundable Commitment Fee of $20,000.
The $20,000 Application Fee, previously paid
shall be applied towards the Commitment Fee.
The Commitment Fee shall be first applied to
the Fees and Expenses due hereunder. Any
remainder shall be applied to the second
Monthly Loan Payment due under each Advance
on a pro-rata basis.
In the event that we are unable to receive
confirmation of a signed collaboration
agreement (in form and substance acceptable
to us) with Johnson & Johnson (or another
entity acceptable to us) which will provide
an aggregate of no less than
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<PAGE>
$6,000,000 of projected revenue, we will
credit the unused portion of the Commitment
Fee to your account within thirty days of
your written request to us.
SURVIVAL: This Commitment Letter shall survive the
closing. However, if there is any conflict
between the terms and conditions of the Loan
Documents and those of this Commitment
Letter, the Loan Documents shall control.
This Commitment and the Closing of the transaction 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 Loan 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, (including,
but not limited to, your audited financial statements for the
year ended 1997), which reflects no material adverse change in
your or condition, business, financial or otherwise; and
(iii) evidence that the Equipment is owned by you, free and clear of
all liens and encumbrances; and
(iv) a completed year 2000 compliance form satisfactory to us; and
(v) evidence of such insurance required by us, written by insurers
and in amounts satisfactory to us; and
(vi) such opinions of your counsel, certificates, waivers,
releases, Uniform Commercial Code Financing Statements, due
diligence searches, and further documents as may be required
by us or our counsel.
In addition to all other conditions and requirements set forth herein, this
Commitment and the closing of the transaction 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 Loan 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
5
<PAGE>
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 Initial Advance does not close prior to December 31, 1998
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.
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, 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 by August 28, 1998, this offer shall be deemed withdrawn.
This Commitment supersedes, replaces and terminates all previous proposals
and/or agreements including, but not limited to, our proposal dated June 23,
1998 which shall be null and void.
Should you have any questions, please call me. If you wish to accept this
Commitment, please sign and return the enclosed duplicate letter to the
undersigned by August 28, 1998.
Sincerely,
FINOVA TECHNOLOGY FINANCE, INC.
By /s/ Linda A. Moschitto
-----------------------------------------
Linda A. Moschitto
Director - Contract Administration
Accepted this 25 day of August, 1998
KOSAN BIOSCIENCES, INC.
By: /s/ Michael Ostrach
-----------------------------------------
Michael Ostrach
Vice President - Corporate Development
6
<PAGE>
EXHIBIT 10.18
[LOGO]
TECHNOLOGY FINANCE
January 6, 2000 [LETTERHEAD]
Ms. Susan M. Kanaya
Chief Financial Officer
Kosan Biosciences, Incorporated
3832 Bay Center Place
Hayward, CA 94545
Dear Ms. Kanaya:
FINOVA Capital Corporation ("we" or "Lender") is pleased to enter into the
following transaction with Kosan Biosciences, Incorporated ("you" or "Borrower")
on the terms and conditions hereinafter set forth.
The outline of this Commitment is as follows:
BORROWER: Kosan Biosciences, Incorporated
LENDER: FINOVA Capital Corporation
TERM OF LOANS: Each Loan shall have a term until payment in
full of forty-three (43) consecutive
months from the thirtieth day of the
month coincident with or (as the case may
be) the month next following the making
of the Loan.
FACILITY: A $2,000,000 line of credit. Subject to the
terms of the Loan Documents (as hereinafter
defined), we will from time to time make
loans to you under the Facility (each, a
"Loan" and collectively, the "Loans"). Once
a Loan is made, it cannot be reborrowed.
Each Loan shall be evidenced by a separate
promissory note in form and substance
satisfactory to Lender.
PURPOSE OF LOANS: For the acquisition of Equipment on Schedule
A and new laboratory, office, production,
research and development and additional
equipment. Lender at its sole option may
finance used equipment and/or equipment
older than 90 days from the date of
supplier's invoice. Lender will finance soft
costs in amounts not in excess of
twenty-five percent (25%) of each Loan, but
shall not exceed a maximum of $500,000 in
total. Notwithstanding the foregoing, the
soft costs on the first Loan may be a
maximum of 55% of that Loan, but in no case
exceed the maximum. Such soft costs to
include leasehold improvements, delivery,
installation, sales tax and software. All
items financed with the proceeds of the Loan
are subject to final review and acceptance
by the Lender.
COLLATERAL: The due payment and performance of all of
Borrower's present and future obligations to
Lender shall be secured by a first and only
perfected lien on and security interest in
and to all items financed with the proceeds
of a Loan, and all replacements,
substitutions, accessions and additions
thereto, and all proceeds thereof
(including, without limitation, proceeds of
insurance). Each Loan shall be cross
collateralized.
1
<PAGE>
COLLATERAL LOCATION: 3832 Bay Center Place, Hayward, CA 94545
ANTICIPATED DELIVERY: Through December 31, 2000.
CLOSING DATE: The date on which all conditions to a Loan
are satisfied by the Borrower and the Loan
proceeds are disbursed to the Borrower or to
other Persons at the Borrower's direction.
Each Loan shall have a principal amount of
not less than $250,000 secured by all
Collateral. No Closing Dates shall occur
after December 31, 2000.
MONTHLY PAYMENTS: Each Loan shall be paid in forty-three (43)
consecutive installments of principal and
interest. Each of the first forty-two (42)
Monthly Payments shall be in an amount equal
to 2.745% of the principal amount of the
Loan and the final forty-third (43rd)
Monthly Payment shall be in an amount equal
to ten (10%) percent of the principal amount
of the Loan. All payments are payable in
advance and the first (1st) and forty-second
(42nd) Monthly Payments applicable to a Loan
shall be payable on the Closing Date of such
Loan and shall be withheld by the Lender
from the Loan proceeds disbursed by the
Lender.
ADJUSTMENT TO
MONTHLY PAYMENTS: If, on the second business day preceding the
Closing Date for each Loan the highest yield
for four-year U. S. Treasury Notes as
published in THE WALL STREET JOURNAL on
such date is greater than the yield as
published on December 3, 1999, the Monthly
Payments shall be increased (point for
point) to reflect such increase in the
yield. The yield as of December 3, 1999 was
6.29%. As of the Closing Date, the Monthly
Payments with respect to the applicable Loan
being made shall be fixed for the entire
Term.
INTERIM PAYMENTS: If the date we make the Loan to you is not
the thirtieth (30th) or the thirty-first
(31st) day of the month, you will pay, on
the thirtieth (30th) day of the month in
which we make the Loan to you, interest
only, at the applicable adjusted interest
rate, from the date we make the Loan to you
to the twenty-ninth (29th) day of the same
month. If the date we make the Loan to you
is the thirty-first (31st), you will pay
interest at the applicable adjusted interest
rate, from the date we make the Loan to you
to the twenty-ninth (29th) day of the next
following month. The interim payment (as
well as the first (1st) and forty-second
(42nd) Monthly Payments) shall be payable on
the Closing Date and shall be withheld by
the Lender from the Loan proceeds disbursed
by the Lender.
INSURANCE: Borrower shall, at its own expense, maintain
and deliver evidence to Lender of such
insurance required by Lender, written by
insurers and in amounts satisfactory to
Lender.
2
<PAGE>
LOAN 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 promissory note (and
related schedule) for each Loan, a master
loan and security agreement, environmental
certificate and indemnity 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 "Loan Documents"). The Loan 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
lenders 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 Borrower, its present or
future operations, or the Collateral.
All information supplied by the Borrower
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 Borrower in the Loan
Agreement. The representations shall include
that the Cost of each item of the Collateral
does not exceed the fair and usual price for
like quantity purchases of such item. The
master loan and security agreement shall
also contain the following covenant.
FINANCIAL REPORTING. During the period of
the Commitment and while any Loan is
outstanding, Borrower shall deliver to
Lender or cause to be delivered to Lender
the Borrower'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 Lender, and
shall be accompanied by a certificate
executed by such certified public
accountants to the effect that the Borrower
has complied with all covenants contained in
the Loan 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
Borrower's Chief Financial Officer.
3
<PAGE>
FEES AND EXPENSES: The Borrower shall be responsible for the
Lender's reasonable fees and expenses in
connection with the transaction, including
the fees and expenses of counsel to prepare
and review the documentation, not to exceed
$2,500.
COMMITMENT FEE: With the acceptance of this Commitment by
the Borrower, a Commitment Fee of $20,000
shall be then due the Lender. The
Application Fee of $10,000 previously paid
by the Borrower shall be applied to the
Commitment Fee. The Commitment Fee, less any
fees and expenses, shall be applied, on a
pro rata basis based on the amount of each
Loan in proportion to the total Facility to
the second Monthly Loan Payment of each
Loan.
SURVIVAL: This Commitment Letter shall survive
closing. However, if there is any conflict
between the terms and conditions of the
master loan and security agreement (or
schedules) and those of this Commitment
Letter, the master loan and security
Agreement (or schedules) shall control.
This Commitment and the Closing of each Loan 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 Loan 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 Collateral is owned by you, free and clear
of all liens and encumbrances; and
(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 Lender from the
Borrower, 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 Lender and the
Borrower (including, without limitation, the Loan Documents);
and
(vii) evidence that the Borrower is in compliance with the
provisions of this Commitment; and
4
<PAGE>
(viii) our receipt of evidence satisfactory to us, in our sole
discretion that the subject transaction is environmentally
acceptable. We shall have the right to require you to retain
the services of a firm acceptable to us and knowledgeable in
environmental matters to perform environmental investigations
of the Collateral and real property owned, operated or
occupied by you (including, without limitation, the Collateral
Location) and the surrounding areas. Such investigation may
include, but not be limited to, soil and ground water testing
to fully identify the scope of any environmental issues
impacting the transaction (including Phase I and/or Phase II
environmental reports). The scope and results of such
investigations must be satisfactory to us, in our sole
discretion.
In addition to all other conditions and requirements set forth herein, this
Commitment and the closing of each Loan 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 Loan 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 Loans do not close prior to January 1, 2001 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.
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, less Fees and
Expenses due hereunder.
5
<PAGE>
Please execute the copy of this letter acknowledging your acceptance of the
terms hereof and return it to us along with a check for $10,000 representing the
balance of the Commitment Fee. If a copy of this Commitment is not executed and
returned by you on or before January 11, 2000, this Commitment shall be deemed
withdrawn.
