<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OCULEX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 52-2227861
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or organization)
</TABLE>
639 N. PASTORIA AVENUE
SUNNYVALE, CA 94086-2917
(408) 481-0424
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
DONALD J. EATON
CHIEF EXECUTIVE OFFICER
OCULEX PHARMACEUTICALS, INC.
639 N. PASTORIA AVENUE
SUNNYVALE, CA 94086-2917
(408) 481-0424
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Matthew B. Hemington Frederick W. Kanner
Cooley Godward LLP Robert M. Smith
Five Palo Alto Square Dewey Ballantine LLP
3000 El Camino Real 1301 Avenue of the Americas
Palo Alto, CA 94306 New York, NY 10019-6092
(650) 843-5000 (212) 259-8000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If the form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If the 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 the form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $.001 per share.................. $80,500,000 $21,252
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares being registered and the proposed maximum offering price per share
are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION APRIL , 2000
- --------------------------------------------------------------------------------
SHARES
[OCULEX LOGO]
COMMON STOCK
- ----------------------------------------------------------------------
This is our initial public offering of shares of our common stock. No public
market currently exists for our common stock. We expect the public offering
price to be between $ and $ per share.
We have applied to have our common stock listed on the Nasdaq National Market
under the symbol "OCLX."
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN OUR COMMON STOCK UNDER "RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
- ----------------------------------------------------------------------------------
PUBLIC OFFERING PRICE $ $
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UNDERWRITING DISCOUNTS AND COMMISSIONS $ $
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PROCEEDS, BEFORE EXPENSES, TO OCULEX $ $
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</TABLE>
The underwriters may also purchase up to shares of common stock from us at
the public offering price, less the underwriting discounts and commissions,
within 30 days from the date of this prospectus. The underwriters may exercise
this option only to cover over-allotments, if any. If the underwriters exercise
the option in full, the total underwriting discounts and commissions will be
$ , and the total proceeds, before expenses, to Oculex 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
BANC OF AMERICA SECURITIES LLC
DAIN RAUSCHER WESSELS
<PAGE>
DESCRIPTION OF GRAPHICS
[Inside Cover]
Centered heading at top of page with Company's name and the title "The First
Biodegradable Pharmaceuticals Designed For Sustained Intraocular Drug Delivery."
Below this heading is a graphic depicting a cross-section illustration of the
eye. The graphic depicts a DDS-Registered Trademark- implant inserted in the eye
and identifies the key anatomical structures of the eye.
The bottom of the page contains 3 graphics. The top graphic is a scale photo
of a DDS implant. The middle graphic is a graph depicting the sustained release
capability of Surodex. The bottom graphic is a photo of an eye following
cataract surgery.
<PAGE>
- --------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after commencement of
this offering), federal securities law may require all dealers selling shares of
our common stock, whether or not participating in this offering, to deliver a
prospectus. This delivery requirement is in addition to the obligation of
dealers 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..................... 3
The offering........................... 5
Summary financial and operating data... 6
Risk factors........................... 7
Forward-looking information............ 18
Use of proceeds........................ 19
Dividend policy........................ 19
Capitalization......................... 20
Dilution............................... 21
Selected consolidated financial data... 23
Management's discussion and analysis of
financial condition and results of
operations........................... 25
Business............................... 31
Management............................. 46
Related party transactions............. 57
Principal stockholders................. 59
Description of capital stock........... 61
Shares eligible for future sale........ 65
Underwriting........................... 67
Legal matters.......................... 69
Experts................................ 69
Where you can find more information.... 70
Index to consolidated financial
statements........................... F-1
</TABLE>
DDS-Registered Trademark-, Surodex-Registered Trademark- and
Suroquin-Registered Trademark- are trademarks of Oculex Pharmaceuticals, Inc.
This prospectus also refers to trademarks and trade names of other
organizations.
- --------------------------------------------------------------------------------
<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 that we discuss under "Risk factors." Our principal
executive offices are located at 639 N. Pastoria Avenue, Sunnyvale, California,
94086. Our telephone number is (408) 481-0424. Our web site is
http://www.oculex.com. We do not intend the information found on our web site to
be a part of this prospectus.
OUR BUSINESS
We are a leading ophthalmic drug delivery company that has created a novel
technology platform to enable the treatment of major diseases and conditions
that occur inside the eye. Our proprietary drug delivery system, DDS, is the
first biodegradable, sustained release system designed to deliver drugs directly
into the interior of the eye. We are applying our DDS technology to develop our
own proprietary brand name products, using existing generic and third-party
compounds. We are focused on developing products for the treatment of major
sight-threatening eye diseases and conditions where effective treatment is
currently unavailable. In addition, we target eye conditions where we believe
our DDS technology offers superior treatment to existing drug delivery methods
such as eye drops or injections, which are inefficient and cumbersome.
Our two lead products, Surodex and Posurdex, target the treatment of
post-surgical inflammatory conditions within the eye. These products contain the
very potent generic steroid, dexamethasone.
- - Surodex is indicated for the treatment of inflammation following cataract
surgery, the most frequently performed surgery in the United States.
Inflammation in the front of the eye occurs after every cataract surgery.
Standard therapy currently consists of eye drops that need to be taken four
to six times per day for approximately one month. We have demonstrated that
a single dose of Surodex can reduce inflammation over a period of seven
days. We have completed Phase III trials in the United States and are
currently preparing a new drug application, or NDA, filing. We have entered
into a marketing alliance with Bausch & Lomb for the commercialization of
Surodex in the United States and Europe following regulatory approvals.
- - Posurdex, our lead back of the eye product, is designed to treat
inflammation that typically occurs after vitreal and retinal surgeries. It
is estimated that there are over 500,000 such surgical procedures in the
United States each year. Currently, there is no effective treatment for this
condition. Our early stage clinical trials have demonstrated that Posurdex
is effective at treating inflammation in the back of the eye. In addition,
we believe that Posurdex may provide therapeutic value in treating certain
major back of the eye diseases and conditions that may be induced or
exacerbated by the presence of inflammation. These diseases and conditions,
namely uveitis, age-related macular degeneration, or AMD, and macular edema
are chronic and degenerative eye conditions that, in the aggregate, afflict
over 4 million people in the United States alone. We have obtained Phase I
safety data through compassionate use applications and are currently
designing our Phase II clinical trials in the United States. We intend to
market Posurdex directly to a specialized group of approximately 2,000
ophthalmologists in the United States.
We have four additional product candidates in early-stage clinical development
that provide treatments for: glaucoma surgery, corneal transplant rejection,
cataract and glaucoma post-surgical infections and back of the eye infections.
In addition to the development of our own products, we are pursuing research
collaborations with several of the world's leading ophthalmic companies.
Recently, we entered into a strategic research alliance with Allergan
Sales, Inc. to formulate up to five of Allergan's proprietary compounds with our
DDS technology.
3
<PAGE>
THE NEED FOR EFFECTIVE INTRAOCULAR DRUG DELIVERY
Today, drug delivery to the inside of the eye is problematic and continues to be
one of the greatest challenges for ophthalmic drug manufacturers. The standard
therapy for treating virtually all eye diseases and conditions is to deliver
drugs through eye drops. Eye drops currently account for approximately 95% of
the worldwide sales of ophthalmic pharmaceuticals. Eye drop therapy is generally
characterized by inefficient penetration into the front of the eye and virtually
no penetration into the back of the eye. Other existing drug delivery systems
such as systemic therapy and injections provide limited value due to
inefficiency and potential toxicity, leaving many serious back of the eye
diseases and conditions ineffectively treated. We believe this unmet medical
need can be illustrated by the fact that, while 40% of all eye diseases and
conditions occur in back of the eye, only 5% of ophthalmic pharmaceutical sales
come from drugs designed to treat such diseases and conditions.
OUR DDS TECHNOLOGY
Our DDS technology is a micro-size polymer system that enables the encapsulation
of a drug to be implanted within the eye. This allows our DDS products to
discharge the therapeutic agents directly to the area needing medication over a
predetermined period of time. Unlike any other ocular implant system that has
been developed, this technology has the unique characteristic of being
completely biodegradable.
We believe that our DDS technology will provide the basis for the next
generation of treatment of diseases and conditions affecting the inside of the
eye. The DDS platform is versatile and can be applied to a broad universe of
compounds. Products developed with our DDS technology offer the following unique
features:
- - programmable drug delivery that provides a release of the appropriate dose
of a drug to the affected area over a predetermined period of time;
- - complete biodegradability, eliminating the need for surgical removal;
- - ease of insertion, either at the time of surgery or through a minimally
invasive surgical opening;
- - ensured patient compliance, a problem inherent with eye drops; and
- - a low cost manufacturing process utilizing readily available ingredients.
OUR GROWTH STRATEGY
Our goal is to utilize our DDS technology to become the leader in developing and
commercializing a portfolio of products to treat the broad spectrum of diseases
and conditions affecting the interior of the eye. To this end, we intend to:
- - focus our initial product development on DDS formulations of existing
generic compounds;
- - aggressively pursue the clinical development of our lead back of the eye
product, Posurdex;
- - retain marketing and distribution rights for our back of the eye products;
- - expand existing and develop new collaborative relationships; and
- - identify and in-license compounds with unique properties for treating back
of the eye diseases.
4
<PAGE>
THE OFFERING
The following information assumes that the underwriters do not exercise the
over-allotment option granted to them to purchase additional shares in this
offering.
<TABLE>
<S> <C>
Common stock we are offering................. shares
Common stock to be outstanding after the
offering................................... shares
Proposed Nasdaq National Market symbol....... OCLX
Use of proceeds.............................. To fund our operations, including continued
development and commercialization of existing
products and research and development of
additional products, to hire additional
personnel and expand our facilities to be
able to meet the needs of our growing
business and for other working capital and
general corporate purposes. See "Use of
proceeds."
</TABLE>
The information in this prospectus, unless otherwise indicated, assumes the
following:
- - no exercise of the underwriters' over-allotment option;
- - automatic conversion of each outstanding share of preferred stock into one
share of common stock for an aggregate of 9,990,225 shares;
- - issuance of 1,321,473 shares of our common stock on the conversion of the
convertible loan on the closing of this offering; and
- - our reincorporation in Delaware prior to the closing of this offering.
The total number of shares of common stock to be outstanding after the offering
shown above does not include:
- - up to shares issuable pursuant to the underwriters' over-allotment
option;
- - 2,343,191 shares reserved for issuance upon the exercise of stock options
outstanding as of March 31, 2000 under our 2000 Equity Incentive Plan at a
weighted average exercise price of $0.84 per share;
- - 1,955,410 shares available for future grant or issuances under our 2000
Equity Incentive Plan and 400,000 shares available for future purchase under
our Employee Stock Purchase Plan; and
- - 917,773 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price of $0.72 per share.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The as adjusted balance sheet reflects the receipt of the net proceeds from the
sale of shares of our common stock in this offering at an assumed price
to the public of $ per share, after deducting the underwriting discounts and
commissions and estimated offering expenses. The pro forma net loss per share
and shares used in computing pro forma net loss per share give effect to
(i) all of our convertible preferred stock being converted into shares of our
common stock on the date of their issuance and (ii) the conversion of our
convertible loan into the weighted average number of shares of common stock into
which the loan was convertible during the period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------------
Total revenue........................................... $254 $146 $242
--------- --------- ---------
Costs and expenses:
Cost of product sales................................. -- -- 35
Research and development.............................. 2,924 5,527 5,717
Selling, general and administrative................... 885 963 1,432
Amortization of deferred compensation................. -- -- 295
--------- --------- ---------
Total costs and expenses................................ 3,809 6,490 7,479
--------- --------- ---------
Loss from operations.................................... (3,555) (6,344) (7,237)
Interest income......................................... 418 611 297
Interest expense........................................ (189) (236) (239)
--------- --------- ---------
Net loss................................................ $(3,326) $(5,969) $(7,179)
========= ========= =========
Basic and diluted net loss per share.................... $(0.86) $(1.53) $(1.82)
========= ========= =========
Shares used in computing net loss per share, basic and
diluted............................................... 3,868 3,911 3,941
Pro forma net loss per share, basic and diluted......... $(0.59)
=========
Shares used in computing pro forma net loss per share,
basic and diluted..................................... 12,113
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
ACTUAL AS ADJUSTED
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS)
- ----------------------------------------------------------------------------------------
Cash and cash equivalents................................... $2,724 $
Working capital (deficiency)................................ (591)
Total assets................................................ 4,539
Accumulated deficit......................................... (21,133) (21,133)
Total shareholders' equity.................................. 476
</TABLE>
Please see Note 1 to our financial statements for an explanation of the method
used to calculate the net loss per share and the number of shares used in the
computation of per share amounts.
6
<PAGE>
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE HARMED. IN SUCH AN EVENT, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL
OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY-STAGE COMPANY AND MAY NOT SUCCEED IN OUR DEVELOPMENT EFFORTS.
Although we commenced operations in 1989, we are at an early stage of
development. We have incurred significant losses to date, and we have generated
only limited revenues through the sale of our initial product, Surodex, for one
indication in Mexico and Singapore. Since our inception, we have dedicated
substantially all of our resources to research and development.
WE HAVE A HISTORY OF LOSSES, AND WE EXPECT TO INCUR LOSSES IN THE FUTURE.
We have operating losses and incurred negative cash flows since we commenced our
operations in 1989, and our accumulated deficit was approximately $21.1 million
at December 31, 1999. We expect to continue to incur substantial additional
losses over the next several years as we:
- - expand our research and development efforts;
- - expand our preclinical and clinical testing activities;
- - expand our manufacturing efforts; and
- - plan and build our clinical and initial commercial production capabilities.
The extent of our future losses and the timing of our profitability are highly
uncertain. To achieve and sustain profitability, we must, alone or with others,
develop, obtain regulatory approval for, manufacture, market and sell products
using our intraocular drug delivery system. We may be unable to generate
sufficient product or contract research revenue to become profitable or to
sustain profitability. Moreover, if the time required to achieve profitability
is longer than anticipated, we may not be able to continue our operations.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE OUR PRODUCTS.
None of our products have been approved by the United States Food and Drug
Administration, or the FDA, for commercial sale in the United States. While our
initial lead product Surodex has been approved for commercial sale in Mexico and
Singapore, most of our products are still in development, and we face
significant technological risks of failure inherent in developing these
products. We cannot assure you that we will successfully develop any additional
products. We may also abandon some or all of our proposed products before they
become commercially viable. If we cannot develop potential products in a timely
manner, our business will be impaired.
To successfully commercialize our products, we will need to demonstrate to the
FDA that they are safe and effective, will not be subject to physical or
chemical instability over time and under differing storage conditions and do not
suffer from other problems that would affect commercial viability.
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7
<PAGE>
RISK FACTORS
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OUR SUCCESS DEPENDS UPON OBTAINING REGULATORY APPROVALS TO MARKET OUR PRODUCTS
IN THE UNITED STATES AND FOREIGN JURISDICTIONS.
The pharmaceutical industry is subject to strict regulation by a wide range of
governmental authorities. We cannot predict whether we will obtain regulatory
clearance for any product candidate that we develop. A pharmaceutical product
cannot be marketed in the United States until it has completed rigorous
preclinical testing and clinical trials and an extensive regulatory clearance
process governed by the FDA. Similarly, pharmaceutical products cannot be
marketed in foreign markets until they have received the approval of the
appropriate foreign agency. Satisfaction of regulatory requirements typically
takes many years, is dependent upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources for research and
development, testing, manufacturing, quality control and promotion.
Before commencing clinical trials in humans, we must submit and receive approval
from the FDA of an Investigational New Drug, or IND, application. Clinical
trials are subject to oversight by institutional review boards and the FDA,
including tests conducted in conformance with the FDA's good laboratory and
clinical practice regulations, informed consent requirements and testing on an
adequately large number of subjects. These clinical trials may be suspended by
us or the FDA at any time if it is believed that the subjects participating in
these trials are being exposed to unacceptable health risks or if the FDA finds
deficiencies in the IND application or the conduct of these trials.
Before receiving FDA approval to market a product, we must demonstrate that the
product is safe and effective for the indicated use on the patient population
that will be treated. We may encounter delays or rejections due to additional
government regulation, future legislation or administrative action or changes in
FDA policy that occur during the period of our product development, clinical
trials and FDA regulatory review. Even if granted, the FDA can withdraw product
clearances and approvals for failure to comply with regulatory requirements or
upon the occurrence of unforeseen problems following initial marketing. If we
fail to comply with applicable regulatory requirements, we could be subject to
regulatory action, including, but not limited to:
- - criminal prosecution;
- - civil penalties;
- - recall or seizure of products;
- - total or partial suspension of production; and
- - refusals to permit products to be imported into or exported out of the
United States.
Occurrence of any of the above may materially adversely affect our business and
results of operations.
WE MAY NOT OBTAIN REGULATORY APPROVALS FOR SOME OR ALL OF OUR PRODUCTS ON A
TIMELY BASIS, OR AT ALL, FOR A VARIETY OF REASONS, INCLUDING COST.
Clinical trials are inherently unpredictable. We do not know whether our planned
clinical trials will begin on time or whether any of our clinical trials will be
completed on schedule, or at all. We cannot assure you that the planned clinical
trials of our products will result in regulatory approval or whether any
clinical trials will result in marketable products. Moreover, success in
preclinical testing and early clinical trials does not ensure that later
clinical trials will be successful. Negative or inconclusive results or adverse
medical events during a clinical trial could cause a clinical trial to be
repeated or a program to be terminated. Our proposed clinical trials might be
delayed or halted for various reasons, including
- --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
the possibility that the FDA or foreign regulatory agency does not approve our
clinical trial protocol, that physicians perceive our products as ineffective or
that patients experience adverse side effects from treatment.
The FDA and foreign regulatory authorities have substantial discretion in the
approval process and may impose ongoing requirements for post-marketing studies,
which may be costly. Our product development costs will increase if we have
delays in testing or approvals or if we need to perform more or larger clinical
trials than planned. If we experience significant delays, our financial results
and the commercial prospects for our products will be harmed, our ability to
become profitable will be delayed and our needs for additional funding will
increase.
WE HAVE LIMITED EXPERIENCE IN CONDUCTING AND MANAGING THE CLINICAL TRIALS
NECESSARY TO OBTAIN REGULATORY APPROVAL.
We have limited experience in conducting and managing clinical trials. Our only
product to receive regulatory approval is Surodex, which has been approved for
sale in Mexico and Singapore. Our success will depend on our ability to
successfully conduct clinical trials of our product candidates and obtain
regulatory approval so that our products may be commercialized. If we experience
significant delays or fail to obtain regulatory approval for our product
candidates, our financial results and business operations will be adversely
affected.
WE RELY ON THIRD PARTIES TO HELP CONDUCT CLINICAL TRIALS FOR OUR PRODUCT
CANDIDATES, AND THOSE THIRD PARTIES MAY NOT PERFORM SATISFACTORILY.
We rely on third parties to help manage and conduct the testing and clinical
trials of our products. If these third parties do not successfully carry out
their contractual duties or meet expected deadlines, we may not be able to
obtain regulatory approvals for our products and may not be able to successfully
commercialize our products. If these third parties do not perform
satisfactorily, we may not be able to locate acceptable replacements or enter
into favorable agreements with them, or at all.
WE MAY NOT BE ABLE TO PROVE THE SAFETY OF OUR INTRAOCULAR DRUG DELIVERY SYSTEM.
Nearly all of our proposed products are based upon our proprietary intraocular
drug delivery system. We may not be able to prove that potential products
formulated using our proprietary drug delivery system technology are safe. Our
products require lengthy laboratory, animal and human testing. Most of our
products are in preclinical testing or the early stage of human testing. If we
find that any of our products are not safe, we will not be able to commercialize
those products. The safety of intraocular drug formulations will vary with each
product and the ingredients used in the formulation of each product is unique.
Thus, each of our products may implicate different safety issues and procedures.
IF WE CANNOT MAINTAIN OUR EXISTING REGULATORY APPROVALS FOR SURODEX, WE WILL BE
UNABLE TO CONTINUE TO MARKET SURODEX, AND OUR REVENUES WILL SUFFER.
We have obtained regulatory approval to market Surodex in Mexico and Singapore.
The manufacturing and marketing of drugs are subject to continuing FDA and
foreign regulatory review. Post-approval discovery of previously unknown
problems with a product, manufacturing process or facility may result in
restrictions, including withdrawal of the product from the market. The
manufacturing, distribution, advertising and marketing of pharmaceuticals is
subject to extensive regulation. Our existing approvals for Surodex, and any new
approval for Surodex or our other products, if granted, could be withdrawn for
failure to comply with regulatory requirements. If the regulatory agencies in
Mexico and Singapore withdrew their approval for Surodex, we could not
- --------------------------------------------------------------------------------
9
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
market Surodex in those countries, and our revenues would suffer. In addition,
governmental authorities could seize our inventory of Surodex or force us to
recall Surodex already in the market if we fail to comply with regulations.
THE CONCEPT OF DEVELOPING AN INTRAOCULAR DRUG DELIVERY SYSTEM IS RELATIVELY NEW
AND MAY NOT LEAD TO COMMERCIALLY SUCCESSFUL PRODUCTS.
Since there are few products on the market comparable to our product candidates,
we have little historical or comparative sales data to rely upon to indicate
that products based on an intraocular drug delivery system will achieve
commercial success in the marketplace. Even if regulatory authorities approve
our intraocular drug delivery system, market acceptance of our products will
depend on a number of factors, including:
- - perceptions by patients and members of the health care community, including
physicians, of the safety and efficacy of our product candidates;
- - relative convenience and ease of administration of our intraocular drug
delivery system;
- - prevalence and severity of adverse side effects associated with our
intraocular drug delivery system and our products;
- - cost-effectiveness of our product candidates relative to alternative
products; and
- - the effectiveness of marketing and distribution efforts by us and our
licensees and distributors.
Other products currently sold for treatment of eye conditions and diseases are
already known to be safe and effective for certain uses and have a history of
successful sales in the United States and elsewhere. Our new products, if any,
will be competing with drugs that have been approved by the FDA and have
achieved commercial success in the United States and elsewhere. If market demand
for our products is less than we anticipate, we may not generate sufficient
revenues and our business will be harmed.
OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR ELIMINATED IF OUR COMPETITORS
DEVELOP AND MARKET PRODUCTS THAT ARE MORE EFFECTIVE, HAVE FEWER SIDE EFFECTS OR
ARE LESS EXPENSIVE THAN OUR PRODUCT CANDIDATES.
The drug delivery industry is highly competitive and rapidly evolving, with
significant developments expected to continue at a rapid pace. Other companies
have product candidates in clinical trials to treat conditions for which we are
seeking to discover and develop product candidates. These potential competing
drugs may result in effective, commercially successful products. Even if our
collaborators or we are successful in developing effective drugs, our products
may not compete effectively with these products or other successful products.
Our competitors may succeed in developing and marketing products that are either
more effective than those that we may develop, alone or with our collaborators,
or that are marketed before any products we develop are marketed.
Our competitors include fully integrated pharmaceutical companies and
biotechnology companies with current drug discovery efforts, universities and
public and private research institutions. Many of the organizations with whom we
compete have substantially greater capital resources, larger research and
development staffs and facilities, greater experience in drug development and
the regulatory approval process and greater manufacturing and marketing
capabilities than we do. These organizations also compete with us to attract
qualified personnel, attract parties for acquisitions, joint ventures or other
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RISK FACTORS
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collaborations as well as license the proprietary technology that is competitive
with ours. If we are unable to successfully compete or respond to competitive
pressures, our business and results of operations could be materially adversely
affected.
OUR ABILITY TO GENERATE REVENUES WILL BE DIMINISHED IF WE FAIL TO OBTAIN
ACCEPTABLE PRICES OR AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS FROM
THIRD-PARTY PAYORS.
Our ability to commercialize our products, alone or with collaborators, may
depend in part on the extent to which reimbursement for our products will be
available from government and health administration authorities, such as
Medicare and Medicaid, private health insurers and other third-party payors.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. Third-party payors, including Medicare, are challenging
the prices charged for medical products and services. Government and other
third-party payors increasingly are attempting to contain health care costs by
limiting both coverage and the level of reimbursement for new drugs and by
refusing, in some cases, to provide coverage for uses of approved products for
disease indications for which the FDA has not granted labeling approval. Cost
control initiatives also could decrease the price that any of our collaborators
or we would receive for any products in the future. Cost control initiatives
also could adversely affect our collaborators' ability to commercialize our
products and our ability to realize royalties from this commercialization. If
government and other third-party payors do not provide adequate coverage and
reimbursement levels for our products, market acceptance of these products will
be reduced.
In addition, legislation and regulations affecting the pricing of
pharmaceuticals may change before our proposed products are approved for
marketing. Adoption of such legislation and regulations could further limit
reimbursement for our products. A government third-party payor decision not to
provide adequate coverage and reimbursements for our products would limit market
acceptance of these products.
IF OUR STRATEGIC PARTNERS DO NOT EFFECTIVELY MARKET PRODUCTS BASED ON OUR
TECHNOLOGY, OUR ABILITY TO GENERATE REVENUES WILL BE DIMINISHED.
We rely on strategic partners to market our initial lead product, Surodex, and
we expect to rely on strategic partners to market at least some of our other
products once they are approved. We believe that our strategic partners will
have economic incentives to market these products, but we cannot predict future
sales and royalty revenues because our agreements do not contain minimum
purchase agreements. We have little or no control over the amount and timing of
resources that current and future strategic partners devote to marketing or
developing product based on our technology. If our current or future strategic
partners do not effectively market products based on our technology, our
revenues from product sales and royalties will be significantly reduced.
IF PRODUCT LIABILITY LAWSUITS ARE BROUGHT AGAINST US, WE MAY INCUR SUBSTANTIAL
LIABILITIES.
The testing, marketing and sale of medical products involves an inherent risk of
product liability claims and related negative publicity. These claims may be
made directly by consumers or by pharmaceutical companies or others retailing
such products. Whether or not we were ultimately successful in any product
liability litigation, such litigation would require us to expend substantial
amounts of our financial and managerial resources, and might result in adverse
publicity, all of which would impair our business. We currently have clinical
trial and product liability insurance and will seek to maintain and
appropriately increase such insurance coverage as development and
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RISK FACTORS
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commercialization of our products increases. However, insurance may not be
available at a reasonable cost or in sufficient amounts to protect us from all
liability claims. The obligation to pay any product liability claim in excess of
our insurance coverage or the recall of any of our products could adversely
impact our financial condition.
WE HAVE LIMITED COMMERCIAL MANUFACTURING CAPABILITY AND EXPERIENCE, AND WE MAY
ENCOUNTER MANUFACTURING PROBLEMS OR DELAYS THAT COULD RESULT IN LOWER REVENUE.
The only product that we have produced in commercial quantities is Surodex, of
which we have produced limited quantities for sale in Mexico and Singapore. We
may not be able to maintain acceptable quality standards while producing
commercial quantities of Surodex and other products for new markets as required
under FDA Good Manufacturing Practices, or GMP. To achieve production levels
necessary for successful commercialization of our products, we will need to
scale-up our manufacturing facilities and maintain adequate levels of inventory.
We may not be able to manufacture sufficient quantities to meet market demand
for our products. If we cannot achieve the required level and quality of
production, we may need to outsource production or rely on licensing and other
arrangements with third parties. This could reduce our gross margins and expose
us to the risks inherent in relying on others. We may not be able to
successfully outsource our production or enter into licensing or other
arrangements with these third parties, which could adversely affect our
business.
In addition, we currently have only two facilities capable of manufacturing our
products, one in the United States and one in Singapore. In the event that one
or both of these facilities is damaged by natural disaster or otherwise, or a
facility becomes incapable of operating at commercial capacity, or at all, due
to regulatory or other reasons, our ability to produce our products would be
significantly reduced, which would have a material adverse affect on our
business.
WE HAVE A LIMITED SALES FORCE AND LIMITED EXPERIENCE IN COMMERCIALIZING OUR
PRODUCTS, WHICH MAY CAUSE SIGNIFICANT DIFFICULTIES IN COMMERCIALIZING OUR
PRODUCTS.
If certain of our products are approved for commercial sale in the United
States, we plan to establish a direct sales force to market at least some of
those products in the United States. Our direct sales force may not be
sufficiently large or knowledgeable to successfully penetrate the market, and we
may not be able to expand our direct sales force to meet our commercial
objectives. In addition, our sales force may not be able to address complex
scientific and technical issues raised by our customers. Similarly, our customer
support personnel also may lack the broad range of technical expertise required
to adequately service and support our products in the marketplace. If our direct
sales force is unable to successfully market our products, our financial
condition will be harmed.
THE UNCERTAINTY OF PATENT AND PROPRIETY TECHNOLOGY PROTECTION MAY ADVERSELY
AFFECT US.