Sincerely,
FINOVA CAPITAL CORPORATION
By /s/ Dannion C. McGary
----------------------
Dannion C. McGary
Vice President
Accepted this 7 day of JANUARY 2000
KOSAN BIOSCIENCES, INCORPORATED
By: /s/ Susan Kanaya
------------------------
6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Description/Vendor Invoice # Invoice Date Price
- -----------------------------------------------------------------------------------------------------------------------------------
LABORATORY EQUIPMENT
1999
<S> <C> <C> <C> <C> <C>
06/04/99 1 Gear drive variable speed mixer - Lightnin -
process S01/99016522 05/28/99 1,328.00
06/07/99 1 Winchlift & Stand - Inaco - Process 105504 05/03/99 912.00
06/07/99 1 Centrifuge - Alfa Laval - Process 130582 05/20/99 1,271.00
06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process 026862-00 06/04/99 3,795.00
06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 906 06/07/99 2,071.75
06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry -2802835 06/28/99 21,000.00
07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 34144 & 34785 /21/1999 & 8/27/99 79,385.00
07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker -
Process 034954 & 035148 5/27/99 & 7/19/99 42,990.00
07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun -
Process 34214 06/28/99 1,218.00
07/06/99 1 New Shaft for 150L - B. Metal fabrication 13267 07/06/99 1,976.00
07/14/99 Installation Consolidated Autoclave - Labworks
Equip Svc. - Process 1784 07/13/99
07/20/99 2 New Brunswick Series 25 Incubator Shakers - New
Brunswick - New Technology 100072 07/14/99 8,800.00
07/31/99 1 Hitachi HPLC System - Shaman -- Process N/A 07/16/99 16,000.00
08/02/99 1 Hand Nut Tool - Alfa Laval - Process 135647 07/28/99 1,044.00
08/06/99 1 SS 34 Rotor - Kendro Laboratories - Process &
Biological Sciences SLS/99012265 07/30/99 3,150.00
08/10/99 New Brunswick Shaker upper & lower bearings -
Labworks Equipment - Process 1815 08/10/99 405.00
08/15/99 1 Eight position multicell transport - Hewlett
Packard - 100128894 08/10/99 4,080.00
08/20/99 1 Consolidated Autoclave Model SR24C - Laboratory
Equipment Company - Process 156 & 1565 7/13/99 & 7/9/99 32,245.00
08/20/99 1 Vacuum pump assembly on house vacuum system -
Labworks Equipment - Process 1829 & 1836 8/20/99 & 8/26/99 4,200.00
08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 9632318 08/19/99 930.00
09/01/99 4 Piece baffles & (1) piece mixer to 150L fermentor
- B. Metal Fabrication - Process 13332 08/18/99 1,030.00
09/03/99 1 Circ Refg Htg Digt 13L 115V (water bath) - Fisher
- Lab support 9892860 09/03/99 1,772.00
09/23/00 1 IHR 2106 Seal assembly kit for 150L - LSL
1 Biotafitte, Inc - Process Science 2708 09/01/99 1,210.51
09/29/99 1 Freezer Storage Flame - Sussman - Process 9987566 09/10/99 1,680.26
09/30/99 Steam generator - Sussman - Process 42894 08/31/99 17,266.00
10/06/99 1 General Electric Refrigerator - University
Electric company - biological Sciences 0091858-IN 09/30/99 1,180.00
10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process
Development 57800 10/07/99 1,000.00
10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process
Development 57912 10/13/99 1,135.00
11/05/99 1 Circulating Water Flow bath - VWR Scientific 1897571 10/25/99 1,450.00
11/09/99 1 Pollyscience chiller model 6105 - VWR Scientific -
New Technology 1850528 10/21/99 1,985.00
11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry 1864117 10/22/99 1,190.00
11/14/99 1 Microfuge R - Beckman Brand - VWR Scientific -
Process Development 2227236 11/29/99 4,600.00
11/15/99 1 Water Bath - Fisher Scientific - Process 977228 11/09/99 1,772.60
11/27/99 1 GE Refrigerator - University Electric Company -
Biological Sciences 0094028-IN 11/29/99 1,180.00
12/06/99 1 Evaporative Light Scattering Detector 572737 11/11/99 13,950.00
12/06/99 1 Industrial Scale / Top loading - VWR Scientific -
Process 2216307 11/24/99 976.50
subtotal Laboratory equipment
LEASEHOLD IMPROVEMENTS
1999
06/01/99 New facility build out - Scales construction -
Science 99016-02 06/22/99 14,004.00
06/15/99 New facility build out - Scales construction -
Process 99007-02 06/09/99 868.00
07/01/99 Architectual blueprints for New Fac. Buildout -
Dowler Gruman Architect - Whole Co. 815702 & 9815703 2/16/99 & 3/9/99 15,972.50
07/01/99 Data Cable installation - RC Communication - Whole
Co. 2756 06/28/99 243.60
08/01/99 Electrical Install 32 Dedicated Circuits - Graham
Electrical Contractors - Whole facility 32729 07/12/99 21,970.00
08/01/99 Construct Wood Platforms - Scales Construction -
Whole Company 99016-03 07/28/99 2,105.00
09/01/99 Engineering for the 1000 litre fermentation suite
- LEM Construction Inc. - Process 99176 08/31/99 18,213.00
10/01/99 Heat exchange system - Cal Air Inc. - whole company Jul-32 09/23/99 6,083.00
10/19/99 Install 21 data cables - R.C. Communications -
Whole company 2914 10/24/99 1,407.30
10/27/99 Construction of new process development lab -
Concrete shell structures 268,021.00
subtotal Leasehold improvements
</TABLE>
<TABLE>
<CAPTION>
Description/Vendor Shipping Sales Tax Labor Total
LABORATORY EQUIPMENT
1999
<S> <C> <C> <C> <C> <C> <C>
06/04/99 1 Gear drive variable speed mixer - Lightnin - process 34.17 109.56 - 1,471.73
06/07/99 1 Winchlift & Stand - Inaco - Process 30.00 - - 942.00
06/07/99 1 Centrifuge - Alfa Laval - Process 10.49 - 2,491.39 3,773.58
06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process - 313.09 - 4,108.09
06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 26.57 - - 2,098.32
06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry 60.00 1,732.50 - 22,792.50
07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 628.55 - - 80,013.55
07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker - Process 41.00 3,546.68 2,540.00 49,117.68
07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun - Process 23.87 100.49 - 1,342.36
07/06/99 1 New Shaft for 150L - B. Metal fabrication - 163.02 - 2,139.02
Installation Consolidated Autoclave - Labworks Equip Svc. -
07/14/99 Process - - 1,800.00 1,800.00
New Brunswick Series 25 Incubator Shakers - New Brunswick -
07/20/99 2 New Technology - 726.00 - 9,526.00
07/31/99 1 Hitachi HPLC System - Shaman -- Process - - - 16,000.00
08/02/99 1 Hand Nut Tool - Alfa Laval - Process 4.67 - - 1,048.77
SS 34 Rotor - Kendro Laboratories - Process & Biological
08/06/99 1 Sciences 35.00 262.77 - 3,447.77
New Brunswick Shaker upper & lower bearings - Labworks
08/10/99 Equipment - Process 20.00 33.41 1,385.00 1,843.41
08/15/99 1 Eight position multicell transport - Hewlett Packard - 14.00 - - 4,094.00
Consolidated Autoclave Model SR24C - Laboratory Equipment
08/20/99 1 Company - Process 865.00 2,911.01 3,774.99 39,797.00
Vacuum pump assembly on house vacuum system - Labworks
08/20/99 1 Equipment - Process 120.00 346.50 1,000.00 5,666.50
08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 64.50 76.73 - 1,071.23
Piece baffles & (1) piece mixer to 150L fermentor - B. Metal
09/01/99 4 Fabrication - Process - 84.98 - 1,114.96
Circ Refg Htg Digt 13L 115V (water bath) - Fisher - Lab
09/03/99 1 support - 153.92 - 1,926.52
IHR 2106 Seal assembly kit for 150L - LSL Biotafitte, Inc -
09/23/00 1 Process Science - - 625.00 1,835.51
09/29/99 1 Freezer Storage Flame - Sussman - Process - 138.62 - 1,818.88
09/30/99 1 Steam generator - Sussman - Process 218.84 - - 17.484.84
General Electric Refrigerator - University Electric company
10/06/99 1 - biological Sciences 30.00 99.83 - 1,309.83
10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 8.49 73.12 - 1,081.61
10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 6.42 82.75 1,224.17
11/05/99 1 Circulating Water Flow bath - VWR Scientific - 119.63 - 1,569.63
Pollyscience chiller model 6105 - VWR Scientific - New
11/09/99 1 Technology - 163.76 - 2,148.76
11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry - 98.18 - 1,288.16
Microfuge R - Beckman Brand - VWR Scientific - Process
11/14/99 1 Development - 379.50 - 4,979.50
11/15/99 1 Water Bath - Fisher Scientific - Process - 146.25 - 1,918.85
GE Refrigerator - University Electric Company - Biological
11/27/99 1 Sciences 30.00 99.83 - 1,309.83
12/06/99 1 Evaporative Light Scattering Detector 160.15 1,150.88 - 15,261.03
12/06/99 1 Industrial Scale / Top loading - VWR Scientific - Process 24.32 80.57 - 1,081.39
---------------
subtotal Laboratory equipment 309,447.02
---------------
LEASEHOLD IMPROVEMENTS
1999
06/01/99 New facility build out - Scales construction - Science - - - 14,004.00
06/15/99 New facility build out - Scales construction - Process - - - 868.00
07/01/99 Architectual blueprints for New Fac. Buildout - Dowler
Gruman Architect - Whole Co. - - - 15,972.50
07/01/99 Data Cable installation - RC Communication - Whole Co. - - 990.00 1,233.60
08/01/99 Electrical Install 32 Dedicated Circuits - Graham Electrical
Contractors - Whole facility - - - 21,970.00
08/01/99 Construct Wood Platforms - Scales Construction - Whole
Company - - - 2,105.00
09/01/99 Engineering for the 1000 litre fermentation suite - LEM
Construction Inc. - Process - - - 18,213.00
10/01/99 Heat exchange system - Cal Air Inc. - whole company - - - 6,083.00
10/19/99 Install 21 data cables - R.C. Communications - Whole company - 116.10 2,655.00 4,178.40
10/27/99 Construction of new process development lab - Concrete shell
structures - - 268,021.00
--------------
subtotal Leasehold improvements 352.648.50
---------------
</TABLE>
<TABLE>
<CAPTION>
Description/Vendor Serial Number
LABORATORY EQUIPMENT
1999
<S> <C> <C> <C>
06/04/99 1 Gear drive variable speed mixer - Lightnin - process R9972800000501
06/07/99 1 Winchlift & Stand - Inaco - Process SRNC-PSW-BT
06/07/99 1 Centrifuge - Alfa Laval - Process SRNAC5229-3
06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process SRN213032
06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process SRN21677710-99
06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry SRN9906-5131
07/01/99 1 Biostat MD Triple - B.Braun biotech- Process SRN8842728Job1111
07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker - Process SRN AH104,BF8006
07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun - Process SRN 3920425/1
07/06/99 1 New Shaft for 150L - B. Metal fabrication SRNFernshaft
07/14/99 Installation Consolidated Autoclave - Labworks Equip Svc. - Process SRN reference SR24C.061899
07/20/99 2 New Brunswick Series 25 Incubator Shakers - New Brunswick - New Technology SRN780603432 & 390132993
07/31/99 1 Hitachi HPLC System - Shaman -- Process SRN0818-033
08/02/99 1 Hand Nut Tool - Alfa Laval - Process SRNAC9306-2
08/06/99 1 SS 34 Rotor - Kendro Laboratories - Process & Biological Sciences SRN9912065
08/10/99 New Brunswick Shaker upper & lower bearings - Labworks Equipment - Process SRNFSR-1121
08/15/99 1 Eight position multicell transport - Hewlett Packard - SRNDE73300623
08/20/99 1 Consolidated Autoclave Model SR24C - Laboratory Equipment Company - Process SRN5500-97, SN 061899
08/20/99 1 Vacuum pump assembly on house vacuum system - Labworks Equipment - Process SRNF993
08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry SRNFile # LR28889,MOD16030074
09/01/99 4 Piece baffles & (1) piece mixer to 150L fermentor - B. Metal Fabrication - Process SRN9914
09/03/99 1 Circ Refg Htg Digt 13L 115V (water bath) - Fisher - Lab support SRN13873113C
09/23/00 1 IHR 2106 Seal assembly kit for 150L - LSL Biotafitte, Inc - Process Science SRN1139.103.00