Our commercial success will depend in part on obtaining and maintaining patent
protection on our products and, if necessary, successfully defending these
patents against third-party challenges. The patent positions of pharmaceutical
and biotechnology companies can be highly uncertain and involve complex legal
and factual questions. There is a substantial amount of litigation in the
biotechnology and pharmaceutical industry with respect to the manufacture, use
and sale of new therapeutic products that are the subject of conflicting patent
rights. No consistent policy regarding the breadth of claims allowed in
biotechnology patents has emerged to date. Moreover, the patent laws of foreign
countries differ from those of the United States and therefore the degree of
protection afforded by foreign patents may be different. It is possible that
patent applications relating to products and technologies we develop may not
result in patents being issued or, even if the patents are issued, that we will
have a
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- --------------------------------------------------------------------------------
competitive advantage or will gain protection against competitors. We cannot
ensure that others will not independently develop similar or alternative
technologies or duplicate any of our technologies. In addition, there is a
substantial backlog of biotechnology patent applications at the US Patent and
Trademark Office, and the approval or rejection of patent applications may take
several years. The degree of future protection for our proprietary rights is
uncertain. We cannot ensure that any of our pending patent applications will
result in issued patents, that any patents issued to us or our collaborators
will withstand challenges from third parties or that we will develop additional
proprietary technologies that are patentable.
The degree of future protection for our proprietary rights is uncertain, and we
cannot ensure you that:
- - we were the first to make the inventions covered by each of patents or our
pending patent applications;
- - we were the first to file patent applications for these inventions;
- - any of our pending patent applications will result in patents being issued;
- - any patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with competitive advantages
or will not be challenged by third parties;
- - we will develop additional proprietary technologies that are patentable; or
- - the patents of others will not have an adverse effect on our business.
Others may have filed and in the future may file patent applications covering an
intraocular drug delivery system and its uses and other products in our
development program. We cannot be certain that any third party has not filed and
will not obtain a US patent claiming compounds or drugs or the use of products
for the treatment of indications for which we are developing our drugs. If a
third party were issued a patent that blocked our ability to commercialize
products incorporating our intraocular drug delivery system for any of the
indications we are targeting, a legal action could result. If we are unable to
resolve legal action brought against us on terms favorable to us, our business
and results of operations could be materially adversely affected.
OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING UPON
OR MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.
Our success will depend, in part, on our ability to operate without infringing
on or misappropriating the proprietary rights of others. There can be no
assurance that our activities, or those of our licensors, will not infringe
patents owned by others. We could face legal actions seeking damages and seeking
to enjoin clinical testing, manufacturing and marketing of our alleged
infringing product. This type of litigation could consume a substantial portion
of our resources, and if there was an adverse outcome, our business would be
harmed. As the biotechnology and pharmaceutical industries expand, more patents
are issued, and consequently, more of our products could implicate patent
infringement claims. In the event that any claims of third-party patents are
upheld as valid and enforceable with respect to our products, we could be
prevented from practicing the subject matter claimed in such patents or could be
required to obtain licenses or redesign our products. As a result, we would be
liable to pay damages that may exceed our resources. We cannot be assured that
licenses would be available or, if available, would be on commercially
reasonable terms, or that we would be successful in any attempt to redesign our
products to avoid infringement.
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THE RIGHTS WE RELY UPON TO PROTECT OUR TRADE SECRETS MAY NOT BE ADEQUATE,
ENABLING THIRD PARTIES TO USE OUR TECHNOLOGY.
We rely on trade secrets to protect our technology where we believe patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require employees, academic collaborators and
consultants to enter into confidentiality agreements, which generally provide
that proprietary information developed or inventions conceived during the
relationship shall be our exclusive property, we may not be able to adequately
protect our trade secrets or other proprietary information. In addition, in some
situations, these agreements may conflict with, or be subject to, the rights of
third parties with whom our employees, consultants or advisors have prior
employment or consulting relationships. Further, others may independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets.
IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS COULD BE HARMED.
We have adopted an aggressive growth plan that includes substantial and
increased investments in research and development and investments in facilities
that will be required to support growth. This rapid growth and increased scope
of operations presents a number of risks, including a higher level of operating
expenses, complexities associated with managing a larger and faster growing
organization and unanticipated and substantial costs and time delays, any and
all of which could adversely affect our business. Demands placed on our clinical
staff have been increasing and are expected to continue to increase as a result
of later-stage clinical trials of products in development. There can be no
assurance that we will be able to effectively oversee and monitor clinical
trials of multiple products. Our inability to manage effectively multiple
concurrent clinical trials could result in increased cost or delays of our
clinical trials.
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS WILL DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR
BUSINESS DEVELOPMENT EFFORTS.
We have only 59 employees, and our success will depend, in part, on retaining
the services of our existing management and key personnel. We are highly
dependent on our current management and key scientific and technical personnel,
including Donald J. Eaton, Chairman of our board of directors and Chief
Executive Officer, Jerry B. Gin, President, and Vernon G. Wong, Chief Scientific
Officer, as well as the other principal members of our management. In addition,
we will need to hire additional personnel and develop additional collaborations
as we continue to expand our research and development activities. Competition
for personnel and academic collaborations is intense, particularly in the San
Francisco Bay area. We do not know if we will be able to attract, retain or
motivate personnel or cultivate collaborations. Our inability to do so or to
cultivate collaborations would harm our business and hinder the planned
expansion of our business.
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO SUCCESSFULLY EXECUTE OUR BUSINESS PLAN.
We believe that the net proceeds from this offering, existing cash, investment
securities and cash flow from sales of Surodex in foreign markets will be
sufficient to meet our capital requirements through at least the end of 2001.
However, we also expect that our capital outlays and operating expenditures will
substantially increase over the next several years as we expand our
infrastructure and research and development activities. We may need to spend
more money than currently expected because we may need to change our product
development plans or product offerings to address difficulties with clinical
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RISK FACTORS
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studies or to prepare for commercial sales of new products. We have no committed
sources of capital and do not know whether additional financing will be
available when needed, or, if available, that the terms will be favorable to our
stockholders or us. If additional funds are not available, we may be forced to
delay or terminate clinical trials, curtail operations or obtain funds through
collaborative and licensing arrangements that may require us to relinquish
commercial rights or potential markets or grant licenses on terms that are not
favorable to us. For example, if adequate funds and resources are not available,
we may be required to relinquish marketing and distribution rights for our back
of the eye products and markets. This could materially adversely affect our
business and prospects.
WE USE STANDARD LABORATORY AND MANUFACTURING MATERIALS THAT COULD BE CONSIDERED
HAZARDOUS.
Whereas our products do not incorporate any hazardous or toxic materials or
chemicals, our operations involve the use of standard laboratory and
manufacturing materials that could be considered hazardous. Although we believe
that our safety procedures for handling and disposing of such materials comply
with all federal and state regulations and standards, the risk of accidental
contamination or injury from such materials cannot be entirely eliminated. In
the event of an accident involving such materials, we could be liable for any
damage and such liability could exceed the amount of our liability insurance
coverage and the resources of our business.
RISKS RELATED TO THIS OFFERING
IF OUR OFFICERS, DIRECTORS AND LARGEST STOCKHOLDERS CHOOSE TO ACT TOGETHER, THEY
MAY BE ABLE TO CONTROL OUR MANAGEMENT AND OPERATIONS, ACTING IN THEIR BEST
INTERESTS AND NOT NECESSARILY THOSE OF OTHER STOCKHOLDERS.
Following completion of this offering, our directors, executive officers and
principal stockholders and their affiliates will beneficially own approximately
% of our common stock. Accordingly, they collectively may have the ability
to determine the election of all of our directors and the outcome of most
corporate actions requiring stockholder approval. They may exercise this ability
in a manner that advances their best interests and not necessarily those of
other stockholders.
THIS OFFERING WILL CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price of our common stock is expected to be
substantially higher than the net tangible book value per share of our common
stock. Therefore, if you purchase shares of our common stock in this offering,
you will incur immediate and substantial dilution of approximately $ in
the pro forma net tangible book value per share of common stock from the share
price that you pay for the common stock (based upon an assumed initial offering
price of $ per share). If the holders of outstanding options or warrants
exercise those options or warrants at prices below the initial offering price,
you will incur further dilution.
OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
Prior to this offering, there has been no public market for our common stock,
and an active public market for our common stock may not develop or be sustained
after this offering. You may not be able to sell your stock quickly or at the
market price if trading in our stock is not active. The initial public offering
price of our common stock will be determined by negotiations between the
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RISK FACTORS
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representatives of the underwriters and us and may not be indicative of future
market prices. The following factors will be among those considered in
determining the initial public offering price of our common stock:
- - clinical trial data;
- - prevailing market conditions; and
- - estimates of our business potential and earnings prospects.
If the market price of our common stock after this offering does not exceed the
initial public offering price, you may not realize any return on your investment
in us and may lose some or all of your investment.
The market prices for securities of biotechnology and pharmaceutical companies
in general have been highly volatile and may continue to be highly volatile in
the future. The following factors, in addition to other risk factors described
in this section, may have a significant impact on the market price of our common
stock:
- - results, or the perceived results, of our clinical trials by us or our
competitors;
- - announcements of technological innovations or new commercial products by our
competitors or us;
- - changes in existing or potential corporate partnerships or licensing
agreements;
- - regulatory developments in the United States and foreign countries;
- - changes in estimates of our performance by securities analysts;
- - developments concerning our patents or other proprietary rights or those of
our existing or potential competitors;
- - publicity regarding actual or potential medical results relating to products
under development by our competitors or us;
- - period-to-period fluctuations in financial results; and
- - actual or threatened litigation.
SUBSTANTIAL SALES OF SHARES MAY IMPACT THE MARKET PRICE OF OUR COMMON STOCK.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, the market price of our
common stock may decline. These sales also might make it more difficult for us
to sell equity or equity-related securities in the future at a time and price
that we deem appropriate. We are unable to predict the effect that sales may
have on the then prevailing market price of our common stock. After completion
of this offering, we will have outstanding [ ] shares of common stock,
assuming no exercise of outstanding options after March 31, 2000 and no exercise
of the underwriters' over-allotment option. Of these shares, the shares
sold in this offering will be freely tradeable without restriction or further
regulation, other than shares purchased by our officers, directors or other
"affiliates" within the meaning of Rule 144 under the Securities Act of 1933.
The remaining 15,095,044 shares of common stock held by existing stockholders
may not be sold publicly unless they are registered under the Securities Act or
are sold pursuant to Rule 144 or another
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RISK FACTORS
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exemption from registration. These shares will become eligible for public resale
at various times over a period of less than one year following the completion of
this offering, subject to volume limitations. The holders of 8,628,258 shares of
common stock are entitled to registration rights.
After this offering, we intend to register approximately 4.7 million shares of
our common stock which are reserved for issuance upon exercise of options
granted under our stock option plans. Once we register these shares, they can be
sold in the public market upon issuance, subject to restrictions under the
securities laws applicable to resales by affiliates. See "Shares eligible for
future sale."
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS, DELAWARE LAW AND CHANGE OF
CONTROL CLAUSES IN SOME OF OUR EXECUTIVES' OPTIONS CONTAIN PROVISIONS THAT COULD
DISCOURAGE A THIRD PARTY FROM ACQUIRING US, WHICH MAY BE BENEFICIAL TO OUR
STOCKHOLDERS.
Provisions of our amended and restated certificate of incorporation and bylaws,
as well as certain provisions of Delaware law to which we are subject, could
make it more difficult for a third party to acquire us, even if doing so would
benefit our stockholders. These provisions:
- - authorize the issuance of "blank check" preferred stock that could be issued
by our board of directors to increase the number of outstanding shares and
could include voting, liquidation, dividend and other rights superior to
those of our common stock and could adversely affect the rights of common
stockholders and hinder a takeover attempt;
- - limit who may call a special meeting of stockholders;
- - prohibit stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
- - establish advance notice requirements for nominations for election to our
board of directors or for proposing matters that can be acted upon at
stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law, which
prohibits business combinations between us and one or more of our significant
stockholders unless specified conditions are met, may discourage, delay or
prevent a third party from acquiring us.
The options issued to Donald J. Eaton, our Chief Executive Officer, Douglas
Hawkins, our Chief Financial Officer, and Michael Nash, our Executive Vice
President of Sales and Marketing, include a provision which provides that if we
experience a change of control and their employment is terminated without cause
following the change of control, or if their employment responsibilities are
materially reduced or altered following a change of control, or their place of
employment is moved more than 50 miles, then all of their unvested options are
immediately vested. This could discourage a third party from acquiring us.
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FORWARD-LOOKING INFORMATION
Some of the statements under "Prospectus summary," "Risk factors," "Management's
discussion and analysis of financial condition and results of operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. These statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from those expressed or
implied by any forward-looking statements. Some of these factors are listed
under "Risk factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "intends," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of those statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus to conform them to actual results.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common stock
that we are offering will be approximately $ million at an assumed initial
public offering price of $ per share after deducting estimated underwriting
discounts and commissions and estimated offering expenses. If the underwriters'
over-allotment option is exercised in full, we estimate that the net proceeds
will be approximately $ million.
We currently intend to use the net proceeds to fund our operations, including
continued clinical development and commercialization of existing products as
well as research and development of additional products. In addition, we also
intend to use a portion of the net proceeds to hire additional personnel and
expand our facilities to be able to meet the growing needs of our business.
Although we have no current plans, agreements or commitments with respect to any
acquisition, we may, in the future, use a portion of the net proceeds to acquire
or invest in products, technologies or companies. We intend to use the balance
of the net proceeds for general corporate purposes, including working capital.
Our management may spend the proceeds from this offering in ways that our
stockholders may not deem desirable.
The timing and amount of our expenditures will be based on many factors,
including cash flows from operations and the growth of our business.
Until we use the net proceeds of this offering for the above purposes, we intend
to invest the funds in short-term, investment grade, interest-bearing
securities. We cannot predict whether the proceeds invested will yield a
favorable return.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain any earnings to support operations and to finance
the growth and development of our business. Therefore, we do not expect to pay
cash dividends in the foreseeable future. Any future determination relating to
our dividend policy will be made at the discretion of our board of directors and
will depend on a number of factors, including future earnings, capital
requirements, financial conditions and future prospects and other factors our
board of directors may deem relevant.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- - on an actual basis;
- - on a pro forma basis to give effect to the conversion of all shares of our
convertible preferred stock outstanding as of December 31, 1999 and the
convertible loan into shares of common stock upon the closing of this
offering; and
- - on a pro forma as adjusted basis to give effect to the conversion of our
preferred stock and the convertible loan into common stock and the receipt
of the estimated net proceeds from the sale of shares of common stock
offered by this prospectus at an assumed initial public offering price of
$ per share.
<TABLE>
<CAPTION>
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
(In thousands, except share amounts)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Convertible loan............................................ $2,777 $-- $--
Long-term capital lease obligations and other long-term
liabilities............................................... 429 429 429
Shareholders' equity:
Preferred stock, no par value; 11,000,000 shares
authorized, actual; 5,000,000 shares authorized, pro
forma and pro forma as adjusted; 6,926,174 shares issued
and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted......... 20,989 -- --
Common stock, no par value; 20,000,000 shares authorized,
actual; 75,000,000 shares authorized, pro forma and pro
forma as adjusted; 3,966,522 shares issued and
outstanding, actual; 12,175,400 share issued and
outstanding pro forma; issued and outstanding,
pro forma as adjusted.................................... 1,714 25,480
Deferred compensation related to stock options.............. (749) (749) (749)
Notes receivable from shareholders.......................... (300) (300) (300)
Accumulated other comprehensive income (loss)............... (45) (45) (45)
Accumulated deficit......................................... (21,133) (21,133) (21,133)
----------- ----------- -----------
Total shareholders' equity.................................. 476 3,253
----------- ----------- -----------
Total capitalization.................................... $3,682 $3,682
=========== =========== ===========
</TABLE>
The number of shares of common stock issued and outstanding as of December 31,
1999 excludes:
- - 1,580,370 and 2,343,191 shares of common stock issuable upon the exercise of
options at a weighted average exercise price of $0.41 and $0.84 per share at
December 31, 1999 and March 31, 2000, respectively;
- - 1,758,028 and 1,955,410 shares of common stock available for grant under our
2000 Equity Incentive Plan as of December 31, 1999 and March 31, 2000,
respectively;
- - 915,999 and 917,773 shares of common stock issuable upon the exercise of
warrants outstanding at a weighted average exercise price of $0.72 per share
as of December 31, 1999 and March 31, 2000, respectively;
- - 3,064,051 shares of common stock issuable upon conversion of 3,064,051
shares of Series D Preferred Stock issued in March 2000; and
- - 1,138,297 shares of common stock issued upon the exercise of options between
January 1, 2000 and March 31, 2000.
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DILUTION
Our historical net tangible book value as of December 31, 1999 was approximately
$0.5 million, or $0.12 per share, based on the number of common shares
outstanding as of December 31, 1999. Historical net tangible book value per
share is equal to the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding as of
December 31, 1999.
Our pro forma net tangible book value as of December 31, 1999 was approximately
$3.3 million, or $0.27 per share, based on the pro forma number of shares
outstanding as of December 31, 1999 of 12,175,400, calculated after giving
effect to the automatic conversion of 6,926,174 shares of our preferred stock
outstanding as of December 31, 1999 into 6,926,174 shares of our common stock
and the conversion of the convertible loan of $2,777,486 into 1,282,704 shares
of our common stock.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately afterwards, after giving effect to the sale of
shares in this offering. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............. $
Historical net tangible book value per share as of
December 31, 1999........................................ $ 0.12
Increase attributable to conversion of preferred stock and
the convertible loan..................................... 0.15
-------
Pro forma net tangible book value per share as of
December 31, 1999........................................ 0.27
Increase attributable to the offering.....................
-------
Net tangible book value per share after the offering........
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1999,
after giving effect to this offering, the total number of shares of common stock
purchased from us and the total consideration and the average price per share
paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...................... 10,892,696 % $21,513,048 % $1.97
New investors.............................. % % $
----------- -------- ------------ --------
Total.................................. 100.0% $ 100%
=========== ======== ============ ========
</TABLE>
The table and calculations above assume no exercise of the outstanding options
or warrants described below:
- - 1,580,370 and 2,343,191 shares issuable upon exercise of options outstanding
at a weighted average exercise price of $0.41 and $0.84 per share at
December 31, 1999 and March 31, 2000, respectively;
- - 915,999 and 917,773 shares issuable upon the exercise of warrants
outstanding at a weighted average exercise price of $0.72 per share at
December 31, 1999 and March 31, 2000, respectively; and
- --------------------------------------------------------------------------------
21
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
- - 1,758,028 and 1,955,410 shares of common stock available for future grant
under our 2000 Equity Incentive Plan at December 31, 1999 and March 31,
2000, respectively; and
- - 400,000 additional shares available for future purchase under our 2000
Employee Stock Purchase Plan.
To the extent that these options or warrants are exercised, there will be
further dilution to new investors. See "Management--Employee benefit plans" for
further information regarding our stock option plan and stock purchase plan.
If the underwriters exercise their over-allotment option in full, the following
will occur:
- - the percentage of shares of our common stock held by existing stockholders
will decrease to approximately % of the total number of shares of our
common stock outstanding after this offering;
- - the number of shares of our common stock held by new public investors will
increase to , or approximately % of the total number of shares
of our common stock outstanding after this offering; and
- - our pro forma net tangible book value will increase to $ per share to
existing stockholders and our pro forma net tangible book value will be
diluted by $ per share to new investors.
- --------------------------------------------------------------------------------
22
<PAGE>
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the notes to such statements and
"Management's discussion and analysis of financial condition and results of
operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 1997, 1998 and 1999, and the
consolidated balance sheet data as of December 31, 1998 and 1999, are derived
from our consolidated financial statements, which have been audited by Ernst &
Young LLP, independent auditors, and are included elsewhere in this prospectus.
The consolidated statement of operations data for the years ended December 31,
1995 and 1996 and the consolidated balance sheet data as of December 31, 1995,
1996 and 1997 are derived from audited consolidated financial statements not
included in this prospectus. Historical results are not necessarily indicative
of the results to be expected in the future.
The 1999 pro forma net loss per share and shares used in computing pro forma net
loss per share give effect to (i) all of our convertible preferred stock being
converted into shares of our common stock on the date of their issuance and
(ii) the conversion of our convertible loan into the weighted average number of
shares of common stock into which the loan was convertible during the period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales............................................. $-- $-- $-- $-- $21
Grants.................................................... -- 139 39 131 206
Contracts................................................. -- -- 215 15 15
------ ------ ------ ------ ------
Total revenue........................................... -- 139 254 146 242
Costs and expenses:
Cost of product sales..................................... -- -- -- -- 35
Research and development.................................. 838 1,779 2,924 5,527 5,717
Selling, general and administrative....................... 34 630 885 963 1,432
Amortization of deferred compensation..................... -- -- -- -- 295
------ ------ ------ ------ ------
Total costs and expenses................................ 872 2,409 3,809 6,490 7,479
------ ------ ------ ------ ------
Loss from operations........................................ (872) (2,270) (3,555) (6,344) (7,237)
Interest income............................................. 24 108 418 611 297
Interest expense............................................ -- (217) (189) (236) (239)
------ ------ ------ ------ ------
Net loss.................................................... (848) (2,379) (3,326) (5,969) (7,179)
====== ====== ====== ====== ======
Basic and diluted net loss per share........................ $(0.22) $(0.62) $(0.86) $(1.53) $(1.82)
====== ====== ====== ====== ======
Weighted average shares used in computing basic and diluted
net loss per share........................................ 3,833 3,865 3,868 3,911 3,941
Basic and diluted pro forma net loss per
share (unaudited)......................................... $(0.59)
======
Weighted average shares used in computing basic and diluted
pro forma net loss per share (unaudited).................. 12,113
======
</TABLE>
- --------------------------------------------------------------------------------
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995 1996 1997 1998 1999
BALANCE SHEET DATA
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments.............................. $1,648 $5,206 $10,563 $9,319 $2,724
Working capital (deficiency)............... 1,444 5,011 10,365 8,933 (591)
Total assets............................... 1,875 6,197 11,982 10,836 4,539
Long-term debt and capital lease
obligations, less current portion........ 2,062 2,306 2,569 2,757 70
Total shareholders' equity (deficit)....... (404) 3,542 8,807 7,203 476
</TABLE>
- --------------------------------------------------------------------------------
24
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with our Financial Statements and Notes thereto
and other financial information included elsewhere in this prospectus. Except
for the historical information herein, the following discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results and the timing of certain events could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk factors" and elsewhere
in this prospectus.
Since our inception, we have been engaged in the development of ophthalmic drugs
and drug delivery systems. As of December 31, 1999, we had an accumulated
deficit of $21.1 million. We have not been profitable since inception and expect
to incur additional operating losses over the next several years as our research
and development efforts, preclinical and clinical testing activities, marketing
and manufacturing scale-up efforts expand. Our sources of working capital have
been equity and debt financings, equipment lease financings, government grants,
contract research funding and interest earned on investments.
In December 1995, we established our wholly-owned Singapore subsidiary, Oculex
Asia Pharmaceuticals Pte Ltd, or Oculex Asia, as a clinical, regulatory,
marketing and manufacturing presence in Asia. In February 1996, Oculex Asia was
approved to commence clinical trials in Singapore for Surodex. In July 1999, the
Singapore Ministry of Health awarded market approval for Surodex, which was
launched during the third quarter of 1999. Also, during 1999 Oculex Asia
established a manufacturing facility for Surodex and Suroquin. Through this
facility it supplies product distribution requirements for both Mexico and
Singapore, as well as those required for clinical evaluations by certain other
Asian, Central American and South American jurisdictions. Since 1996, Oculex
Asia has been reimbursed by Singapore's National Science & Technology Board, or
NSTB for 40% of its research and development expenditures. This NSTB
reimbursement program is expected to continue through March 31, 2001.
To date, we have not had any material product sales and do not anticipate
receiving significant revenues from product sales in 2000. Our revenues to date
have been primarily generated through grants and contract revenue for meeting
milestones. The timing and realization of revenues in the future are uncertain
and dependent on a number of factors, many of which are beyond our control,
including: obtaining regulatory approval to market our products in the United
States and other foreign jurisdictions; success of our partners and distributors
in developing and marketing products based on our technology; and entering into
new collaborative agreements and alliances with third parties.
We expect to market and sell Surodex and our other products for the front of the
eye primarily through sales and marketing alliances with third parties. Our
existing agreements with distributors and other third party sales and marketing
partners provide for per units transfer prices and, in the case of our agreement
with Bausch & Lomb, we may also receive royalty payments based on the sale of
our products. We expect to market our products intended for the back of the eye
through a direct sales force in the United States, Canada and Europe.
Our expenses have consisted primarily of costs incurred in research and
development, manufacturing scale-up and business development and from general
and administrative costs associated with our operations. We expect our research
and development expenses to increase in the future as we continue to develop our
products.
- --------------------------------------------------------------------------------
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Our selling, general and administrative expenses consist primarily of
compensation and related costs for sales and marketing personnel, management,
financing and accounting personnel, professional services and related fees,
occupancy costs and other expenses. We expect our selling, general and
administrative expenses to increase as we hire new personnel, expand our
existing facilities to address any growth that we may experience, and incur
costs related to the anticipated growth in our business and cost of operating as
a public company.
We have a limited history of operations. We anticipate that our quarterly
results of operations will fluctuate for the foreseeable future due to several
factors, including market evaluation and acceptance of current or new products,
which may result in a lengthy sales cycle, patent conflicts, the introduction of
new products by our competitors, the timing and extent of our research and
development efforts, and the timing of significant orders. Our limited operating
history makes accurate predictions of future operations difficult or impossible.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
Total revenues for 1999 were $242,000 compared to $146,000 in 1998. This
increase is attributable to initial product sales of Surodex in Mexico and
Singapore of $21,000 and a $75,000 increase in grants from Singapore's NSTB. In
both 1999 and 1998 we recognized $15,000 of contract revenues related to the
amortization of our Bausch & Lomb license fee of $150,000 received in
April 1997.
COST OF PRODUCT SALES
Cost of product sales was $35,000 in the year ended December 31, 1999. These
costs exceeded the product sales due to initial one-time manufacturing set up
costs and initial low sales volume. We expect our future cost of product sales
to be less than related product sales.
RESEARCH AND DEVELOPMENT EXPENSES
The level of research and development expenses remained relatively constant
between 1998 and 1999, increasing by $190,000 in 1999 from $5.5 million in 1998.
These expenses include salaries and related costs of research and development
personnel as well as the cost of consultants, supplies and clinical trials
associated with research and development projects. The level of clinical
activity in 1999 was similar to that of 1998 and accounts for the modest
increase in research and development expenses in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $1.4 million in 1999
from $963,000 in 1998. These expenses consist primarily of salaries and related
costs for executive, sales and marketing, finance and other administrative
personnel as well as the costs of facilities, insurance, and legal support. The
increase in 1999 was primarily attributable to a $250,000 increase in our
consulting fees related to additional development of our operating and financing
strategies and a $63,000 increase in employee compensation costs.
AMORTIZATION OF DEFERRED COMPENSATION
Amortization of deferred compensation was $295,000 in 1999. Deferred stock
compensation represents the difference between the deemed fair value of our
common stock and the exercise price of options at the date of grant. These
deferred compensation amounts are being amortized using an
- --------------------------------------------------------------------------------
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
accelerated method over the vesting periods of the stock options, which are
typically five years. As a result of stock options granted in the first quarter
of 2000, we anticipate recording an additional deferred stock compensation
charge in the quarter ended March 31, 2000.
INTEREST INCOME
Interest income decreased to $297,000 in 1999 from $611,000 in 1998. Interest
income has been derived from earnings on cash and cash equivalents and
short-term investments. The reduction in interest income in 1999 was
attributable to lower average cash and investment balances compared to 1998.
INTEREST EXPENSE
The interest expense for 1999 was $239,000, relatively unchanged compared to
$236,000 in 1998.
INCOME TAXES
We incurred operating losses and accordingly did not record a provision for
income taxes for any of the periods presented. As of December 31, 1999, we had
federal and state net operating loss carryforwards of approximately $10.1
million and $2.0 million, respectively. In addition, we had federal and
California research and development tax credit carryforwards of approximately
$500,000 and $300,000, respectively. These net operating loss carryforwards and
credits will expire at various dates beginning in 2000 through 2019, if not
utilized.
Utilization of the net operating loss carryforwards may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating loss
carryforwards before utilization.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
Total revenues were $146,000 in 1998 compared to $254,000 in 1997. In both 1998
and 1997 we recognized $15,000 of contract revenues related to the amortization
of our Bausch & Lomb license fee of $150,000 received in April 1997. In 1997, we
earned a $200,000 milestone under the Bausch & Lomb agreement for completion of
Phase II clinical trials of Surodex. No milestones were earned in 1998. This
reduction in 1998 contract revenues was partially offset by a $92,000 increase
in grants from Singapore's NSTB.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $5.5 million in 1998 from
$2.9 million in 1997. The increase in 1998 was primarily attributable to an
additional $1.4 million of consulting, outside services and clinical trial costs
related to continued advancement of Surodex towards marketing approval and an
additional $771,000 for employee compensation costs to support this and other
product development efforts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $963,000 in 1998 from
$885,000 in 1997. The increase in 1998 reflects higher levels of
personnel-related costs to support increased development activities.
- --------------------------------------------------------------------------------
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
INTEREST INCOME
Interest income increased in 1998 to $611,000 from $418,000 in 1997. The
increase was attributable to the higher average level of cash and cash
equivalent and short-term investment balances in 1998 compared to 1997. During
the period from December 1997 through June 1998 we raised approximately
$7.0 million through the issuance of 1,328,296 shares of Series C Preferred
Stock.