09/29/99 1 Freezer Storage Flame - Sussman - Process SRN83058958
09/30/99 1 Steam generator - Sussman - Process SRNISSB48F3
10/06/99 1 General Electric Refrigerator - University Electric company - biological Sciences SRNMV248386
10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development SRN52200102
10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development SRN341003058
11/05/99 1 Circulating Water Flow bath - VWR Scientific SRN13271-036
11/09/99 1 Pollyscience chiller model 6105 - VWR Scientific - New Technology SRN13271-256
11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry SRN699081412
11/14/99 1 Microfuge R - Beckman Brand - VWR Scientific - Process Development SRNMRB99F12
11/15/99 1 Water Bath - Fisher Scientific - Process SRN115v60H
11/27/99 1 GE Refrigerator - University Electric Company - Biological Sciences SRNRV247820
12/06/99 1 Evaporative Light Scattering Detector SRN9908873A
12/06/99 1 Industrial Scale / Top loading - VWR Scientific - Process SRN11302-866
subtotal Laboratory equipment
LEASEHOLD IMPROVEMENTS
1999
06/01/99 New facility build out - Scales construction - Science Leasehold improve SRN N/A
06/15/99 New facility build out - Scales construction - Process Leasehold improve SRN N/A
07/01/99 Architectual blueprints for New Fac. Buildout - Dowler Gruman Architect - Whole
Co. Leasehold improve SRN N/A
07/01/99 Data Cable installation - RC Communication - Whole Co. Leasehold improve SRN N/A
08/01/99 Electrical Install 32 Dedicated Circuits - Graham Electrical Contractors - Whole
facility Leasehold improve SRN N/A
08/01/99 Construct Wood Platforms - Scales Construction - Whole Company Leasehold improve SRN N/A
09/01/99 Engineering for the 1000 litre fermentation suite - LEM Construction Inc. -
Process Leasehold improve SRN N/A
10/01/99 Heat exchange system - Cal Air Inc. - whole company Leasehold improve SRN N/A
10/19/99 Install 21 data cables - R.C. Communications - Whole company Leasehold improve SRN N/A
10/27/99 Construction of new process development lab - Concrete shell structures Leasehold improve SRN N/A
subtotal Leasehold improvements
</TABLE>
<TABLE>
<CAPTION>
Description/Vendor Paid by check #
LABORATORY EQUIPMENT
1999
<S> <C> <C> <C>
06/04/99 1 Gear drive variable speed mixer - Lightnin - process 3001
06/07/99 1 Winchlift & Stand - Inaco - Process 3078
06/07/99 1 Centrifuge - Alfa Laval - Process 3038
06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process 3081
06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 3124
06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry 3154 & 2373
07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 3220 & 3567
07/01/99 1 NMR Sample Changer & Gradiant Amplifier - Bruker - Process 3218 & 3566
07/02/99 1 5L Glass fermentation vessel MD - 5 - B.Braun - Process 3135
07/06/99 1 New Shaft for 150L - B. Metal fabrication 3336
07/14/99 Installation Consolidated Autoclave - Labworks Equip Svc. - Process 3298
New Brunswick Series 25 Incubator Shakers - New Brunswick - New
07/20/99 2 Technology wire transfer 7/16/99
07/31/99 1 Hitachi HPLC System - Shaman -- Process 3200
08/02/99 1 Hand Nut Tool - Alfa Laval - Process 3396
08/06/99 1 SS 34 Rotor - Kendro Laboratories - Process & Biological Sciences 3417
New Brunswick Shaker upper & lower bearings - Labworks Equipment -
08/10/99 Process 3492
08/15/99 1 Eight position multicell transport - Hewlett Packard - 3480
Consolidated Autoclave Model SR24C - Laboratory Equipment Company -
08/20/99 1 Process 3491
Vacuum pump assembly on house vacuum system - Labworks Equipment -
08/20/99 1 Process 3582
08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 3578
Piece baffles & (1) piece mixer to 150L fermentor - B. Metal
09/01/99 4 Fabrication - Process 3646
09/03/99 1 Circ Refg Htg Digt 13L 115V (water bath) - Fisher - Lab support 3764
IHR 2106 Seal assembly kit for 150L - LSL Biotafitte, Inc - Process
09/23/00 1 Science 3780
09/29/99 1 Freezer Storage Flame - Sussman - Process 3764
09/30/99 1 Steam generator - Sussman - Process 3866
General Electric Refrigerator - University Electric company -
10/06/99 1 biological Sciences 4018
10/11/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 3924
10/18/99 1 Dissolved Oxygen Probe - Metier Toledo - Process Development 3993
11/05/99 1 Circulating Water Flow bath - VWR Scientific 4173
11/09/99 1 Pollyscience chiller model 6105 - VWR Scientific - New Technology 4023
11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry 4173
11/14/99 1 Microfuge R - Beckman Brand - VWR Scientific - Process Development 4222
11/15/99 1 Water Bath - Fisher Scientific - Process 4193
11/27/99 1 GE Refrigerator - University Electric Company - Biological Sciences 4221
12/06/99 1 Evaporative Light Scattering Detector 4073
12/06/99 1 Industrial Scale / Top loading - VWR Scientific - Process 4222
subtotal Laboratory equipment
LEASEHOLD IMPROVEMENTS
1999
06/01/99 New facility build out - Scales construction - Science 3164
06/15/99 New facility build out - Scales construction - Process 3115
Architectual blueprints for New Fac. Buildout - Dowler Gruman
07/01/99 Architect - Whole Co. 3345
07/01/99 Data Cable installation - RC Communication - Whole Co. 3262
Electrical Install 32 Dedicated Circuits - Graham Electrical
08/01/99 Contractors - Whole facility 3475
08/01/99 Construct Wood Platforms - Scales Construction - Whole Company 3608
Engineering for the 1000 litre fermentation suite - LEM
09/01/99 Construction Inc. - Process 3540
10/01/99 Heat exchange system - Cal Air Inc. - whole company 3968
10/19/99 Install 21 data cables - R.C. Communications - Whole company 4009
Construction of new process development lab - Concrete shell
10/27/99 structures 3953 & 4213
subtotal Leasehold improvements
</TABLE>
<TABLE>
<CAPTION>
Description/Vendor Cleared / Bank Stmt date Check Date Soft Costs
Laboratory equipment
1999
Gear drive variable speed mixer - Lightnin -
<C> <C> <C> <C> <C> <C>
06/04/99 1 process 6/30/99 6/17/99 143.73
06/07/99 1 Winchlift & Stand - Inaco - Process 7/31/99 7/1/99 30.00
06/07/99 1 Centrifuge - Alfa Laval - Process 7/31/99 7/1/99 2,501.88
06/10/99 1 Foxy 200 fraction collector - Isco, Inc. - Process 7/31/99 7/1/99 313.09
06/23/99 1 Vacuubrand MZ2C - Vacuubrand - Process 7/31/99 7/1/99 26.57
06/30/99 1 IDG400-58 Probe- Nalorac - Chemistry 7/31/99 & 3/31/99 7/8/99 1,792.50
7/22/99 & 9/21/99
07/01/99 1 Biostat MD Triple - B.Braun biotech- Process 7/31/1999 & 9/30/99 628.55
NMR Sample Changer & Gradiant Amplifier - Bruker - 7/22/99 & 9/21/99
07/01/99 1 Process 8/31/99 & 9/30/99 6,127.68
5L Glass fermentation vessel MD - 5 - B.Braun -
07/02/99 1 Process 7/31/99 7/8/99 124.36
07/06/99 1 New Shaft for 150L - B. Metal fabrication 8/31/99 8/11/99 163.02
Installation Consolidated Autoclave - Labworks
07/14/99 Equip Svc. - Process 8/31/98 7/29/99 1,800.00
New Brunswick Series 25 Incubator Shakers - New
07/20/99 2 Brunswick - New Technology 7/31/99 726.00
07/31/99 1 Hitachi HPLC System - Shaman -- Process 7/31/99 7/15/99 -
08/02/99 1 Hand Nut Tool - Alfa Laval - Process 8/31/99 8/19/99 4.67
SS 34 Rotor - Kendro Laboratories - Process &
08/06/99 1 Biological Sciences 8/31/99 8/19/99 297.77
New Brunswick Shaker upper & lower bearings -
08/10/99 Labworks Equipment - Process 9/30/99 8/27/99 1,438.41
Eight position multicell transport - Hewlett
08/15/99 1 Packard - 9/30/99 8/27/99 14.00
Consolidated Autoclave Model SR24C - Laboratory
08/20/99 1 Equipment Company - Process 9/30/99 8/27/99 7,552.00
Vacuum pump assembly on house vacuum system -
08/20/99 1 Labworks Equipment - Process 9/30/99 9/21/99 1,466.50
08/25/99 1 Vacuum Pump 1.8CFM - Fisher Scientific - Chemistry 9/30/99 9/21/99 141.23
Piece baffles & (1) piece mixer to 150L fermentor
09/01/99 4 - B. Metal Fabrication - Process 10/31/99 9/24/99 84.98
Circ Refg Htg Digt 13L 115V (water bath) - Fisher
09/03/99 1 - Lab support 10/31/99 10/14/99 153.92
IHR 2106 Seal assembly kit for 150L - LSL
09/23/00 1 Biotafitte, Inc - Process Science 10/31/99 10/14/99 625.00
09/29/99 1 Freezer Storage Flame - Sussman - Process 10/31/99 10/14/99 138.62
09/30/99 1 Steam generator - Sussman - Process 11/30/99 10/22/99 218.84
General Electric Refrigerator - University
10/06/99 1 Electric company - biological Sciences 11/30/99 11/11/99 129.83
Dissolved Oxygen Probe - Metier Toledo - Process
10/11/99 1 Development 11/30/99 10/27/99 81.61
Dissolved Oxygen Probe - Metier Toledo - Process
10/18/99 1 Development 11/30/99 11/11/99 89.17
11/05/99 1 Circulating Water Flow bath - VWR Scientific Call Vendor 12/2/99 119.63
Pollyscience chiller model 6105 - VWR Scientific -
11/09/99 1 New Technology 11/30/99 11/11/99 163.76
11/01/09 1 Economy Oven - VWR Scientific Products - Chemistry Call Vendor 12/2/99 98,318.00
Microfuge R - Beckman Brand - VWR Scientific -
11/14/99 1 Process Development Call Vendor 11/11/99 379.50
11/15/99 1 Water Bath - Fisher Scientific - Process Call Vendor 12/2/99 146.25
GE Refrigerator - University Electric Company -
11/27/99 1 Biological Sciences Call Vendor 12/16/99 129.83
12/06/99 1 Evaporative Light Scattering Detector Call Vendor 12/2/99 1,311.03
Industrial Scale / Top loading - VWR Scientific -
12/06/99 1 Process Call Vendor 16-Dec 104.89
subtotal Laboratory equipment 29,257.00
Leasehold Improvements
1999
New facility build out - Scales construction -
06/01/99 Science 7/31/99 7/8/99 14,004.00
New facility build out - Scales construction -
06/15/99 Process 7/31/99 7/1/99 868.00
Architectual blueprints for New Fac. Buildout -
07/01/99 Dowler Gruman Architect - Whole Co. 8/31/99 8/11/99 1,597.50
Data Cable installation - RC Communication - Whole
07/01/99 Co. 8/31/99 7/22/99 1,233.60
Electrical Install 32 Dedicated Circuits - Graham
08/01/99 Electrical Contractors - Whole facility 9/30/99 Aug-99 21,970.00
Construct Wood Platforms - Scales Construction -
08/01/99 Whole Company 10/31/99 9/21/99 2,105.00
Engineering for the 1000 litre fermentation suite
09/01/99 - LEM Construction Inc. - Process 9/30/99 9/3/99 18,213.00
10/01/99 Heat exchange system - Cal Air Inc. - whole company 11/30/99 11/11/99 6,083.00
Install 21 data cables - R.C. Communications -
10/19/99 Whole company 11/30/99 11/11/99 4,178.40
Construction of new process development lab - 1/30/99 & Call Vendor on 11/8/99 &
10/27/99 Concrete shell structures S180.5 12/16/99 253,021.00
subtotal Leasehold improvements 352,648.50
- ---------------------------------------------------------------------------
TOTALS 390,805.52
- ---------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Description/Vendor Invoice # Invoice Date
- ----------------------------------------------------------------------------------------------------------------------
QTY Computer Equipment
1999
<C> <C> <C> <C> <C>
05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 22709 05/26/99
05/11/99 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New
Technologies 16197 06/21/99
06/10/99 1 Cisco Pix Firewall - Langtech - whole company 5332 & 5435 6/10/99 & 7/14/99
06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub -
Macwarehouse - General PO2872590101 06/09/99
06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New
Technologies 42696 06/18/99
07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 246411672 06/14/99
07/01/99 1 IBM Monitor T550 - MacWarehouse - General PO2872590102 06/22/99
07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 88-0168939 07/28/99