INTEREST EXPENSE
Interest expense increased to $236,000 in 1998 from $189,000 in 1997 principally
as a result of higher average balances due under our long-term debt and capital
lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through equity and
debt financings, equipment lease financings, government grants, contract
research funding and interest earned on investments. As of March 31, 2000 we had
received approximately $37.3 million in net proceeds from the sale of our
capital stock.
PREFERRED STOCK TRANSACTIONS
<TABLE>
<CAPTION>
NO. OF
YEAR SHARES AMOUNT
ISSUE (dollar amounts in millions)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock, Series A................................... 1992-1993 333,000 $0.6 million
Preferred Stock, Series B................................... 1993-1997 5,267,878 $13.4 million
Preferred Stock, Series C................................... 1997-1998 1,328,296 $7.0 million
Preferred Stock, Series D................................... 2000 3,064,051 $15.8 million
</TABLE>
Each share of Series A, B, C and D Preferred Stock is convertible into one share
of our common stock.
At December 31, 1999, cash and cash equivalents and short-term investments were
$2.7 million compared to $9.3 million at December 31, 1998.
Cash used in operating activities was $6.2 million in the year ended
December 31, 1999 compared with $5.7 million used in the year ended
December 31, 1998. The net loss for 1999 of $7.2 million was partially offset by
non-cash charges for depreciation and amortization of deferred compensation of
$695,000 and an increase in accrued interest on our convertible loan of
$207,000.
Cash provided by investing activities was $5.7 million in 1999 compared to
$1.2 million in 1998. In 1999, net proceeds from the maturities and purchases of
short-term investments were $6.0 million compared to $1.4 million of net
proceeds in 1998. Purchases of property and equipment were $333,000 in 1999
compared to $224,000 in 1998.
Cash used in financing activities was $136,000 in 1999 compared to $4.3 million
provided by financing activities in 1998. In 1998, we raised approximately
$4.4 million through the issuance of 843,534 shares of our Series C Preferred
Stock. No preferred stock financings occurred in 1999.
On March 22, 2000, we raised approximately $15.8 million through the issuance of
3,064,051 shares of our Series D Preferred Stock. In connection with the sale of
Series D Preferred Stock, we will record a non-cash charge for the three months
ended March 31, 2000 to accrete the value of the Series D Preferred Stock to its
deemed fair value under applicable accounting rules. This non-cash charge will
be recorded as an increase in accumulated deficit with a corresponding credit to
preferred stock.
- --------------------------------------------------------------------------------
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
The development of our technology and proposed products will require a
commitment of substantial funds to conduct the costly and time-consuming
research and preclinical and clinical testing activities necessary to develop
and refine such technology and proposed products and to bring any such products
to market. Our future capital requirements will depend on many factors,
including the following:
- - the time and costs involved in obtaining regulatory approvals;
- - continued progress and the results of the research and development of our
technology and drug delivery systems;
- - our ability to establish and maintain favorable collaborative arrangements
with others;
- - progress with and results of preclinical studies and clinical trials;
- - the cost of development and the rate of scale-up of our production
technologies;
- - the cost involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims; and
- - the need to acquire licenses or other rights to new technology.
We believe our existing cash and cash equivalents, together with the net
proceeds of the offering, will be sufficient to fund our operating expenses and
capital equipment requirements through at least December 2001.
We do not have a credit facility or other committed sources of capital. To the
extent our capital resources are insufficient to meet future capital
requirements, we will need to raise additional capital or incur indebtedness to
fund our operations. Additional debt or equity financing may not be available on
acceptable terms, or at all. If adequate funds are not available to us when
needed on acceptable terms, we may be required to delay, reduce the scope of, or
eliminate our research and development programs, reduce our commercialization
efforts, forego future opportunities, and we may be unable to respond to
competitive pressures or unanticipated requirements. Further, in order to raise
additional funds, we may need to enter into arrangements with others that may
require us to relinquish rights to certain technologies or products that we
might otherwise seek to develop or commercialize.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, or SFAS 133. SFAS 133 requires us 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 the fair value
of the assets, liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
Any ineffective portion of the derivative's change in fair value will be
immediately recognized in earnings. SFAS 133 is effective for years beginning
after June 15, 2000. We do not currently hold any derivatives and do not expect
this pronouncement to materially impact the results of operations.
In March 1999, the FASB issued an exposure draft entitled ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION, which is a proposed interpretation of
APB Opinion No. 25 that has an effective date for certain transactions of
December 15, 1998. However, the exposure draft has not been finalized. Once
finalized and issued, the current accounting practices for transactions
involving stock compensation may need to change and such changes could effect
our future earnings.
- --------------------------------------------------------------------------------
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. The application of SAB No. 101 is not expected to have a
material impact on our financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Most of our cash equivalents and capital lease obligations are at fixed interest
rates; therefore, the fair value of these investments is affected by changes in
the market interest rates. However, because our investment portfolio is
primarily comprised of investments in money market funds, an immediate 10%
change in market rates would not have a material effect on the fair market value
of our portfolio. Therefore, we would not expect our operating results or cash
flows to be affected by any significant degree by the effect of a sudden change
in market interest rates on our investment portfolio. As our international
operations have been minimal to date, we believe that we have no material
exposure to foreign exchange rate fluctuations. We do not believe that inflation
has had a material adverse impact on our business or operating results during
the periods presented.
- --------------------------------------------------------------------------------
30
<PAGE>
- --------------------------------------------------------------------------------
BUSINESS
OVERVIEW
We are a leading ophthalmic drug delivery company that has created a novel
technology platform to enable the treatment of major diseases and conditions
that occur inside the eye. Our proprietary drug delivery system, DDS, is the
first biodegradable, sustained release system designed to deliver drugs directly
into the interior of the eye. We are applying our DDS technology to develop our
own proprietary brand name products, using existing generic and third-party
compounds. We are focused on developing products for the treatment of major
sight-threatening eye diseases and conditions where effective treatment is
currently unavailable. In addition, we target eye conditions where we believe
our DDS technology offers superior treatment to existing drug delivery methods
such as eye drops or injections, which are inefficient and cumbersome.
Our drugs target major eye diseases and conditions where effective treatment is
currently unavailable. In addition, we target eye conditions where we believe
our DDS technology offers superior treatment to existing drug delivery methods,
such as eye drops or injections, that are inefficient and cumbersome. Our first
product, Surodex, has completed Phase III clinical trials in the United States.
We have entered into a marketing alliance with Bausch & Lomb for the
commercialization of Surodex in the United States and Europe following
regulatory approvals. In addition to the development of our own products, we are
pursuing research collaborations with several of the world's leading ophthalmic
companies. Recently, we entered into a strategic research alliance with
Allergan, Inc. to formulate up to five of Allergan's proprietary compounds with
our DDS technology.
Today, drug delivery to the inside of the eye is problematic and continues to be
one of the greatest challenges for ophthalmic drug manufacturers. The standard
therapy for treating eye diseases and conditions is to deliver drugs through eye
drops. Eye drops currently account for approximately 95% of the worldwide sales
of ophthalmic pharmaceuticals. Eye drop therapy is generally characterized by
inefficient penetration into the front of the eye and virtually no penetration
into the back of the eye. In addition, other existing drug therapies provide
little or no therapeutic value to the back of the eye, leaving many serious
diseases and conditions ineffectively treated. We believe this is an unmet
medical need illustrated by the fact that, while 40% of all eye diseases and
conditions occur in back of the eye, only 5% of ophthalmic pharmaceutical sales
come from drugs designed to treat such diseases and conditions.
We believe that our DDS technology will provide the basis for the next
generation of treatment of diseases and conditions affecting the eye. Our two
lead products, Surodex and Posurdex, are designed to treat inflammatory
conditions within the eye. The active ingredient in both lead products is
dexamethasone, one of the most potent and widely used steroids for treating a
variety of inflammatory conditions. The problem within the eye is that the
natural inflammatory response, unless properly controlled, can cause serious eye
problems or diseases. By focusing our initial development efforts on the
treatment of inflammation, we believe that our lead products will have very
broad applicability.
- - Surodex is designed to treat inflammation in the front of the eye following
cataract surgery. Cataract surgery is the most frequently performed surgery
in the United States, with over 2.3 million procedures performed annually.
Inflammation in the front of the eye occurs after every cataract surgery.
Current therapy consists of eye drops that need to be taken four to six
times per day for approximately one month. Surodex implanted within the eye
reduces inflammation in one
- --------------------------------------------------------------------------------
31
<PAGE>
BUSINESS
- --------------------------------------------------------------------------------
week to levels achieved by eye drops in one month. Surodex has been approved
for this indication in two foreign countries, where we have begun selling
the product. In the United States, we have completed our Phase III trials
and are currently preparing a new drug application, or NDA, filing.
- - Posurdex is designed to treat inflammation in the back of the eye. The
initial indication we are seeking is for the treatment of inflammation that
typically occurs after vitreal and retinal surgeries. It is estimated that
there are over 500,000 such surgical procedures in the United States each
year. We have secured an IND for Posurdex. In addition, we have obtained our
Phase I safety data through compassionate use applications and are currently
designing our Phase II clinical trials in the United States. Our early stage
clinical trials have demonstrated that Posurdex is effective at treating
inflammation in the back of the eye. In addition, we believe that Posurdex
may provide therapeutic value in treating certain major back of the eye
diseases and conditions that may be induced or exacerbated by the presence
of inflammation. We intend to market Posurdex directly to the specialized
group of approximately 2,000 ophthalmologists in the United States that
perform vitreal and retinal surgeries.
We have four additional product candidates in early-stage clinical development
which provide treatments for: glaucoma surgery, corneal transplant rejection,
cataract and glaucoma post-surgical infections, and back of the eye infections.
MARKET OPPORTUNITY FOR INTRAOCULAR DRUG DELIVERY
BACKGROUND
Today, the majority of all ophthalmic drugs are delivered in the form of eye
drops. While eye drop therapy is generally effective in treating diseases and
conditions on the surface of the eye, it is generally ineffective for treating
diseases and conditions in the back of the eye and effective only for some
diseases and conditions in the front of the eye. Despite these limitations and
the lack of any indication to treat conditions within the eye, ophthalmologists
routinely prescribe eye drops to treat such conditions given the absence of an
effective alternative therapy. To overcome the limitations of eye drops, a
number of leading ophthalmic companies have sought or are seeking to develop
effective drugs for diseases occurring in the back of the eye. The common
challenge for these companies is to deliver, and then maintain, a therapeutic
level of the active drug compound within the eye.
The inside of the eye is divided into two segments: the front part of the eye
and the back part of the eye. Currently, drugs are delivered to these segments
through one of four principal means:
- - topically, in the form of eye drops;
- - subconjunctivally, in the form of an injection under the eye's external
membrane;
- - systemically, through the body's circulatory system; or
- - through intraocular injection, in the form of an injection directly into the
eye.
Each of these drug delivery methods has significant limitations for treating
diseases and conditions within the interior of the eye.
TOPICAL DRUG DELIVERY
Because of the anatomy and circulatory process of the eye, only a very small
amount of the active compound of a drug administered through eye drops
penetrates into the front of the eye, and virtually none reaches the back of the
eye. This is true for two reasons. First, the cornea, that covers the front of
the eye, forms a natural barrier that makes penetration of drug molecules into
the front of the eye
- --------------------------------------------------------------------------------
32
<PAGE>
BUSINESS
- --------------------------------------------------------------------------------
difficult. Typically, less than 1% of a drug compound contained in eye drops
reaches the targeted area of the eye. Second, topical drug delivery is further
impaired by the constant dilution and drainage of the drug by tear flow over the
cornea. Even if the drug molecule penetrates the eye, it is diluted and washed
out, often very quickly, by the circulatory process that operates within the
eye.
SUBCONJUNCTIVAL INJECTION
Subconjunctival injection involves an injection under the conjunctiva, the outer
surface tissue covering the eye. This delivery method is sometimes used in an
attempt to overcome the drug penetration problem associated with eye drops.
However, even when drugs are administered by subconjunctival injection, the
cornea continues to act as a natural barrier permitting only slight penetration
of the drug into the front of the eye. In addition, as with topical drug
delivery, there is virtually no drug penetration into the back of the eye.
SYSTEMIC DRUG DELIVERY
Systemic drug delivery involves the oral administration, injection or
intravenous infusion of a drug as a means to deliver the drug through the
patient's circulatory system. Using systemic drug delivery to treat diseases of
the eye can be very problematic. The anatomy of the eye includes a blood-eye
barrier that inhibits molecules from reaching the eye through the bloodstream.
Penetrating this blood-eye barrier requires ophthalmologists to systemically
administer massive, and sometimes toxic, amounts of drugs, which may lead to
serious, life-threatening complications. For example, systemic administration of
Cyclosporin A, a drug used to suppress corneal transplant rejection, may cause a
patient to experience lower immunity to infectious diseases such as Hepatitis B.
Consequently, in some cases, only drug levels that are ineffective can be
delivered to the eye using systemic drug delivery.
DIRECT INJECTION
Often used as a last alternative, direct injection methodologies involve the
injection of drugs directly into the eye. While this method overcomes the
natural barriers posed by the cornea, tears and the blood-eye barrier, fluid
within the eye dilutes and washes out the drug within just a few hours. To
counteract this problem, frequent injections are often required, that are
inconvenient and potentially traumatic to the patient.
RECENT TECHNOLOGICAL ADVANCES
Recent advances in technology have led to the development of new techniques for
treating conditions and diseases inside the eye, and in particular, the back of
the eye. Several companies are developing a treatment for the wet form of
age-related macular degeneration, or AMD using photodynamic therapy. Wet AMD is
characterized by the proliferation of aberrant blood vessels that cause the
destruction of the portion of the retina responsible for detailed vision called
the macula. This wet form of AMD represents an estimated 15% of the 11 million
AMD cases in the United States but accounts for approximately 90% of the severe
vision loss associated with the disease. This form of treatment involves
activating light-sensitive drugs that have been intravenously injected into the
patient with a laser to destroy the aberrant blood vessels beneath the retina.
While photodynamic therapy has been shown to successfully destroy the targeted
blood vessels, the treatment is not a cure, and repeated procedures are
necessary to combat the recurrence of the condition.
CMV retinitis is a progressive disease that occurs in 30% of AIDS patients, and
leads to blindness if not properly controlled. Technological advances have also
led to the development of a nonbiodegradable implant designed to treat CMV
retinitis. The implant provides the sustained release of an antiviral medication
into the eye. While the implant solves some of the delivery problems
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associated with traditional treatment methods for CMV, the implant is not
biodegradable and, therefore, must be left in the eye permanently or be
surgically removed. Moreover, the implant is relatively large and can cause
trauma to the eye, resulting in complications.
As a result of these limitations, many prevalent and serious diseases and
conditions, particularly in the back of the eye, are left untreated. Moreover,
diseases and conditions occurring in the back of the eye also tend to be the
most serious. Today there is no effective treatment for serious diseases such as
AMD, uveitis and diabetic retinopathy. While 40% of all diseases or conditions
occur in the back of the eye, only approximately 5% percent of ophthalmic drug
sales in the United States are associated with treatment for such conditions. We
believe there is a significant market opportunity for drugs that can effectively
treat diseases and conditions occurring in the back of the eye.
THE OCULEX SOLUTION
Our sustained release biodegradable DDS technology is designed to provide
optimal delivery of drugs to treat a broad spectrum of diseases and conditions
in the front and back of the eye. We have developed this proprietary technology
through our innovative approach that employs our expertise in a number of
scientific disciplines, including polymer-based formulation and organic and
analytical chemistry. The key features of our DDS technology include:
PROGRAMMABLE TARGETED DRUG DELIVERY
Our DDS technology enables the release of the appropriate dose of a drug to the
affected area of the eye over the appropriate amount of time. We believe that
these features allow for the development of products with optimal treatment
characteristics. Our two lead products have demonstrated the ability to treat
inflammation inside the eye, each with its own targeted drug delivery
characteristics. Surodex is placed in the front of the eye and provides a
consistent dose of dexamethasone over a period of seven days. Posurdex is
inserted directly into the back of the eye and provides a consistent dose of
dexamethasone over a period of approximately one month. We have demonstrated the
ability to deliver consistent doses of drugs over specific periods of time up to
one year. In addition, the efficiency of drug delivery with our DDS technology
enables us to use relatively small doses of active drugs to achieve the desired
therapeutic benefit and minimize potential toxic side effects. We believe that
the programmable nature of our DDS technology will enable the development of
highly specialized drugs that can be delivered to specific areas within the eye.
BIODEGRADABLE THERAPEUTIC SOLUTION
Unlike other existing ocular implants, our polymer-based DDS products are
completely biodegradable. Once the active drug has been released, the polymers
will completely biodegrade. This biodegradable characteristic eliminates the
need for surgical removal of our DDS product, thereby eliminating the risk of
further trauma to the eye.
MINIMALLY INVASIVE DELIVERY
Due to their minute size, our DDS products cannot be felt by the patient, nor do
they impair the patient's vision. Ophthalmologists can easily insert them into
the eye in one of two ways. First, for patients undergoing a surgical procedure,
such as cataract surgery, our DDS products can be implanted as part of the
procedure. Second, in cases where surgery is not required, they can be implanted
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through a relatively simple procedure, requiring only local or topical
anesthesia. In these cases, patients experience minimal discomfort for only a
short period of time following the procedure. In addition, given their
biodegradable nature, no subsequent operation is required for their retrieval.
VERSATILE DRUG DELIVERY PLATFORM
Our DDS technology and formulation process neither requires, nor results in, the
alteration of the chemical or physical properties of an active drug. This is
important because it simplifies the formulation process. As a result, we believe
we can readily apply our technology to a broad spectrum of compounds. To date,
we have used our DDS technology to formulate proprietary drugs with active
compounds such as antibiotics, antivirals, steroids and immunosuppressants. We
believe that this is a significant competitive advantage, as we can leverage our
DDS platform to create a broad array of proprietary ophthalmic pharmaceuticals
and thereby address most diseases in the eye.
ENSURED PATIENT COMPLIANCE
When proper treatment regimens require patients to self-administer medicine for
extended periods of time, patient compliance, particularly among the elderly,
can become problematic. This is especially true with eye drop therapy, where
prolonged treatment is often required. With our DDS technology, the patient
compliance factor is removed. Patients are thereby relieved of the burden of
following a potentially cumbersome treatment regimen.
LOW COST MANUFACTURING
Our DDS products consist of Generally Regarded As Safe, or GRAS, polymers that
are readily available and inexpensive. The active compounds for our initial
products are generic, and therefore also readily available and inexpensive.
Because of the efficiency of our drug delivery system, only small amounts of the
active compounds are required. Moreover, the small size of our products
minimizes the per unit cost of the polymer raw materials. Finally, we realize
manufacturing efficiencies as a result of the extremely small size of our unit
doses and a sterilization process that can be performed after manufacturing is
complete. This results in a less capital-intensive manufacturing process
compared to typical pharmaceutical manufacturing processes.
OCULEX'S GROWTH STRATEGY
Our goal is to be the leader in developing and commercializing a portfolio of
products to treat the broad spectrum of diseases and conditions affecting the
interior of the eye for which current treatment is either unavailable or
inadequate. Our strategy to achieve this objective incorporates the following
principal elements:
FOCUS OUR INITIAL PRODUCT DEVELOPMENT ON DDS FORMULATIONS OF EXISTING GENERIC
COMPOUNDS
By applying our DDS technology to generic compounds, we create new proprietary
drugs that can be sold as brand name pharmaceuticals. Our two lead products are
DDS formulations of dexamethasone, a well-known and highly effective generic
steroid whose safety and pharmacokinetic characteristics are already well
documented. This approach to new product development has several advantages.
First, we expect that ophthalmologists will rapidly adopt these products given
their familiarity with the active drug compounds. Second, we believe that the
use of these compounds will allow us to reduce the preclinical development
period, thus reducing the time to market for a new product. Finally, we believe
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that combining available compounds with our proprietary technology reduces
product development risk because the underlying compound has already been
approved for use and its safety and efficacy are therefore well established.
TARGET THE BACK OF THE EYE AS THE MAJOR GROWTH OPPORTUNITY, AND EXPAND THE
APPLICATION OF OUR LEAD PRODUCT FOR THIS AREA
We believe the most significant growth in ophthalmic products over the next few
years will be in the development of new drugs to treat diseases in the back of
the eye. Our lead back of the eye product, Posurdex, which has been created to
treat back of the eye diseases and conditions, is a DDS formulation containing a
highly effective generic compound, dexamethasone. The initial indication that we
have chosen to seek for Posurdex is inflammation caused by posterior segment
surgery. We believe that this strategy provides us with the quickest route to
commercialization of our back of the eye products. The reasons for this are
threefold:
- - first, this indication allows for simple clinical trial design given that
the clinical endpoint for these trials, namely, the reduction of
inflammation, can be clearly, concisely and easily measured;
- - second, this indication allows for relatively short clinical trials given
that with Posurdex, reduction of inflammation can be achieved in
approximately one month; and
- - third, this indication facilitates the recruitment of potential clinical
trial patients given that approximately 500,000 back of the eye surgeries
are performed annually in the United States with no current effective
treatment regimen for the resulting inflammation.
We believe that Posurdex will have broader applications beyond the treatment of
post-surgical inflammation. Other major back of the eye diseases and conditions
such as uveitis, AMD and macular edema may be induced or exacerbated by the
presence of inflammation. These are chronic and degenerative eye diseases and
conditions that, in aggregate, afflict over 4 million people in the United
States and 20 million worldwide. We plan to conduct clinical trials in support
of NDA applications for indications for these diseases and conditions.
RETAIN MARKETING AND DISTRIBUTION RIGHTS FOR OUR BACK OF THE EYE PRODUCTS AND
MARKETS
We plan to create a direct sales force in the United States and Europe to market
our products for treating diseases in back of the eye. We believe that the
competitive environment for these markets is attractive given the relative
absence of effective treatments for most back of the eye diseases. In addition,
the target prescriber market comprises approximately 2,000 ophthalmologists in
the United States. Consequently, we believe that a small specialty sales force
will be able to effectively promote our products to these ophthalmologists.
EXPAND EXISTING AND DEVELOP NEW COLLABORATIVE RELATIONSHIPS
In order to enhance our commercial opportunities and effectively leverage our
DDS technology, we intend to form collaborative alliances with major ophthalmic
companies. Such alliances are intended to maximize our commercial product
opportunities by allowing us to:
- - GAIN ACCESS TO PROPRIETARY COMPOUNDS THAT WOULD OTHERWISE NOT BE AVAILABLE
TO US. We intend to create research alliances to take advantage of the
extensive drug discovery performed by large ophthalmic companies. Many of
these companies, such as Allergan, are seeking to discover novel active
compounds for treatment of diseases in the back of the eye. This approach
will enable us to
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share profits or receive royalties from the sale of products incorporating
these compounds. In addition, we will seek to retain manufacturing rights
for these new products and thereby generate revenue from the sale of such
products to our partners.
- - LEVERAGE THE MARKETING AND DISTRIBUTION INFRASTRUCTURES OF OUR PARTNERS. We
will continue to selectively enter into marketing and distribution alliances
for certain of our products. These collaborations can provide us with
marketing clout and ready access to important markets. In general, these
alliances will pertain to products that we develop for the anterior segment,
such as our agreement with Bausch & Lomb for Surodex. However, for certain
geographical markets it may be more advantageous to establish strategic
alliances for a broader line of products, including back of the eye
products. We have entered into such an agreement with Laboratorios Sophia in
Mexico.
IDENTIFY AND IN-LICENSE COMPOUNDS WITH UNIQUE PROPERTIES FOR TREATING BACK OF
THE EYE DISEASES
We are seeking opportunities to exploit third-party proprietary drug compounds
that are either in late stage development or already on the market for
non-ophthalmic indications but may have therapeutic applications for diseases in
the back of the eye. Of particular interest would be a compound that could treat
diabetic retinopathy. We would in-license such compounds, formulate them with
our DDS technology and, if successful with the clinical development process, pay
a royalty on sales to the licensor. We believe that in-licensing products to our
portfolio will generate significant additional commercial opportunities.
LEAD PRODUCT CANDIDATES
Our lead products are designed to treat and prevent inflammatory diseases and
conditions inside the eye. Inflammation is a natural immunological response when
cells have been damaged or have become dysfunctional. Any destructive or
invasive activity in the eye, such as degenerative diseases or surgery, will
injure or destroy cells. The damaged cells then trigger an inflammatory response
from the immune system that repairs the damage. Consequences of this response
may include leakage of proteins and cells from blood vessels, scar tissue
formation and proliferation of blood vessels. The problem within the eye is that
the natural inflammatory response to cell damage, unless properly controlled and
abated, can cause or contribute to very serious eye problems or diseases. These
may include the wet form of age-related macular degeneration, or AMD, macular
edema and retinal detachment caused by proliferative vitreoretinopathy, or PVR.
Once these conditions manifest themselves through inflammatory damage, they are
very difficult to treat and can lead to blindness. Anti-inflammatory drugs are
used for inflammatory conditions in all areas of the body; however, the efficacy
of these drugs in the eye is extremely poor due to the anatomical and
physiological barriers of the eye. The active ingredient in both of our lead
products is dexamethasone, a generic steroid that is widely used in the
treatment of inflammation. Steroids have been found to be the most effective
drugs to modulate inflammatory responses. Because of its potency, dexamethasone
is widely used to treat inflammation within the eye. It is delivered in the form
of eye drops, direct injection and systemically.
SURODEX
Surodex is indicated for the treatment of inflammation following cataract
surgery. Cataract surgery is the most frequently performed surgery in the United
States, with 2.3 million procedures being performed annually. Inflammation in
the anterior chamber of the eye occurs after every cataract surgery. This
inflammation is characterized by pain, redness, photophobia, increased tearing
and decreased vision. If not properly treated, this inflammation can cause
macular edema, that in turn can
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cause permanent eye damage. The current standard of treatment for patients with
this condition is either steroidal or nonsteroidal eye drops. This treatment
regimen typically requires four to six applications daily for approximately one
month. For many patients, particularly the elderly, this treatment regimen can
be very cumbersome and lead to poor compliance. By contrast, Surodex minimizes
many of these problems. In a one-step procedure at the end of cataract surgery,
the product is placed inside the anterior segment of the eye, directly where the
inflammation occurs. Surodex contains 60 micrograms of dexamethasone, roughly
the same amount of drug contained in a single eye drop. Because of its minute
size, the patient will not recognize the presence of the drug in the eye.
Following the conclusion of the drug therapy, the DDS polymer completely
biodegrades.
Our testing and clinical studies have shown that Surodex has numerous advantages
over steroidal or nonsteroidal eye drops, including:
- - ensured patient compliance by eliminating the need to self-administer eye
drops four to six times a day for approximately one month;
- - faster postoperative recovery, with inflammation reduced in one week to
levels achieved by eye drops in one month;
- - reduced patient discomfort with more rapid reduction in inflammation,
resulting in the patient's experiencing less impaired vision, pain, tearing
and photophobia; and
- - significantly greater reduction of inflammation in diabetic patients, who
experience more severe inflammation from cataract surgery than non-diabetic
patients.
The results of our US Phase II clinical trial with Surodex was presented in the
industry's leading peer review publication, OPHTHALMOLOGY, in June 1999. Ninety
patients were randomized into four treatment groups consisting of one and two
units of Surodex compared to placebo and no treatment controls. The Surodex
treated patients showed a statistically significant reduction in postoperative
inflammation from day three through week three when compared to placebo
patients. The study also showed similar or better outcomes for Surodex as
compared to placebo patients for safety parameters such as corneal status,
corneal edema, fundus status, visual acuity and intraocular pressure.
In a clinical trial conducted in Singapore, we compared dexamethasone eye drops
with Surodex in 60 patients. The results of this study were published in
OPHTHALMOLOGY in February 1999. Patients treated with Surodex achieved
near-complete resolution of inflammation within one week, whereas those treated
with dexamethasone eye drops achieved similar levels only after one month. In
addition, the data demonstrated that diabetic cataract surgery patients, when
treated with Surodex, received an even greater benefit in the reduction of
inflammation than non-diabetic patients. The trial showed that diabetic patients
experience more inflammation from cataract surgery than non-diabetics; however,
treatment with Surodex demonstrated that inflammation in these patients was
reduced to approximately the same level as that with non-diabetic patients.
A Phase III trial for our US NDA was completed in December 1999. The trial
consisted of two studies, comprising 240 patients and 60 patients, respectively.
The study format and results of Phase III confirm the results of our previously
published Phase II trial. We are currently preparing the NDA application for
Surodex.
POSURDEX
Posurdex is designed to treat inflammatory conditions in the posterior segment
of the eye. The initial indication we are seeking for Posurdex is the treatment
of acute inflammation following posterior segment surgery. During 1999, there
were approximately 500,000 posterior segment surgeries
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performed in the United States alone. The most common of these surgeries is a
vitrectomy, a procedure that extracts the vitreous humor, a gel-like fluid from
the eye. Vitrectomies are used in conjunction with the treatment of a variety of
posterior segment diseases and conditions, including retinal detachment, a very
serious sight threatening disorder. Unfortunately, the operation to re-attach a
retina produces inflammation that may cause PVR, the forming of scar tissue in
the retina that will cause the retina to re-detach. Currently, there is no
effective treatment for inflammation associated with these surgical procedures.