08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - P13477290103 08/05/99
08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - P13477290104 08/05/99
08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging,
Inc. - G&A 1773 08/23/99
09/01/99 1 NMR Sample Changer software - Bruker Chemistry 355372 08/25/99
09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT
Monitors - DELL - Process 2752 & 276752768 9/13/99 & 9/15/99
09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT
Monitors - DELL - Process 1965 & 279961973 9/24/99 & 9/24/99
10/20/99 1 IMAC - MacWarehouse - Biology P19686900002 10/07/99
10/24/99 1 Exper Software - Stat-Ease - Process Development 15744 10/19/99
11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 292081270 10/25/99
12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 302837026 11/29/99
subtotal Computer equipment
Furniture and office equipment
1999
06/01/99 1 Kosan Sign - Sign Classics - General 995307 05/21/99
07/01/99 1 Office Desk with Right Flush - BRG - General 90000094 06/25/99
07/01/99 3 tables & 1 desk - OP Contract - Administration 25926 07/01/99
07/01/99 Cherry Desk (4) with Files and Bookcases - BRG -
Administration 84589 05/28/99
</TABLE>
<TABLE>
<CAPTION>
Description/Vendor Price Shipping Sales Tax
QTY Computer Equipment
1999
<S> <C> <C> <C> <C> <C>
05/18/99 1 ID-7000 Mod Kit - Hitachi - Process - - 79.20
05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies 8,744.00 70.00 721.38
06/10/99 1 Cisco Pix Firewall - Langtech - whole company 11,610.25 50.00 656.97
06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub -
Macwarehouse - General 1,383.00 22.66 -
06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New
Technologies 999.00 21.36 82.42
07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 1,930.00 - 156.35
07/01/99 1 IBM Monitor T550 - MacWarehouse - General 1,199.95 22.69 -
07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 1,473.00 10.00 121.52
08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - 1,199.00 52.09 -
08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - 1,199.00 64.96 -
08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. -
G&A 2,649.00 - 177.09
09/01/99 1 NMR Sample Changer software - Bruker Chemistry 1,300.00 29.75 107.25
09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors -
DELL - Process 2,787.90 194.58 246.09
09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors -
DELL - Process 2,787.90 194.58 246.09
10/20/99 1 IMAC - MacWarehouse - Biology 899.00 50.09 -
10/24/99 1 Exper Software - Stat-Ease - Process Development 995.00 15.00 82.09
11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 1,419.00 80.00 123.69
12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 1,137.00 90.00 101.23
subtotal Computer equipment
Furniture and office equipment
1999
06/01/99 1 Kosan Sign - Sign Classics - General 1,198.00 - 93.89
07/01/99 1 Office Desk with Right Flush - BRG - General 976.56 150.00 92.94
07/01/99 3 tables & 1 desk - OP Contract - Administration 1,656.11 38.48 278.95
07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration 8,869.47 - 731.73
</TABLE>
<TABLE>
<CAPTION>
Description/Vendor Labor Total Serial Number
QTY Computer Equipment
1999
<S> <C> <C> <C> <C> <C>
05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 950.00 1,039.20 Installation - reference SN 100997
05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies - 9,535.38 W12-270S-9G128
06/10/99 1 Cisco Pix Firewall - Langtech - whole company - 12,317.22 Software/firewall - No serial
06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub - number
Macwarehouse - General - 1,405.66 DEH3480,3562.3955
06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New
Technologies - 1,102.78 DRG02/256
07/01/99 1 Dell Dimension XPS T500MHz - DELL - General - 2,086.35 220/1394
07/01/99 1 IBM Monitor T550 - MacWarehouse - General - 1,222.64 1S9513DW05508007
07/25/99 1 ACMA Pentium III 450 System - ACMA - Process - 1,604.52 907206639, B12921A03543
08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - - 1,251.09 SRN9312LFGV1
08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - - 1,263.96 SSG9310HFGSN
08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. -
G&A - 2,826.09 SRN740P
09/01/99 1 NMR Sample Changer software - Bruker Chemistry - 1,437.00 SRNH9397
09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors -
DELL - Process - 3,228.57 SRN220-1393, SRN26911-00
09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors -
DELL - Process - 3,228.57 SRN310-0050,SRNJC-1581VMW
10/20/99 1 IMAC - MacWarehouse - Biology - 951.09 SSG9395D0GSN
10/24/99 1 Exper Software - Stat-Ease - Process Development - 1,092.09 SRNW5XR3352
11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A - 1,622.69 SRN310-3180
12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process - 1,328.23 SRN220-3220
---------
subtotal Computer equipment 48,543.13
---------
Furniture and office equipment
1999
06/01/99 1 Kosan Sign - Sign Classics - General 378.00 1,669.89 SRN Kosan Bus. Sign
07/01/99 1 Office Desk with Right Flush - BRG - General - 1,219.50 SRNEN-M3672L-C
07/01/99 3 tables & 1 desk - OP Contract - Administration - 1,973.54 SRNHMI-DB25-.3048W.2230W.366
07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration - 9,601.20 SRN399535-539.39935-46
---------
14,464.13
---------
</TABLE>
<TABLE>
<CAPTION>
Paid by check
Description/Vendor $\# Cleared / Bank Stmt date
QTY Computer Equipment
1999
<S> <C> <C> <C> <C>
05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 2995 6/30/99
05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies 3169 7/31/99
06/10/99 1 Cisco Pix Firewall - Langtech - whole company 3147 & 3357 7/31/99 & 8/31/99
06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub -
Macwarehouse - General 3091 7/31/99
06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New
Technologies 3035 7/31/99
07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 3064 7/31/99
07/01/99 1 IBM Monitor T550 - MacWarehouse - General 3091 7/31/99
07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 3394 8/31/99
08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - 3496 9/30/99
08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - 3496 9/30/99
08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. - G&A 3603 9/30/99
09/01/99 1 NMR Sample Changer software - Bruker Chemistry 3643 10/31/99
09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors -
DELL - Process 3759 10/31/99
09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors -
DELL - Process 3759 10/31/99
10/20/99 1 IMAC - MacWarehouse - Biology 3849 30-Nov
10/24/99 1 Exper Software - Stat-Ease - Process Development 4076 Call Vendor
11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 4105 Call Vendor
12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 4215 Call Vendor
Furniture and office equipment
1999
06/01/99 1 Kosan Sign - Sign Classics - General 3119 7/31/99
07/01/99 1 Office Desk with Right Flush - BRG - General 3335 8/31/99
07/01/99 3 tables & 1 desk - OP Contract - Administration 3252 7/31/99
07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration 3335 8/31/99
</TABLE>
<TABLE>
<CAPTION>
Description/Vendor Check Date Sch Costs
QTY Computer Equipment
1999
<S> <C> <C> <C> <C>
05/18/99 1 ID-7000 Mod Kit - Hitachi - Process 6/17/99 1,039.20
05/11/99 1 O2 Visual Workstation, 2700MHZ. - Tnpos. Inc - New Technologies 7/8/99 791.35
7/8/99 &
06/10/99 1 Cisco Pix Firewall - Langtech - whole company 8/11/99 706.97
06/16/66 2 Superstack 1111 Dual Speed Hubs $ (1) Office Connect Hub - Macwarehouse
- General 7/1/99 22.65
06/15/99 2 256 MB KITs SGI O2 - Advanced enterprise solutions - New Technologies 7/1/99 103.75
07/01/99 1 Dell Dimension XPS T500MHz - DELL - General 7/1/99 155.35
07/01/99 1 IBM Monitor T550 - MacWarehouse - General 7/1/99 22.59
07/25/99 1 ACMA Pentium III 450 System - ACMA - Process 8/19/99 131.52
08/11/99 1 IMAC G3/333 SRN9312LFGV1 - MicroWarehouse - 8/27/99 52.09
08/11/99 1 IMAC G3/333 SRN9312LFGSN - MicroWarehouse - 8/27/99 64.95
08/20/99 1 Phaser 740 Plus Color Laser Printer - Redwood Imaging, Inc. - G&A 9/21/99 177.09
09/01/99 1 NMR Sample Changer software - Bruker Chemistry 2 1,437.00
09/16/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL -
Process 10/14/99 440.67
09/23/99 2 Dell Dimension XPS T450MHz plus shipping with (2) CRT Monitors - DELL -
Process 10/14/99 440.67
10/20/99 1 IMAC - MacWarehouse - Biology 10/22/99 52.09
10/24/99 1 Exper Software - Stat-Ease - Process Development 11/11/99 1,092.09
11/01/99 1 Dell Dimension XPS T450MHz Pentium 3 Computer - DELL - G&A 12/2/99 203.59
12/06/99 1 Dell 455 Celeron GX 100/T base Computer -DELL - Process 12/16/99 191.23
7,126.13
Furniture and office equipment
1999
06/01/99 1 Kosan Sign - Sign Classics - General 471.89
07/01/99 1 Office Desk with Right Flush - BRG - General 242.94
07/01/99 3 tables & 1 desk - OP Contract - Administration 317.43
07/01/99 Cherry Desk (4) with Files and Bookcases - BRG - Administration 731.73
1,763.99
</TABLE>
<PAGE>
EXHIBIT 10.19
EXHIBIT C-6
RESTATED PROMISSORY NOTE
$275,000.00 San Francisco, CA
December 23, 1998
FOR VALUE RECEIVED, Daniel V. Santi promises to pay to Kosan
Biosciences Incorporated (the "Company"), or order, the principal sum of Two
Hundred Seventy Five Thousand ($275,000.00), together with interest on the
unpaid principal hereof from the date hereof at the rate of 4.47% percent per
annum, compounded semiannually.
Principal and interest shall be due and payable on December 23, 2001.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of October
23, 1998. This Note is secured in part by a pledge of the Company's Common Stock
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
/s/ Daniel V. Santi
----------------------------
Signature
Daniel V. Santi
----------------------------
Print Name
<PAGE>
EXHIBIT C-7
SECURITY AGREEMENT
This Security Agreement is made as of DEC. 23, 1998 between
Kosan Biosciences Incorporated ("Pledgee"), and Daniel V. Santi ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated 10/1/98 (the "Option"), between Pledgor and Pledgee under
Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the
Option to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased 250,000 shares of Pledgee's Common Stock (the "Shares") at a price
of $1.00 per share, for a total purchase price of $250,000.00. The Note and
the obligations thereunder are as set forth in Exhibit C-6 to the Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number , duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
c. MARGIN REGULATIONS. In the event that Pledgee's Common
Stock is now or later becomes margin-listed by the Federal Reserve Board and
Pledgee is classified as a "lender" within the meaning of the regulations under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"),
Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or
providing any additional collateral as may be necessary to comply with such
regulations.
<PAGE>
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in
the Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor,
-2-
<PAGE>
subject to the provisions for prior release of a portion of the Collateral as
provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted and
governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" By: /s/ Daniel V. Santi
------------------------------------
Daniel V. Santi
---------------------------------------
Print Name
Address: 211 Belgrave Ave.