We have demonstrated through compassionate use applications that Posurdex can
effectively control inflammation caused by posterior segment surgical
procedures. Posurdex provides a sustained release of dexamethasone over a period
of approximately one month within the posterior segment of the eye. It can be
easily implanted into the eye by the ophthalmologist following surgery and will
immediately begin working as a site specific anti-inflammatory drug.
Based upon clinical data obtained from our compassionate use applications and
published third-party clinical studies, we believe that Posurdex will have
broader applications beyond the treatment of postsurgical inflammation. This
clinical data suggests that several other degenerative eye diseases and chronic
eye conditions such as the wet form of AMD, macular edema and uveitis may be
induced or exacerbated by the presence of inflammation. To date, our
compassionate use applications have shown Posurdex to have favorable results in
several severe and recalcitrant uveitis patients. We are currently designing
clinical trials to demonstrate the clinical benefits of using Posurdex for the
treatment of these indications.
We have filed an IND for Posurdex. Through our compassionate use applications,
we believe that we have obtained sufficient safety data to fulfill Phase I
clinical requirements. These compassionate use applications of Posurdex have not
demonstrated any significant side effects or toxicity from the use of this drug.
We are currently designing our Phase II clinical trial in the United States.
OTHER PRODUCT CANDIDATES
The following table lists our other DDS formulated products. For each respective
product we have successfully demonstrated favorable results in either human
clinical trials or animal models. We expect to devote significant resources over
the next three years toward the clinical development and commercialization of
these products.
<TABLE>
<CAPTION>
PRODUCT INDICATION
- ----------------------------------------------------------------------------------------------------
<S> <C>
GlauRx Glaucoma surgery
SuroTrans Corneal transplant rejection
Suroquin Cataract and glaucoma post surgical infections
Posurquin Postsurgical or trauma induced infections
</TABLE>
GLAURX
GlauRx is a DDS formulation of dexamethasone designed to treat the primary
complication associated with trabeculectomy, a surgical procedure for the
treatment of glaucoma. Trabeculectomies reduce glaucoma-induced intraocular
pressure by creating a surgical channel that allows for the release of aqueous
fluid from the anterior chamber. Following this procedure, inflammation occurs
at the surgical site as part of the natural healing process. Unless properly
treated, this inflammation may induce the
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formation of scar tissue that closes the surgical opening. Preliminary human
studies show that GlauRx, when implanted at the surgical site, minimizes the
potential for closure of the surgical opening. Glaucoma affects approximately
2.1% of the general population in the United States.
SUROTRANS
SuroTrans is a DDS formulation of the immunosuppressant Cyclosporin A, designed
to prevent the rejection of a transplanted cornea. Inserted at the time of
transplant surgery, the product provides a sustained release of Cyclosporin A
within the eye for a period of approximately six months. Currently, when the
ophthalmologist determines that the body is beginning to reject the transplanted
cornea, Cyclosporin A is administered to the patient systemically and topically.
Systemic doses of Cyclosporin A are extremely expensive and may cause serious
side effects because the patient's immune system is compromised in fighting
infections. We believe SuroTrans could become a routine application in all
corneal transplants where the risk of rejection to be high due to severe eye
trauma. In 1998, there were approximately 36,000 corneal transplants performed
in the United States.
SUROQUIN
Suroquin is a DDS formulation of an antibiotic designed to prevent bacterial
infections in the anterior segment of the eye following cataract or glaucoma
surgeries. Inserted at the time of surgery, Suroquin provides a sustained
release of the antibiotic over a period of five to seven days. Antibiotic eye
drops are routinely prescribed following cataract or glaucoma surgery, but they
do not sufficiently penetrate the cornea to eradicate bacteria in the anterior
segment. Based upon our human clinical studies, we believe that Suroquin could
be the first product that effectively prevents infections following cataract or
glaucoma surgeries. There are over 2.3 million cataract and glaucoma surgery
procedures performed in the United States each year.
POSURQUIN
Posurquin is a DDS formulation of an antibiotic designed to prevent and treat
infections in the back of the eye and is implanted at the time of surgery to
prevent postsurgical infections. Infection inside the eye, known as
endophthalmitis, affects a small portion of the population, but is extremely
difficult and very expensive to treat. There are currently over 500,000
posterior segment surgeries performed in the United States each year.
STRATEGIC ALLIANCES
Part of our strategy is to establish strategic alliances with pharmaceutical
companies. We expect that these collaborations will provide us with marketing
resources and access to third-party proprietary compounds. We have entered into
a marketing alliance with Bausch & Lomb for the sale of Surodex. We have entered
into a research alliance with Allergan, and are currently in discussions with
other potential alliance partners.
BAUSCH & LOMB
In April 1997, we entered into two marketing agreements with Storz Instrument
Company, which was subsequently acquired by Bausch & Lomb Incorporated. One
agreement covers the United States and Canada, and the other covers Europe and
South Africa. Under the terms of these agreements, Bausch & Lomb has been
granted an exclusive license to market and distribute Surodex, and has paid
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us a one-time licensing fee under each agreement. We are responsible for
obtaining the necessary regulatory approvals. The agreement provides for
performance standards that must be met by Bausch & Lomb.
Under the agreements, we have retained all manufacturing rights to Surodex. The
agreements provide for a minimum transfer price for each unit sold to Bausch &
Lomb. We will receive a favorable royalty rate that will increase subject to our
completing an additional a clinical study that demonstrates that Surodex is more
effective than conventional eye drop therapy for treating inflammation following
cataract surgery.
ALLERGAN
In December 1999, we entered into a research agreement with Allergan
Sales, Inc. Under the terms of the agreement, we agreed to formulate up to a
total of five proprietary Allergan compounds with our DDS technology, for the
purpose of evaluating new drugs to treat disease conditions in the interior of
the eye. Allergan is responsible for the selection of the compounds to be
developed. We, in turn, will be responsible for the formulation of the compound
with our DDS technology, for which Allergan will reimburse us all costs.
Allergan will bear responsibility for preclinical testing of these compounds. If
a DDS/Allergan compound demonstrates efficacious results, Allergan will have the
option to negotiate an exclusive worldwide license to commercialize the product
using our DDS technology. The contract provides that we retain exclusive
manufacturing rights to any product that is commercialized as part of this
collaboration. We received the first Allergan compound in March 2000, and our
formulation work is in progress.
INTELLECTUAL PROPERTY
We will be able to protect our technology from unauthorized use by third parties
only to the extent that it is covered by valid and enforceable patents or is
effectively maintained as trade secrets. Accordingly, patents and or other
proprietary rights are an essential element of our business. We have conducted
original research on a number of aspects relating to intraocular drug delivery,
and in particular, to the use of biodegradable polymer systems for intraocular
drug delivery. Our research has led to novel ideas that, in turn, have led to us
obtain a number of US-issued and foreign-issued patents to date, with a number
of additional patent applications pending in the United States and abroad. We
have also registered DDS-Registered Trademark-, Suroquin-Registered Trademark-
and Surodex-Registered Trademark- as trademarks with the US Patent and Trademark
Office.
We are protecting our technology through patents directed to the use of
biodegradable polymers for drug delivery to various portions of the eye, and
through patents directed to novel formulations of biodegradable drug delivery
systems. US Patent Nos. 4,853,224 and 4,997,652, for example, contain claims
that address the introduction of biodegradable implants into the chambers and
vitreous of the eye, while our US Patent No. 5,164,188 contains claims
addressing the introduction of these types of implants into the suprachoroidal
space. We also hold patents directed to certain novel formulations of
biodegradable implants, to the introduction of various types of biocompatible
implants into the suprachoroidal space, as well as to a method for treating
macular degeneration. In addition to pursuing patents and patent applications
relating to our technology, we may enter into other license arrangements to
obtain rights to third-party intellectual property where appropriate.
Our current policy is to file patent applications on what we deem to be
important technological developments that might relate to our products or
methods of using our products. To date, all inventions have originated in the
United States and all of our patent applications were originally filed in the
United States. Corresponding foreign applications are filed in European
convention countries
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and in selected countries in the rest of the world. Statutory differences in
patentable subject matter may limit the protection we can obtain on some of our
inventions outside of the United States. For example, methods of treating humans
are not patentable in many countries outside of the United States. These and
other issues may limit the patent protection we will be able to secure outside
of the United States.
The coverage claimed in a patent application can be significantly reduced before
a patent is issued, either in the United States or abroad. Consequently, we do
not know whether any of our pending or future patent applications will result in
the issuance of patents or, to the extent patents have been issued or will be
issued, whether these patents will be subjected to further proceedings limiting
their scope, will provide significant proprietary protection or competitive
advantage, or will be circumvented or invalidated. Furthermore, patents already
issued to us or our pending applications may become subject to dispute, and any
dispute could be resolved against us. In addition, because patent applications
in the United States are currently maintained in secrecy until patents issue and
patent applications in certain other countries generally are not published until
18 months after they are first filed, and because publication of discoveries in
scientific or patent literature often lags behind actual discoveries, we cannot
be certain that we were the first creator of inventions covered by pending
patent applications or that we were the first to file patent applications on
such inventions.
We rely on trade secrets to protect technology where we believe that patent
protection is not appropriate or obtainable. However, trade secrets are
difficult to protect. While we require employees, collaborators and consultants
to enter into confidentiality agreements, we may not be able to adequately
protect our trade secrets or other proprietary information in the event of any
unauthorized use or disclosure or the lawful development by others of such
information.
MANUFACTURING AND FACILITIES
We currently manufacture our products in our own GMP facilities located in
Sunnyvale, California, and Singapore. In Singapore, we have produced thousands
of units of our initial lead product, Surodex, for sale in Mexico and Singapore.
Our facilities have capacities in excess of 1,000,000 units per year. We have
recently leased a new 28,000 square foot facility in order to relocate our
research and development and administrative functions. Following our relocation,
the existing 11,000 square foot Sunnyvale facility will be used exclusively for
GMP manufacturing. In Singapore, we are currently planning to expand to an
approximately 10,000 square foot facility in order to support administrative,
sales and marketing, research and development, and production activities. We
anticipate these new facilities will provide us with sufficient space to
accommodate our needs for at least the next several years.
SALES AND MARKETING
We plan to establish a series of sales and marketing alliances to commercialize
selected DDS products. To date, we have entered into a strategic agreement with
Bausch & Lomb for the distribution of Surodex in the United States, Canada and
Europe. We have also reached an exclusive distribution agreement for Surodex
with Laboratorios Sophia in Mexico and Central America. In many Asian countries,
we will market DDS products through Oculex Asia, our Singapore subsidiary. In
some of these countries Oculex Asia has already established distributor
relationships. Oculex Asia has a Certificate of Free Sale that enables us to
export Surodex once regulatory approval is obtained in these countries.
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We anticipate that future strategic alliances will focus on specific product
areas, such as products for the front of the eye, and specific geographical
markets. Ideal strategic partners will generally have both a substantial
commercial presence in the target market and will have a commitment to expand
that market via our drug delivery technology. We intend to give preference to
sales and marketing partners whose existing products would be compatible with
and enhanced by our DDS products.
Due to significant profit potential and relative lack of competition in the back
of the eye market, we intend to develop a small specialty sales force in the
United States, Canada and Europe for our back of the eye products. Based on the
small number of, and relatively easy access to posterior segment surgeons, we
anticipate this sales organization can effectively address this market. The
creation of our direct sales force is planned to coincide with the approval of
Posurdex.
COMPETITION
The ophthalmic pharmaceutical industry is dominated by seven major companies,
which together capture approximately 80% of ophthalmic pharmaceutical revenue
worldwide: Allergan, Alcon, Bausch & Lomb, Merck, CibaVision (Novartis),
Pharmacia & Upjohn and Santen.
Our success depends upon our ability to maintain a competitive position in the
development and commercialization of our DDS technology and products in a
rapidly evolving industry. We will compete with major ophthalmic pharmaceutical,
biotechnology and other drug delivery companies. Many of these companies have
substantially greater research and development capabilities, brand awareness,
and financial, managerial and marketing resources than we do.
Novel drug delivery systems are being researched by many pharmaceutical
companies in order to overcome the lack of treatment for posterior segment
disorders. For example, Control Delivery Systems has developed a
non-biodegradable intraocular drug delivery system. Their initial product,
Vitrasert, is designed to treat CMV retinitis and is marketed and distributed by
Bausch & Lomb. While the implant overcomes some of the delivery problems
associated with traditional treatment methods for CMV, the implant is not
biodegradable and, therefore, must be left in the eye permanently or surgically
removed. Moreover, the relatively large size of the implant itself can cause
trauma to the eye, resulting in complications.
Several companies are developing a treatment for the wet form of AMD using
photodynamic therapy. Photodynamic therapy has been shown to successfully
destroy the targeted blood vessels, although repeated procedures are necessary
to combat the reoccurrence of the condition.
We believe that our DDS technology provides us with significant competitive
advantages in the delivery of intraocular drugs compared to currently known
alternatives. However, our competitors could succeed in developing competing
technologies and acquire government approval for products before we do. There
can be no assurance that competitors will not introduce products that will be
competitive with our DDS technology or superior to ours.
GOVERNMENT REGULATION
Our operations and products under development are subject to extensive
regulation by the FDA and other governmental authorities in the United States
and other governmental authorities in other countries.
The duration of the governmental approval process for marketing new
pharmaceutical substances, from the commencement of preclinical testing to the
receipt of a governmental final letter of approval for marketing a new
substance, varies with the nature of the product and with the country in which
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such approval is sought. For entirely new drugs, the approval process could take
eight to ten years or more; however, for reformulations of existing drugs, the
process is typically shorter. In either case, the procedures required to obtain
governmental approval to market new drug products are costly and time-consuming,
requiring rigorous testing of the new drug product. There can be no assurance
that even after such time and expenditures, regulatory approval will be obtained
for any products that we develop.
The steps required before a new human pharmaceutical product can be marketed or
shipped commercially in the United States include, in part, preclinical testing,
the filing of an Investigational New Drug, or IND application, the conduct of
clinical trials and the filing with the FDA of either a New Drug Application, or
NDA, for drugs or a Product License Application, or PLA, for biologics.
In order to conduct the clinical investigations necessary to obtain eventual
regulatory approval, an applicant must file an IND with the FDA to permit the
shipment and use of the drug for investigational purposes. The IND sets forth,
in part, the results of preclinical toxicology and efficacy testing and the
applicant's plans for clinical testing. If the FDA does not deny the exemption
to ship or use the investigative drug or place a "hold" on clinical testing
within 30 days of the submission of the IND, it becomes effective and clinical
testing may begin after Institutional Review Board approval of research
involving human subjects.