------------------------------
SF CA 94117
------------------------------
"PLEDGEE" Kosan Biosciences Incorporated
By: /s/ [ILLEGIBLE]
------------------------------------
Title: Chief Operating Officer
------------------------------
"PLEDGEHOLDER" /s/ [ILLEGIBLE]
---------------------------------------
Stock Option Administrator of
Kosan Biosciences Incorporated
-3-
<PAGE>
EXHIBIT 10.21
<PAGE>
EXHIBIT C-6
PROMISSORY NOTE
$74,250 San Francisco, CA
FEB 21, 2000
FOR VALUE RECEIVED, MICHAEL S. OSTRACH promises to pay to Kosan
Biosciences Incorporated (the "Company"), or order, the principal sum of
SEVENTY-FOUR THOUSAND TWO HUNDRED FIFTY ($74,250 ), together with interest on
the unpaid principal hereof from the date hereof at the rate of SIX AND 46/100
percent (6.46%) per annum, compounded semiannually.
Principal and interest shall be due and payable on FEB 21, 2003.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of JAN. 20,
1998 & OCT 23, 1998. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
/s/ Michael Ostrach
----------------------------------
Signature
Michael Ostrach
----------------------------------
Print Name
<PAGE>
EXHIBIT C-7
SECURITY AGREEMENT
This Security Agreement is made as of FEB 21, 2000 between Kosan
Biosciences Incorporated ("Pledgee"), and MICHAEL S. OSTRACH ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated JAN. 20, 1998 & OCT. 23, 1998, (the "Option"), between Pledgor
and Pledgee under Pledgee's 1996 Stock Option Plan, and Pledgor's election under
the terms of the Option to pay for such shares with his promissory note (the
"Note"), Pledgor has purchased 110,000 shares of Pledgee's Common Stock (the
"Shares") at a price of $0.45 & 1.00 per share, for a total purchase price of
$74,250 . The Note and the obligations thereunder are as set forth in Exhibit
C-6 to the Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In
consideration of the transfer of the Shares to Pledgor under the Option
Agreement, Pledgor, pursuant to the California Commercial Code, hereby pledges
all of such Shares (herein sometimes referred to as the "Collateral")
represented by certificate number____, duly endorsed in blank or with executed
stock powers, and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the
principal sum of the Note secured hereby, together with interest thereon, at the
time and in the manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
c. MARGIN REGULATIONS. In the event that Pledgee's
Common Stock is now or later becomes margin-listed by the Federal Reserve Board
and Pledgee is classified as a "lender" within the meaning of the regulations
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"),
Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or
providing any additional collateral as may be necessary to comply with such
regulations.
<PAGE>
3. VOTING RIGHTS. During the term of this pledge and so long as
all payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Shares
pledged hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the
pledge any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, Pledgor, Pledgee and Pledgeholder
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note
and of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set
forth in the Option or contained in this Security Agreement for a period of 10
days after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary
rules under Regulation G, there shall be released from this pledge a portion of
the pledged Shares held by Pledgeholder hereunder upon payments of the principal
of the Note. The number of the pledged Shares which shall be released shall be
that number of full Shares which bears the same proportion to the initial number
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not
sell, withdraw, pledge, substitute or otherwise dispose of all or any part of
the Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
stock shall be promptly delivered to Pledgor,
-2-
<PAGE>
subject to the provisions for prior release of a portion of the Collateral as
provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of
the terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted
and governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" By: /s/ Michael Ostrach
------------------------------------------
M OSTRACH
---------------------------------------------
Print Name
Address: 15 Honeywood Rd
-------------------------------------
Orinda, CA 94567
-------------------------------------
"PLEDGEE" Kosan Biosciences Incorporated
By: /s/ Kevin Kaster
------------------------------------------
Title: VICE PRESIDENT
---------------------------------------
"PLEDGEHOLDER" /s/ Kevin Kaster
---------------------------------------------
Stock Option Administrator of
Kosan Biosciences Incorporated
-3-
<PAGE>
EXHIBIT 10.22
<PAGE>
EXHIBIT C-6
PROMISSORY NOTE
$ 50,000.00 San Francisco, CA
FEBRUARY 21, 2000
FOR VALUE RECEIVED, SUSAN KANAYA promises to pay to Kosan Biosciences
Incorporated (the "Company"), or order, the principal sum of FIFTY THOUSAND
DOLLARS ($50,000.00/XX), together with interest on the unpaid principal hereof
from the date hereof at the rate of SIX AND FORTY SIX ONE HUNDREDTHS percent
(6.46%) per annum, compounded semiannually.
Principal and interest shall be due and payable on FEBRUARY 21, 2003.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of NOVEMBER
4, 1999. This Note is secured in part by a pledge of the Company's Common Stock
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
/s/ Susan Kanaya
-------------------------------------------
Signature
SUSAN M. KANAYA
-------------------------------------------
Print Name
<PAGE>
EXHIBIT C-7
SECURITY AGREEMENT
This Security Agreement is made as of FEBRUARY 21, 2000 between Kosan
Biosciences Incorporated ("Pledgee"), and SUSAN M. KANAYA ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated NOV. 04, 1999 (the "Option"), between Pledgor and Pledgee under
Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the
Option to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased 50,000 shares of Pledgee's Common Stock (the "Shares") at a price of
$1.00 per share, for a total purchase price of $50,000.00. The Note and the
obligations thereunder are as set forth in Exhibit C-6 to the Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In
consideration of the transfer of the Shares to Pledgor under the Option
Agreement, Pledgor, pursuant to the California Commercial Code, hereby
pledges all of such Shares (herein sometimes referred to as the "Collateral")
represented by certificate number_______, duly endorsed in blank or with
executed stock powers, and herewith delivers said certificate to the
Secretary of Pledgee ("Pledgeholder"), who shall hold said certificate
subject to the terms and conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the
principal sum of the Note secured hereby, together with interest thereon, at the
time and in the manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
c. MARGIN REGULATIONS. In the event that Pledgee's
Common Stock is now or later becomes margin-listed by the Federal Reserve Board
and Pledgee is classified as a "lender" within the meaning of the regulations
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"),
Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or
providing any additional collateral as may be necessary to comply with such
regulations.
<PAGE>
3. VOTING RIGHTS. During the term of this pledge and so long as
all payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Shares
pledged hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the
pledge any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, Pledgor, Pledgee and Pledgeholder
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note
and of this Security Agreement in the event:
a. Payment of principal or interest on the Note
shall be delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set
forth in the Option or contained in this Security Agreement for a period of 10
days after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary
rules under Regulation G, there shall be released from this pledge a portion of
the pledged Shares held by Pledgeholder hereunder upon payments of the principal
of the Note. The number of the pledged Shares which shall be released shall be
that number of full Shares which bears the same proportion to the initial number
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not
sell, withdraw, pledge, substitute or otherwise dispose of all or any part of
the Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
stock shall be promptly delivered to Pledgor,
-2-
<PAGE>
subject to the provisions for prior release of a portion of the Collateral as
provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of
the terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted
and governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" By: /s/ Susan Kanaya
---------------------------------------
SUSAN M. KANAYA
------------------------------------------
Print Name
Address: 1421 WOODBERRY AVE.
SAN MATEO, CA 94403
"PLEDGEE" Kosan Biosciences Incorporated
By: /s/ Kevin Kaster
---------------------------------------
Title: VICE PRESIDENT
------------------------------------
"PLEDGEHOLDER" /s/ Kevin Kaster
------------------------------------------
Stock Option Administrator of
Kosan Biosciences Incorporated
-3-
<PAGE>
EXHIBIT 10.23
<PAGE>
EXHIBIT C-6
PROMISSORY NOTE
$72,500 San Francisco, CA
- --------- FEB 21, 2000
FOR VALUE RECEIVED, KEVIN KASTER promises to pay to Kosan Biosciences.
Incorporated (the "Company"), or order, the principal sum of SEVENTY TWO
THOUSAND FIVE HUNDRED ($72,500), together with interest on the unpaid principal
hereof from (the date hereof at the rate of SIX AND 40/100 percent (6.46%) per
annum, compounded semiannually.
Principal and interest shall be due and payable on FEB 21, 2003.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of AUG 7,
1998 & AUG 7, 1999. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
/s/ Kevin Kaster
--------------------------------------------
Signature
Kevin Kaster
--------------------------------------------
Print Name
<PAGE>
EXHIBIT C-7
SECURITY AGREEMENT
This Security Agreement is made as of FEB. 21, 2000 between Kosan
Biosciences Incorporated ("Pledgee"), and KEVIN R. KASTER ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated AUG 7, 1998 & AUG 7, 1999 (the "Option"), between Pledgor and
Pledgee under Pledgee's 1996 Stock Option Plan, and Pledgor's election under the
terms of the Option to pay for such shares with his promissory note (the
"Note"), Pledgor has purchased 72,500 shares of Pledgee's Common Stock (the
"Shares") at a price of $ONE per share, for a total purchase price of $72,500.
The Note and the obligations thereunder are as set forth in Exhibit C-6 to the
Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration
of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number _______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and
conditions of this Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal
sum of the Note secured hereby, together with interest thereon, at the time and
in the manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
c. MARGIN REGULATIONS. In the event that Pledgee's Common
Stock is now or later becomes margin-listed by the Federal Reserve Board and
Pledgee is classified as a "lender" within the meaning of the regulations under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"),
Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or
providing any additional collateral as may be necessary to comply with such
regulations.
<PAGE>
3. VOTING RIGHTS. During the term of this pledge and so long as
all payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Shares
pledged hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the
pledge any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, Pledgor, Pledgee and Pledgeholder
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note
and of this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth
in the Option or contained in this Security Agreement for a period of 10 days
after written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary
rules under Regulation G, there shall be released from this pledge a portion of
the pledged Shares held by Pledgeholder hereunder upon payments of the principal
of the Note. The number of the pledged Shares which shall be released shall be
that number of full Shares which bears the same proportion to the initial number
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not
sell, withdraw, pledge, substitute or otherwise dispose of all or any part of
the Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
stock shall be promptly delivered to Pledgor,
-2-
<PAGE>
subject to the provisions for prior release of a portion of the Collateral as
provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of
the terms of this Security Agreement shall be binding on their respective
successors and assigns, and that the term "Pledgor" and the term "Pledgee" as
used herein shall be deemed to include, for all purposes, the respective
designees, successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted
and governed under the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" By: /s/ Kevin R. Kaster
-----------------------------------
KEVIN R. KASTER
--------------------------------------
Print Name
Address: 199 PORT ROYAL AVE
------------------------------
FOSTER CITY, CA 94404
------------------------------
"PLEDGEE" Kosan Biosciences Incorporated
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: COO & VP
--------------------------------
"PLEDGEHOLDER" /s/ Kevin Kaster
--------------------------------------
Stock Option Administrator of
Kosan Biosciences Incorporated
-3-
<PAGE>
EXHIBIT 10.24
<PAGE>
KOSAN BIOSCIENCES, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered into by and between Kosan Biosciences, Inc.,
a California corporation (the "Company"), and Daniel V. Santi ("Executive"), as
of November 1, 1998.
WHEREAS, Executive is currently employed as a professor with the
University of California at San Francisco ("UCSF") and works as a consultant for
the Company pursuant to the terms of the Amended and Restated Consulting
Agreement by and between Executive and the Company, dated March 29, 1996 (the
Consulting Agreement );
WHEREAS, Executive shall take a leave of absence from UCSF to become an
employee of the Company;
WHEREAS, as of the date Executive receives a leave of absence from
UCSF, the Company desires to employ the Executive as the Chief Executive Officer
and President of the Company, reporting to the Board of Directors of the Company
(the "Board");
WHEREAS, the parties desire and agree to enter into an employment
relationship by means of this Agreement; and
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and among the parties as follows:
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION: EMPLOYMENT COMMENCEMENT DATE. As of the date
Executive receives a leave of absence from UCSF that, at a minimum, exceeds nine
(9) months ("Leave of Absence"), the Executive shall be employed as the Chief
Executive Officer and President of the Company reporting to the Board
("Commencement Date").
(b) OBLIGATIONS. Executive shall devote his full business
efforts and time to the Company. As Chief Executive Officer and President of the
Company, Executive shall have the duties and responsibilities customarily
associated with such positions, including senior management powers and
responsibilities for the Company's business and affairs. During the term of this
Agreement, Executive agrees not to actively engage in any other employment,
occupation or consulting activity for any direct or indirect remuneration that
creates an actual or potential conflict of interest with the Company without the
prior approval of the Board; provided, however, that Executive may engage in
activities that do not materially interfere with his duties and obligations
under this Agreement or create an actual or potential conflict of interest with
the Company for up to four hours per week. Executive shall report the nature and
extent of such activities, if any, to the Board every six months.
-1-
<PAGE>
2. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Executive and the Company acknowledge that this employment
relationship may be terminated at any time, with or without good cause or for
any or no cause, at the option either of the Company or Executive.
3. COMPENSATION, FRINGE BENEFITS AND STOCK OPTIONS.
(a) BASE SALARY. While employed by the Company pursuant to
this Agreement, the Company shall pay the Executive as compensation for his
services a base salary at the annualized rate of $250,000 (the "Base Salary").
Such salary shall be paid periodically in accordance with normal Company payroll
practices and subject to the usual, required withholding. Executive's Base
Salary shall be adjusted annually by a percentage equal to the percent change
set forth in the U.S. Department of Labor and Bureau of Labor Statistics'
Consumer Price Index for U.S. Cities. Executive understands and agrees that
neither his job performance nor promotions, commendations, bonuses or the like
from the Company give rise to or in any way serve as the basis for modification,
amendment, or extension, by implication or otherwise, of this Agreement.
(b) DISCRETIONARY BONUS. The performance of Executive and the
Company may be reviewed by the Board periodically, and, on that basis, the Board
may, in its discretion, award the Executive a bonus. Any such bonus shall be
subject to applicable withholding.
(c) EXECUTIVE BENEFITS. During his employment hereunder,
Executive shall be eligible to participate in the employee benefit plans
currently and hereafter maintained by the Company of general applicability to
other key executives of the Company, including, without limitation, group
health, disability, and life insurance benefits and participation in any Company
profit-sharing, retirement or pension plan, and vacation consistent with the
vacation policies of the Company.
(d) STOCK OPTION. As of the Commencement Date, Executive shall
be granted a nonstatutory stock option which shall consist of 250,000 shares of
the Company's then issued and outstanding shares of Common Stock at an exercise
price equal to the fair market value of the Common Stock on the date of grant.
Subject to the acceleration of vesting provisions in this Section 3 and Section
5 of this Agreement, the Option shall commence vesting on October 1, 1998, and
shall vest and become exercisable as to 1/48th of the shares subject to the
Option per month, so as to be fully vested on October 1, 2002, subject to
Executive continuing to render services to the Company as President and Chief
Executive Officer. The Option shall be in all respects subject to the terms,
definitions and provisions of the Company's 1996 Stock Option Plan (the "Option
Plan") and the stock option agreement by and between Executive and the Company
(the "Option Agreement"), all of which documents are incorporated herein by
reference.
Notwithstanding the above, Executive shall fully vest in and
have the right to exercise the Option as to all of the shares subject to the
Option, including shares as to which it would not otherwise be vested or
exercisable, in the event that (i) the Company enters into a merger or other
reorganization (as defined in Section 181 of the California Corporations Code)
with or into another
-2-
<PAGE>
corporation or entity (except where California Corporations Code Section 1201(b)
does not require the approval of the outstanding shares of the Company with
respect to such merger or other reorganization), (ii) the Company sells all or
substantially all of its assets, (iii) a person or entity makes a tender or
exchange offer for and acquires 50% or more of the issued and outstanding voting
securities of the Company, or (iv) any person within the meaning of Section
3(a)(9) or Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
acquires more than 50% of the Company's issued and outstanding voting securities
of the Company.
4. EXPENSES. The Company will pay or reimburse Executive for
reasonable travel, entertainment or other expenses incurred by Executive in the
furtherance of or in connection with the performance of Executive's duties
hereunder in accordance with the Company's established policies.
5. CANCELLATION OF CONSULTING AGREEMENT. Upon the Commencement
Date, Executive and Company agree to cancel and forego their rights, if any,
under the Consulting Agreement.
6. SEVERANCE BENEFITS.
(a) TERMINATION WITHOUT CAUSE DURING LEAVE OF ABSENCE. If
Executive's employment with the Company terminates other than voluntarily by the
Executive or for "Cause" (as defined herein) at any time during Executive's
Leave of Absence, then (i) Executive shall become a consultant of the Company
and enter into an agreement with the Company containing the terms of the
Consulting Agreement; provided, however, that Executive's compensation level
shall equal that of Dr. Khosla, (ii) vesting of the Option will immediately
cease and Executive shall have the right to exercise any vested portion of the
Option for three (3) months following such termination, and (iii) Executive
shall only be eligible for severance benefits in accordance with the Company's
established policies as then in effect.
(b) VOLUNTARY TERMINATION DURING LEAVE OF ABSENCE. If
Executive's employment with the Company terminates voluntarily by the Executive
at any time during Executive's Leave of Absence, then (i) Executive shall become
a consultant of the Company and enter into an agreement with the Company
containing the terms of the Consulting Agreement; provided, however, that
Executive's compensation level shall equal that of Dr. Khosla, (ii) the vesting
of the Option will immediately cease and Executive shall have thirty (30) days
to exercise vested shares, if any, subject to the Option, and (iii) Executive
shall only be eligible for severance benefits in accordance with the Company's
established policies as then in effect.
(c) TERMINATION WITHOUT CAUSE AFTER LEAVE OF ABSENCE. If
Executive's employment with the Company terminates other than voluntarily by the
Executive or for "Cause" (as defined herein) at any time after Executive's Leave
of Absence, then (i) Executive shall be entitled to receive a lump sum severance
payment (less applicable withholding taxes) in an amount equal to eighteen (18)
months of his Base Salary, as then in effect; and (ii) an additional eighteen
(18) months of the shares subject to the Option shall vest as of the date of
such termination and Executive have the right to exercise, for three (3) months
following termination, the vested and exercisable shares subject to the Option.
-3-
<PAGE>
(d) VOLUNTARY TERMINATION AFTER LEAVE OF ABSENCE. If
Executive's employment with the Company terminates voluntarily by Executive at
any time after the Leave of Absence, then Executive shall only be eligible for
severance benefits in accordance with the Company's established policies as then
in effect.
(e) TERMINATION FOR CAUSE. If Executive's employment with the
Company terminates for "Cause" (as defined herein) by the Company, then
Executive shall only be eligible for severance benefits in accordance with the
Company's established policies as then in effect. For this purpose, "Cause" is
defined as (i) an act of dishonesty made by Executive in connection with
Executive's responsibilities as an employee, (ii) Executive's conviction of, or
plea of NOLO CONTENDERE to, a felony, (iii) Executive's gross misconduct, or
(iv) Executive's failure to perform his employment duties.
7. ENFORCEMENT. In the event of any action to enforce the terms
of this Agreement, the prevailing party in such action shall be entitled to such
party's reasonable costs and expenses of enforcement including, without
limitation, reasonable attorneys' fees.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of (a) the heirs, executors and legal representatives of Executive
upon Executive's death and (b) any successor of the Company. Any such successor
of the Company shall be deemed substituted for the Company under the terms of
this Agreement for all purposes. As used herein, "successor" shall include any
person, firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly, acquires all or
substantially all of the assets or business of the Company. None of the rights
of Executive to receive any form of compensation payable pursuant to this
Agreement shall be assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the death of
Executive following termination without cause. Any attempted assignment,
transfer, conveyance or other disposition (other than as aforesaid) Of any
interest in the rights of Executive to receive any form of compensation
hereunder shall be null and void.
9. NOTICES. All notices, requests, demands and other
communications called for hereunder shall be in writing and shall be deemed
given if delivered personally, one (1) day after mailing via Federal Express
overnight or a similar overnight delivery service, or three (3) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors in interest at the following
addresses, or at such other addresses as the parties may designate by written
notice in the manner aforesaid:
If to the Company: Kosan Biosciences, Inc.
1450 Rollins Road
Burlingame, CA 94010
If to Executive: Daniel V. Santi
at the last residential address known by
the Company.
-4-
<PAGE>
10. SEVERABILITY. In the event that any provision hereof becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision.
11. ENTIRE AGREEMENT. This Agreement, the Option Agreement and the
Confidential Information and Invention Assignment Agreement dated November 1,
1998 represent the entire agreement and understanding between the Company and
Executive concerning Executive's employment relationship with the Company, and
supersede and replace any and all prior agreements and understandings concerning
Executive's employment relationship with the Company.
12. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This
Agreement may only be amended, canceled or discharged in writing signed by
Executive and the Company.
13. GOVERNING LAW. This Agreement shall be governed by the
internal substantive laws, but not the choice of law rules, of the State of
California.
14. EFFECTIVE DATE. This Agreement is effective immediately after
it has been signed.
15. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below
KOSAN BIOSCIENCES, INC.
By: /s/ MICHAEL S. OSTRACH
-------------------------------------------
Name: MICHAEL S. OSTRACH
Title: VP AND COO
----------------------------------------
DANIEL V. SANTI
/s/ DANIEL V. SANTI
----------------------------------------------
Signature
-5-
<PAGE>
EXHIBIT 10.25
<PAGE>
KOSAN BIOSCIENCES, INC.
1450 ROLLINS RD.
BURLINGAME, CA 94010
(650) 343 8673
- --------------------------------------------------------------------------------
July 20, 1998
Kevin R. Kaster
199 Port Royal Avenue
Foster City, CA 94404
Dear Kevin:
On behalf of Kosan Biosciences, Inc., I am pleased to offer you the position of
Vice President, Intellectual Property, reporting to me. Your primary
responsibilities will involve directing and implementing Kosan's intellectual
property strategy. In this capacity we expect that you will (i) assume
responsibility for building and managing a patent portfolio to protect our
technology and compounds, (ii) implement and manage policies and procedures to
identify and protect inventions and trade secrets, (iii) develop patent and
licensing strategies for each of our programs, (iv) negotiate and manage
compliance with agreements concerning Kosan's intellectual property and (v)
develop and administer budgets and other controls to maximize the cost
effectiveness of the intellectual property effort without compromising quality.
Also, we welcome your efforts in other areas of management consistent with
corporate objectives as your time, interests and talents permit.
You will receive a monthly salary of $15,000, paid semi-monthly, less federal
and state payroll withholding taxes. You will also be eligible to receive
performance bonuses in amounts and frequencies at the sole discretion of the
Board of Directors of Kosan. Within two months of your starting date, we will
agree on performance objectives for the first year of your employment. In
addition, you will be eligible for employee benefit programs provided by Kosan.
Should you and your family not be eligible for health insurance benefits under
the Kosan plan during your first three months of employment, Kosan would
reimburse you for such expenses.
I will recommend to the Board of Directors that you be granted an option to
purchase 60,000 shares of stock. This option will vest over four years and is
subject to the terms and conditions of the Company's 1997 Stock Option Plan; 25%
will vest after the first anniversary, and the remainder will vest monthly over
the next three years. The exercise price of the option will be the fair market
value of the stock as determined by the Board of Directors at the first regular
board meeting after you start work. I will also recommend to the Board that on
each of your first and second anniversaries at Kosan, you be granted options to
purchase an additional 12,500 shares of stock. These options will vest on the
fourth anniversary of each grant. The exercise price of the
<PAGE>
options will be the fair market value of the stock at the time of the grant.
If the Board approves a renewal option program for employees, you may at your
discretion choose to become part of that plan in lieu of the first and second
anniversary option grants.
In addition to the standard vacation benefits Kosan offers, the following
days will be considered paid vacation days: the days of August 17-21,
inclusive, the Monday, Tuesday and Wednesday of Thanksgiving week, the days
of December 21-24, inclusive and December 28, 1998.
This offer does not constitute a guarantee of employment for any specific
period of time, and either you or Kosan may terminate the employment
relationship at any time, with or without cause, by written notice. However,
in the event that Kosan terminates your employment without cause during the
three and one-half year period after your start of employment, then Kosan
will pay you an amount equal to six times your monthly base salary, and will
accelerate the vesting of the lesser of (a) 12.5% (six months) of your
original stock option grant and (b) the remainder of your original grant. As
used in this letter agreement, "cause" shall mean (i) any breach of this
agreement by you which is not cured within 30 days after notice of breach is
provided to you by the Company, (ii) your conviction of a felony, or
(iii) any action by you prior to or during your employment which in the
reasonable judgment of Kosan constitutes dishonesty, larceny, fraud, deceit
or gross negligence by you in the performance of your duties to Kosan, or
willful misrepresentation to shareholders, directors or officers of Kosan.
As a condition of your employment with Kosan, you will be required to sign
the Company's Employee Confidentiality Agreement and Proprietary Information
and Inventions Agreement, two originals of each, which are attached. Please
sign both sets of originals and return one of each to me with your acceptance
of this offer.
For purposes of Federal immigration law, you will be required to provide to
the Company documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
This offer is valid through July 22, 1998. As we discussed, your first day of
employment will be August 7, and we are willing to have you work on a
part-time basis for a short period of time in order to smooth your departure
from your current position. Enclosed are two originals of this letter. Please
sign and return one to me, to indicate your acceptance.
I, the entire Kosan staff, and our directors are very enthusiastic about your
joining the Kosan team. We believe that our relationship will be mutually
rewarding at the business, professional, and personal levels. Together we
hope to build a highly significant enterprise that will substantially improve
the process of drug
2
<PAGE>
discovery and development.
Sincerely,
/s/ Michael S. Ostrach
Michael S. Ostrach
Vice President, Corporate Development
I accept employment with Kosan Biosciences, Inc. subject to the terms and
conditions hereof. I understand that the terms set forth in this letter
supersede all oral discussions I may have had with anyone in the Company.
/s/ Kevin R. Kaster
- ---------------------------
Kevin R. Kaster
Date: 21 July 1998
3
<PAGE>
EXHIBIT 10.26
[LETTERHEAD]
October 11, 1999
By overnight and facsimile: 650-357-8355
Susan M. Kanaya
1421 Woodberry Avenue
San Mateo, CA 94403
Dear Susan:
On behalf of Kosan Biosciences, I am pleased to extend to you an offer for the
position of Vice President, Finance and Chief Financial Officer, reporting to
me. Your principal responsibilities will involve (1) directing and managing our
financial functions, including accounting, audit, budgeting, financial
reporting, financial analysis and planning, and risk and cash management, (2)
implementation and maintenance of appropriate accounting, cash management and
investment systems and policies, and an effective system of internal controls,
(3) coordination of the company's financing strategy, and (4) participation in
corporate partnering negotiations and preparation for a public offering, and (5)
participation as a member of the senior management team. Also, we welcome your
efforts in other areas of management consistent with corporate objectives as
your time, interests and talents permit.
The monthly salary for this position is $14,375. Payroll is distributed twice a
month, on the 15th and last day of each month. We also offer an attractive
benefits package, including life, medical, dental and disability insurance plans
and a 401k plan. Your start date will be as soon as practicable, but in no event
later than November 8, 1999. If you join us on or prior to that date, you will
receive a signing bonus of $20,000, payable with your first paycheck.
In addition, I am pleased to offer options to purchase 45,000 shares of Kosan
Biosciences Common Stock under the Kosan Stock Option Plan. The options will
vest over four years, with one-fourth of the options vesting after one year of
employment and the remainder vesting in equal monthly increments over the
remaining three years. You also would be granted an additional 5,000 options,
which would vest fully on completion of one full year of employment with Kosan
or upon termination of your employment other than for "cause" or upon your
voluntary termination of employment for "good reason." The exercisability of all
50,000 options will accelerate to the effective date of a change of control of
Kosan. These offers of options are subject to the approval of the Board of
Directors and your execution of our standard Stock Option Agreement. The
exercise price will be equal to the fair market value of the stock on the date
the Board or the Compensation Committee approves the stock options. We plan to
effectuate the grant by means of a Compensation Committee consent effective as
of the first day of your employment.
<PAGE>
Kosan would loan to you $50,000 to replace your existing loan arrangement, on
terms substantially similar to the terms of your current loan from your
employer, provided that the interest rate will be the rate necessary to avoid
imputed interest and the term for forgiveness will be three years from your
start date.
For the purposes of federal immigration law, you will be required to provide
Kosan documentary evidence of your identity and eligibility for employment in
the United States. Such documentation must be provided to us within three (3)
business days of your date of hire. Kosan also requires that you sign an
Employee Proprietary Information and Invention Assignment Agreement.
Your employment with the Company is for no specified period and constitutes at
will employment. As a result, you are free to resign at any time, for any reason
or for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause, and with or without
notice. However, in the event of the involuntary termination of your employment
for other than for "cause" or your voluntary termination of employment for "good
reason" during the two years following the start of your employment, you will
receive (a) separation pay in the form of a continuation of your base salary, in
regular payroll installments (less withholdings and deductions required by law)
for a period of six months following the effective date of the termination of
employment and (b) an additional six months of vesting on your original 45,000
share option grant. If such termination occurs following a change of control,
the period of separation pay will be twelve months. You will be required to sign
a general release in order to receive these payments. No separation pay or
additional vesting will be provided in the event of a termination of employment
for "cause" or if termination is due to death, disability, retirement or
voluntary resignation other than for "good reason."
As used in this letter agreement, "cause" shall mean (i) any breach of this
agreement or your other obligations to the Company under the Employee
Proprietary Information and Invention Assignment Agreement by
you which is not cured within 30 days after notice of breach is provided to
you by the Company, (ii) your conviction of a felony or crime involving moral
turpitude, (iii) theft, dishonesty or willful misconduct or misrepresentation
in connection with, or in the course of, your duties arid responsibilities, or
(iv) gross insubordination or gross refusal to perform reasonable and lawful
directives from your superiors, which you fail to correct within 30 day after
written notice. "Good reason" shall mean that, without your consent, (i)
your rate of annual base pay is materially reduced, (ii) there is a material
diminution in your duties, or the assignment to you of duties that are
materially inconsistent with your duties or that materially impair your
ability to perform your duties, (iii) there is a material breach of this letter
agreement by Kosan that is not remedied in a reasonable period of time after
Kosan's receipt of written notice from you specifying such
breach, (iv) failure of a successor to Kosan to assume Kosan's obligations
under this letter agreement or (v) you are required to relocate your
business location more than fifty miles from our current location.
In the event of any dispute or claim relating to or arising out of our
employment relationship, you and the Company agree that all such disputes shall
be fully and finally resolved by binding arbitration conducted by the American
Arbitation Association in San Francisco, California. However, this arbitration
provision shall not apply to any disputes
<PAGE>
or claims relating to or arising out of the misuse or misappropriation of the
Company's trade secrets or proprietary information.
You agree that while you are an employee you will not engage in any activities
that conflict with your obligations to the Company and that you will abide by
company rules and regulations.
To indicate your acceptance of our offer, please sign and date one copy of this
letter in the space provided below and return it to me in the enclosed envelope
at your earliest convenience. This letter, along with any agreements relating to
proprietary rights or stock purchase between you and Kosan, set forth the terms
of your employment with Kosan and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by Kosan and by you.
We are very excited at the prospect of your joining Kosan Biosciences and
becoming a key contributor to our efforts. Please do not hesitate to contact me
if you have any questions. This offer will remain open until October 15, 1999 at
which time it will expire if not previously accepted in writing.
Sincerely,
Kosan Biosciences, Inc.
By: /s/ Michael S. Ostrach AGREED AND ACCEPTED:
MSO /s/ Susan Kanaya
------------------------- -------------------
Michael S. Ostrach Susan M. Kanaya
Chief Operating Officer Date: 10/13/99
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement, by and between Brian Metcalf, Ph.D. ("Employee") and Kosan
Biosciences, Inc. (the "Company"), is made as of March 15, 2000.
In consideration of the mutual covenants contained in this Agreement, and in
consideration of the employment of Employee by the Company, the parties agree as
follows:
1. Duties and Scope of Employment
(a) Position. The Company agrees to employ Employee under the terms of this
Agreement in the position of Senior Vice President and Chief Scientific Officer
beginning on March __, 2000 (the "Start Date"). As Senior Vice President and
Chief Scientific Officer, Employee shall manage technology development and drug
discovery research, identify and develop new technology and product-oriented
research programs, manage preclinical development of Company products, establish
effective research infrastructure and administration, and have the other
responsibilities typical of such position. Employee will be a member of the
senior management group and research committee. Employee shall report to the
Chief Executive Officer of the Company.
(b) Obligations. Employee shall devote his efforts full time to the Company, and
shall not engage in any outside activities that interfere or conflict with
Employee's responsibilities to the Company or are inconsistent with the
Company's policies.
2. Compensation
(a) Salary. Beginning on the Start Date, Employee shall be paid a salary of
$280,000 per year, payable semi-monthly in accordance with the Company's payroll
policies and subject to standard payroll deductions and withholdings.
(b) Bonus. Employee will receive a bonus of $100,000 payable after the first two
weeks of employment. Employee will participate in any future incentive or bonus
plan or program at a level commensurate with other senior executives.
3. Stock Option
Employee will be granted a stock option, which shall be an incentive stock
option to the maximum extent permitted by law, to purchase 100,000 shares of
Common Stock of the Company at the fair market value of such shares on the Start
Date. The shares subject to the option will vest over a four-year period as
follows: 25% will vest after one year of employment and 1/48th of the total will
vest each month of employment thereafter, except as otherwise provided in this
Agreement. The option will be granted pursuant to the Company's 1996 Stock
Option Plan and the Company's standard form of stock option agreement except as
such standard form of agreement is modified by the terms of this agreement. The
shares subject to the option shall become fully vested immediately prior to the
consummation of a Change of Control.
Page 1 of 6
March 15, 2000
<PAGE>
4. Employee Benefits; Moving Costs; Housing Loan
(a) Employee shall be entitled to the full benefits for which Employee is
eligible under the employee benefit plans and executive compensation programs
maintained by the Company, including medical, dental, disability and life
insurance benefits. In addition, Employee will be entitled to accrue 20 vacation
days per year, up to a total maximum of 30 days of accrued vacation in any
calendar year. The Company will reimburse the Employee for the cost of medical
insurance benefits generally provided to a spouse to the extent those costs are
not otherwise paid by the Company under its benefit programs.
(b) Employee shall be reimbursed for normal real estate commissions, closing
costs and reasonable packing, shipping, storage, unpacking and insurance
expenses in connection with selling his current residence and obtaining a
permanent residence in the Bay Area.
(c) Employee shall be reimbursed for up to six months of normal temporary
housing costs in the Bay Area incurred by the Employee for himself and his
immediate family.
(d) Employee shall be reimbursed for normal travel and living expenses for two
trips (including your spouse) to the Bay area for the purpose of purchasing a
new principal residence.
(e) Employee shall be entitled to a housing loan of up to $400,000 in connection
with obtaining a permanent residence in the Bay Area. The loan will have a
maximum term of five (5) years (with the due date for full repayment accelerated
to the date of termination if Employee voluntary terminates his employment) at
an annual interest rate of x.xx%, compounded annually, (or such higher interest
rate as shall be necessary to avoid imputed income to Employee under all
applicable sections of the Internal Revenue Code). The loan will be secured by a
second mortgage on your primary residence.
(f) Employee shall be entitled to a monthly mortgage assistance payment to
support up to $400,000 of mortgage principal on a 30-year mortgage. Such payment
shall be grossed up for tax purposes by paying Employee an additional 60% of the
amount of the mortgage assistance payment to assist with the payment of tax
liability for such mortgage assistance payment. Such grossed up payment shall
start with the first month such payment is due and shall continue for twelve
months at 100% of the payment, shall continue for the next twelve months at 80%
of the payment, for the next twelve months at 60% of the payment, for the next
twelve months at 40% of the payment and for the next twelve months at 20% of the
payment, at which time such payments shall end. Such payments shall also end at
the termination of Employee's employment at the Company.
5. Proprietary Information Agreement; U.S. Employment Eligibility
Employee agrees to sign and comply with the Company's Proprietary Information
and Inventions Agreement. Employee will provide to the Company documentary
evidence of his identity and eligibility for employment in the United States
within three (3) business days of the Start Date.
Page 2 of 6
March 15, 2000
<PAGE>
6. Employment at Will: Limitation of Remedies
The Company and Employee acknowledge that Employee's employment is at will and
can be terminated by either party at any time with or without cause. If
Employee's employment terminates for any reason, Employee shall not be entitled
to any payments, benefits, damages, awards or compensation other than as
provided by this Agreement. This at-will relationship supersedes any previous
written or oral statements by the parties and cannot be changed except in
writing signed by Employee and duty authorized officer of the Company.
7. Term of Employment
(a) Voluntary Termination by Employee. Employee may terminate his employment
voluntarily giving the Company 30 days' advance notice in writing. No
compensation or payments will be paid or provided following the date when such a
termination is effective. In lieu of continuing to employ Employee through the
date when such a termination is effective, the Company shall have the option to
terminate Employee's employment immediately upon receipt of such notice,
provided that the Company shall be obligated to continue to pay Employee his
salary, benefits and vacation accruals through the date termination otherwise
would have been effective had the Company not exercised such option. Termination
by the Company pursuant to this Section 7(a) shall not be deemed to be
termination without Cause.
(b) Termination by the Company. The Company may terminate Employee's employment
at any time, for any reason or for no reason.
(i) Termination for Cause. If the Company terminates Employee's
employment for Cause, no compensation or payments will be provided to Employee
following the date when such a termination of employment is effective. Any
remaining housing loan shall be repaid within six months of the termination
date.
(ii) Termination without Cause. If the Company terminates Employee's
employment without Cause, the provisions of Section 8 and the Definitions of
Section 10 shall apply. Any remaining housing loan shall be converted to a
five-year note at prime plus 1.0%, compounded annually, and the first payment
shall begin one year from the termination date.
8. Payment Upon Termination Without Cause
If Employee's employment is terminated without Cause during the three-year
period following the Start Date, Employee shall be entitled to receive the
following:
(a) Severance Payment. The Company shall continue to pay to Employee his then
current salary for twelve months in monthly installments, and benefits,
following the date when such a termination of employment is effective, provided
that: (i) the Company's obligation to continue to pay such base salary shall
cease as of the date Employee commences full-time employment with another
business entity (and Employee agrees to provide notice of such employment within
Page 3 of 6
March 15, 2000
<PAGE>
three business days of accepting such an offer); and (ii) Employee executes a
waiver and release of claims substantially in the form set forth in Exhibit A
hereto.
(b) Acceleration of Stock Vesting. If such termination without Cause shall occur
after the twelve month anniversary of the Start Date, all of the shares that
would become vested within six months of such date of termination under the
terms of the option described in Section 3 will be deemed to have vested
provided Employee executes a waiver and release of claims substantially in the
form set forth in Exhibit A hereto.
9. Parachute Payment
Anything in this Agreement to the contrary notwithstanding, if the aggregate of
the amounts due Employee under this Agreement and any other plan, program, or
arrangement of the Company or its Affiliates constitutes a "Parachute Payment"
as such term is defined in Section 280G of the Internal Revenue Code of 1986
(the "Code"), and the amount of the Parachute Payment, reduced by all Federal,
state and local taxes applicable to such payments which are considered to be
contingent on a Change in Control, including the excise tax imposed pursuant to
Section 4999 of the Code, is less than the amount Employee would receive, after
taxes, if he were paid only a dollar amount equal to three times his Base Amount
as defined in Section 280G(b)(3) of the Code less $1.00, then the payments made
to Employee under this Agreement which are contingent on a Change of Control
shall be reduced to an amount which, when added to the aggregate of all other
payments to Employee which are contingent on a Change of Control, will make the
total fair market value of such payments equal to three times his Base Amount
less $1.00, all as determined under Section 280G of the Code.
10. Definitions
As used in this Agreement, the following definitions shall apply
(a) "Cause" shall mean the occurrence of any of the following: (i) any breach by
Employee of this agreement or his obligations to the Company under the Employee
Proprietary Information and Invention Assignment Agreement which is not cured
within 30 days after notice of breach is provided to Employee by the Company,
(ii) Employees's conviction of a felony or crime involving moral turpitude,
(iii) any action by Employee prior to or during his employment which in the
reasonable judgment of the Company constitutes dishonesty, larceny, fraud,
deceit or gross negligence by Employee in the performance of his duties to the
Company, or willful misconduct or misrepresentation in connection with, or in
the course of, his duties and responsibilities, or (iv) Employee's gross
insubordination or gross refusal to perform reasonable and lawful directives
from his superiors, which is not corrected within 30 day after written notice.
(b) "Change in Control" shall mean the occurrence of any of the following: (i)
the Company enters into a reorganization (as defined in Section 181 of the
California Corporations Code) with or into another corporation or entity (except
where California Corporations Code Section 1201(b) does not require the approval
of the outstanding shares of the Company with respect to such reorganization),
(ii) the Company sells all or substantially all of its assets, (iii) a person or
entity makes a tender or exchange offer for and acquires 50% or more of the
issued and
Page 4 of 6
March 15, 2000
<PAGE>
outstanding voting securities of the Company, or (iv) any person, within the
meaning of Section 3(a)(9) or Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended, acquires more than 50% of the issued and outstanding
voting securities of the Company.
11. Other Agreements
Employees represents and warrants the Employee's performance of his duties for
the Company will not violate any agreements, obligations or understandings that
he may have with any third party or prior employer. Employee agrees not to make
any unauthorized disclosure or use, on behalf of the Company, of any
confidential information belonging to any of Employee's former employers.
Employee also represents that he is not in authorized possession of any
materials containing a third party's confidential and proprietary information.
During Employee's employment with the Company, Employee may make use of
information general known and used by persons with training and experience
comparable to Employee's own, and information which is common knowledge in the
industry or is otherwise legally available in the public domain.
12. Arbitration
In the event of any dispute or claim relating to or arising out of this
Agreement, Employee and the Company agree that all such disputes shall be fully
and finally resolved by binding arbitration conducted by the American Arbitation
Association in San Francisco, California. However, this arbitration provision
shall not apply to any disputes or claims relating to or arising out of the
misuse or misappropriation of the Company's trade secrets or proprietary
information.
13. Governing Law
This Agreement shall be governed by the laws of the State of California as
applied to agreements and entered into by California residents and to be
performed entirely within the State of California.
14. Expiration of Offer
This offer of employment expires at midnight on May 1, 2000.
15. Entire Agreement
This Agreement constitutes the complete, final exclusive embodiment of the
entire agreement between Employee and the Company with respect to the terms and
conditions of Employee's employment. Employee represents and warrants that he is
entering into this Agreement voluntarily, and without reliance upon any promise,
warranty or representation, written or oral, other than those expressly
contained herein. This Agreement supersedes any other such promises, warranties,
Page 5 of 6
March 15, 2000
<PAGE>
representations or agreements. This Agreement may not be amended or modified
except by a written instrument signed by Employee and duly authorized officer of
the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth above.
KOSAN BIOSCIENCES, INC.
BY /s/ Daniel V. Santi
-------------------------------------
Daniel V. Santi
Chairman and Chief Executive Officer
/s/ Brian Metcalf
- ---------------------------------------
Brian Metcalf
Page 6 of 6
March 15, 2000
<PAGE>
EMPLOYMENT AGREEMENT AND RELEASE
EXHIBIT A
Except as otherwise set forth in this Employee Agreement and Release (the
"Agreement") and Section 9 of that certain Employment Agreement, dated as of
March 15, 2000 between the undersigned and Kosan Biosciences, Inc. (the
"Company"), I hereby release, acquit and forever discharge the company, its
parents and subsidiaries, and their officers, directors, agents, servants,
employees, attorneys, shareholders, successors, assigns and affiliates, of and
from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys fees, damages, indemnities and obligations of every kind and
nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising out of or in any way related to
agreements, events, acts or conduct at any time prior to and including the
execution date of this Agreement, including but not limited to: all such claims
and demands directly or indirectly arising out of or in any way connected with
my employment with the Company or the termination of that employment; claims or
demands related to salary, bonuses, commissions stock, stock options, or any
other ownership interests in the company, vacation pay, fringe benefits, expense
reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law, statute, or cause of action
including, but not limited to, the federal civil rights Act of 1964, as amended;
the federal Americans with Disabilities ("ADEA"); the California Fair Employment
and Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; harassment; fraud; defamation; emotional distress; and breach of
the implied covenants of good faith and fair dealing.
I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under ADEA. I also acknowledge that the consideration given
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which I was already entitled. I further acknowledge that I
have been advised by this writing, as required by the ADEA, that; (a) my waiver
and release do not apply to any rights or claims that may arise after the
execution date of this Agreement; (b) I have been advised hereby that I have the
right to consult with an attorney prior to executing this Agreement; (c) I have
twenty-one (21) days to consider this Agreement (although I may choose to
voluntarily execute this Agreement earlier); (d) I have seven (7) days following
the execution of this Agreement by the parties to revoke the Agreement; and (e)
this Agreement shall not be effective until the date upon which the revocation
period had expired, which shall be the eighth day after this Agreement is
executed by me.
In giving this release, which includes claims which may be unknown to me at
present, I acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND
TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to my release of any claims I may
have against the Company.
- -----------------------------
BRIAN METCALF
Date: March 15, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated March 10, 2000,
in the Registration Statement (Form S-1) and related Prospectus of Kosan
Biosciences Incorporated for the registration of shares of its common
stock.
/s/ Ernst & Young LLP
Palo Alto, California
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,032
<SECURITIES> 990
<RECEIVABLES> 498
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,845
<PP&E> 3,580
<DEPRECIATION> 993
<TOTAL-ASSETS> 14,157
<CURRENT-LIABILITIES> 2,095
<BONDS> 1,591
0
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<COMMON> 2
<OTHER-SE> 10,466
<TOTAL-LIABILITY-AND-EQUITY> 14,157
<SALES> 0
<TOTAL-REVENUES> 5,346
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196
<INCOME-PRETAX> (4,401)
<INCOME-TAX> 0
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<EPS-BASIC> (2.93)
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