Under the FDA's regulations, the clinical testing program required for marketing
approval of a new drug typically involves three clinical phases. In Phase I,
safety studies are generally conducted on normal, healthy human volunteers to
determine the maximum dosages and side effects associated with increasing doses
of the substance being tested. In Phase II, studies are conducted on small
groups of patients afflicted with a specific disease to gain preliminary
evidence of efficacy and to determine the common short-term side effects and
risks associated with the substance being tested. Phase III involves large-scale
trials conducted on disease-afflicted patients to provide statistical evidence
of efficacy and safety and to provide an adequate basis for product labeling.
Frequent reports are required in each phase and, if unwarranted hazards to
patients are found, the FDA may request modification or discontinuance of
clinical testing until further studies have been conducted.
Phase IV testing following FDA approval is conducted either to meet FDA
requirements for additional information as a condition of approval, or to expand
market acceptance of the pharmaceutical product.
Once clinical testing has been completed pursuant to an IND, the applicant files
an NDA or PLA with the FDA seeking approval for marketing the drug product. The
FDA reviews the NDA or PLA to determine if the drug is safe and effective, and
adequately labeled, and if the applicant can demonstrate proper and consistent
manufacture of the drug. The time required for FDA action on an NDA or PLA
varies considerably, depending on the characteristics of the drug, whether the
FDA needs more information than is originally provided in the NDA or PLA and
whether the FDA finds problems with the evidence submitted.
The facilities of each company involved in the manufacturing, processing,
testing, control and labeling of drug products must be registered with and
approved by the FDA. Continued registration requires compliance with GMP
regulations. The FDA conducts periodic establishment inspections to confirm
continued compliance with its regulations. Failure to comply with these or other
requirements can result in, among other things, administrative or judicially
imposed sanctions such as injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, failure of the FDA to grant
approvals or clearances for new devices, withdrawal of existing marketing
clearances or approvals, or criminal prosecution.
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We are also subject to various federal, state and local laws, regulations and
recommendations relating to such matters as laboratory and manufacturing
practices and the use, handling and disposal of hazardous or potentially
hazardous substances used in connection with our research and development work.
Although we believe we are in compliance with these laws and regulations in all
material respects, there can be no assurance that we will not be required to
incur significant costs to comply with environmental and other laws or
regulations in the future.
EMPLOYEES
As of April 1, 2000, we had 46 employees in our US operations, 36 of which were
in research and development and product development and 10 were in business
development, administration and finance. In addition, Oculex Asia had 13
employees, 10 of which were in research and development and product development
and three were in business development, administration and finance. We expect
our workforce to increase substantially over the next 24 months, especially in
the area of research and development, where we intend to add additional
scientists. We believe that our future success is dependent upon hiring and
retaining highly skilled scientific, sales and marketing and senior management
personnel.
FACILITIES
Our principal United States facility consists of approximately 11,000 square
feet of general office, research and development and assembly space located in
Sunnyvale, California that is leased to us until April 2003. We recently leased
approximately 28,000 square feet of general office, research and development and
assembly space in Sunnyvale under a lease that will expire in February 2005. We
plan to expand our research and development and administrative functions to this
facility in the second quarter of 2000. In addition, we also occupy
approximately 5,900 square feet of general office space in Sunnyvale, California
under a lease that expires in January 2001. Our Singapore facility consists of
approximately 10,000 square feet of space that is leased to our subsidiary,
Oculex Asia, until January 2001. We believe that our current and newly acquired
facilities are adequate to meet our needs for the next twelve months.
LEGAL MATTERS
We are not currently engaged in any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is the name, age, position and a brief account of the business
experience of each of our executive officers and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Donald J. Eaton......................... 62 Chairman of the Board and Chief
Executive Officer
Jerry B. Gin, PhD....................... 57 President and Director
Vernon G. Wong, MD...................... 68 Chief Scientific Officer and Director
Douglas Hawkins......................... 52 Chief Financial Officer, Senior Vice
President
Michael Nash............................ 42 Executive Vice President of Sales and
Marketing
Mae W. Hu, PhD.......................... 57 Vice President of Research and
Development
Benjamin F. Ross........................ 50 Vice President of Operations
King Y. Lee, MD (1)(2).................. 64 Director
Michael F. Bigham (1)(2)................ 42 Director
Ernest Mario, PhD (1)(2)................ 61 Director
</TABLE>
- ------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
DONALD J. EATON Mr. Eaton joined us as our Chairman of the Board and Chief
Executive Officer in March 2000. From April 1999 to March 2000, Mr. Eaton served
as a consultant to Oculex. Prior to becoming associated with us, Mr. Eaton was
the founder of Mimetix, Inc., a biopharmaceutical company focused on pain
management and woman's drugs, where he served as Chairman and CEO from the
company's 1992 inception until 1998. Mr. Eaton was the founder of Summa Care,
Inc., a developer of dermatological products, and served as CEO and President
from the company's inception in 1987 to 1991. From 1981 to 1986, Mr. Eaton
served as CEO and President of Endotherapeutics, Inc., a medical device company.
Mr. Eaton served as CEO and President of Mycogen Corporation, an
ag-biotechnology company from 1982 to 1984. Mr. Eaton received his BS and JD
degrees from Santa Clara University.
JERRY B. GIN, PHD Dr. Gin co-founded Oculex and has served as our President
since our inception. Until March 2000, Dr. Gin also served as our Chief
Executive Officer. Prior to founding Oculex, Dr. Gin was founder and served as
Executive Vice President of ChemTrak, Inc., from 1988 until 1993. Dr. Gin served
in various executive positions in the healthcare and pharmaceutical divisions of
Dow Chemical from 1970 to 1983 and at Syntex/Syva from 1983 to 1988. Dr. Gin
received his BS degree in Chemistry from the University of Arizona, his MBA from
Loyola College, and his PhD in Biochemistry from the University of California at
Berkeley.
VERNON G. WONG, MD Dr. Wong co-founded Oculex in 1989 and has served as our
director and Chief Scientific Officer since 1993. Prior to founding Oculex,
Dr. Wong co-founded Visionex, Inc. with Dr. Jerry Gin in 1986. From 1972 to
1991, Dr. Wong was a Professor of Ophthalmology at Georgetown University School
of Medicine and Director of Ocular Oncology at the Vincent T. Lombardi Cancer
Center. Dr. Wong received his BA degree in Chemistry and Physics from
Pennsylvania State University and his MD from Jefferson Medical College.
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DOUGLAS HAWKINS Mr. Hawkins joined us as our Chief Financial Officer in
February 2000. Prior to joining us, Mr. Hawkins was an interim financial officer
and investment banker with The Brenner Group, Inc. since March 1997. From
February 1997 to December 1999, Mr. Hawkins was a commercialization consultant
at Los Alamos National Laboratory. Mr. Hawkins was a business and financial
consultant for growth-oriented, technology-based enterprises from 1992 to
March 1997. Mr. Hawkins served as Enterprise Director and Advisory Board Member
for NASA Ames Technology Commercialization Center from October 1994 to
February 1997. Mr. Hawkins received his BBA degree in Accounting from North
Texas State University and his MBA in Finance from the University of Houston and
is a CPA registered in Texas.
MICHAEL NASH Mr. Nash joined us as our Vice President of Sales and Marketing in
March 2000. Prior to joining us, Mr. Nash was a medical device business
consultant from October 1997 to March 2000. Mr. Nash was the General Manager of
Orthopedics at General Surgical Innovations, Inc. from April 1996 until October
1998. Mr. Nash served as Vice President of Marketing and Research and
Development with Orthopedic Technology, Inc., a manufacturer of surgical, post
surgical and sports medicine products for orthopedics from 1993 to 1996. Prior
to 1993, Mr. Nash served in sales, marketing and business development capacities
with Allergan, Ioptex Research and American Medical Optics. Mr. Nash received
his BA degree in Economics and Journalism from the University of Michigan and
his MBA from Pepperdine University.
MAE W. HU, PHD Dr. Hu has served as our Vice President of Research and
Development since 1999 and served as our Director of Research from 1997 to 1999.
Prior to joining us, Dr. Hu was a development group leader for Behring
Diagnostics from 1988 until 1997. Dr. Hu received her BS degree in Chemistry and
her PhD in Organic Chemistry from Boston University.
BENJAMIN F. ROSS Mr. Ross joined us as our Vice President of Operations in
October 1995. Prior to joining us, Mr. Ross was a Reagent Manufacturing Manager
at Abaxis, Inc. from 1992 until November 1995. Mr. Ross received his BS degree
in Chemistry and his BA degree in Biological Sciences from San Jose State
University.
KING Y. LEE, MD Dr. Lee has served on our board since October 1993. Since 1995,
Dr. Lee has served as Clinical Associate Professor in the Department of
Ophthalmology at the University of Kansas and as a Clinical Professor of
Ophthalmology at the University of Missouri at Kansas City since 1984. Dr. Lee
received his BA degree in Zoology from the University of Arkansas, and his MD
and BS degrees in Medicine from the University of Arkansas, School of Medicine
in Little Rock, Arkansas.
MICHAEL F. BIGHAM Mr. Bigham has served on our board since March 2000.
Mr. Bigham has served as President and Chief Executive Officer of Coulter
Phamaceutical, Inc. since July 1996. Prior to joining Coulter, Mr. Bigham served
as Executive Vice President of Operations of Gilead Science, Inc., a
biotechnology company, from April 1994 until June 1996, as their Chief Financial
Officer from April 1989 until June 1996, and as Vice President of Corporate
Development from July 1988 until March 1992. Mr. Bigham received his BS degree
in Commerce from the University of Virginia and his MBA from the Stanford
University Graduate School of Business.
ERNEST MARIO, PHD Dr. Mario has served on our board since March 2000.
Dr. Mario has served as the Chairman and Chief Executive Officer of Alza
Corporation since August 1993. Prior to joining Alza, Dr. Mario served as the
Deputy Chairman of Glaxo Holdings plc, a pharmaceutical company, from January
1992 until March 1993 and as their Chief Executive from May 1989 until March
1993. Dr. Mario is an adjunct professor of Pharmacy at the University of Rhode
Island. Dr. Mario received his BS degree in Pharmacy from Rutgers University and
his master's degree and doctorate degrees in Physical Sciences from the
University of Rhode Island.
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BOARD COMPOSITION
The number of directors is fixed by resolution of the board. Upon closing of
this offering, the number of directors will be six. All directors hold office
until the next annual meeting of stockholders or until their successors have
been elected and qualified. Officers serve at the discretion of the board. There
are no family relationships between any of the directors or executive officers
of the Company.
BOARD COMMITTEES
The audit committee of the board of directors was established in March 2000 and
is responsible for, among other things, making recommendations to the board
regarding the engagement of our independent public accountants, reviewing with
the independent public accountants the plans and results of the audit
engagement, approving professional services provided by the independent public
accountants, and reviewing the adequacy of our internal accounting controls. The
audit committee consists of King Lee, Michael Bigham and Ernest Mario, each of
whom is an independent director.
The compensation committee of the board of directors was established in March
2000 and determines the salaries and benefits for our employees, consultants,
directors and other individuals compensated by us. The members of the
compensation committee are King Lee, Michael Bigham and Ernest Mario, each of
whom is an independent director.
DIRECTOR COMPENSATION
Our directors currently receive no cash compensation for service on the board or
any committee thereof, but directors may be reimbursed for certain expenses in
connection with attendance at board and committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the compensation committee has been an officer or employee of ours
at any time. None of our executive officers serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of our board of directors or compensation
committee. Prior to the formation of the compensation committee in March 2000,
the board of directors as a whole made all decisions relating to compensation of
our executive officers.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our amended and restated certificate of incorporation and our bylaws provide
that our directors and officers shall be indemnified by us to the fullest extent
authorized by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
their service for or on our behalf. In addition, the certificate of
incorporation provides that our directors will not be personally liable for
monetary damages to us for breaches of their fiduciary duty as directors, unless
they violated their duty of loyalty to us or our stockholders, acted in bad
faith, knowingly or intentionally violated the law, authorized illegal dividends
or redemptions or derived an improper personal benefit from their action as
directors. We plan to obtain insurance that insures our directors and officers
against specified losses and which insures us against specific obligations to
indemnify our directors and officers. We intend to enter into indemnification
agreements with our directors and officers to indemnify these persons to the
full extent permitted by law. We also intend to execute these agreements with
our future directors and officers.
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We are aware that the Securities and Exchange Commission considers
indemnification for liabilities arising under the Securities Act to be against
public policy. Even if the indemnification of our directors, officers and
controlling persons for liabilities arising under the Securities Act is
permitted under indemnification agreements, it would be unenforceable as a
matter of public policy.
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EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION
The following table shows all compensation received during the year
December 31, 1999 by our Chief Executive Officer and other highest-paid
executive officers whose salary and bonus were in excess of $100,000,
collectively referred to as the Named Executive Officers. Other than as set
forth below, there was no other compensation to any executive officers.
SUMMARY COMPENSATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY OPTIONS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Jerry B. Gin ............................................... $175,000(2) --
President, Chief Executive Officer and director (3)
Vernon G. Wong ............................................. 175,000(4) --
Chief Scientific Officer and director
Benjamin F. Ross ........................................... 100,000 5,000
Vice President of Operations
</TABLE>
- ------------
(1) Includes term-life insurance premiums paid by us on behalf of these named
executive officers and excess long-term disability.
(2) $96,000 of this amount was deferred.
(3) Jerry B. Gin served as Chief Executive Officer in 1999.
(4) $156,092 of this amount was deferred.
OPTIONS
The following table shows information regarding options granted to the executive
officers listed in the summary compensation table above during the fiscal year
ended December 31, 999. We have not granted any stock appreciation rights.
Each option represents the right to purchase one share of our common stock.
Options granted to purchase shares of our common stock under our 2000 Equity
Incentive 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. Twenty percent 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
continuing over the next four years of service. 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 exercise price per share is equal to the fair market value of our common
stock on the date of grant as determined by our board of directors. See
"Management--Employee benefit plans" for more details regarding these options.
In the year ended December 31, 1999, we granted options to purchase an aggregate
of 170,630 shares of common stock to various officers, employees, directors and
consultants.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of
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the option term. The 5% and 10% assumed annual rates of compounded stock price
appreciation are required by rules of the SEC and do not represent our estimate
or projection of our future common stock prices. These amounts represent assumed
rates of appreciation in the value of our common stock from the fair market
value on the date of grant. Actual gains, if any, on stock option exercises are
dependent on the future performance of our common stock and overall stock market
conditions. The amounts reflected in the table may not necessarily be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE APPRECIATION OF STOCK
UNDERLYING GRANTED PRICE PRICE FOR OPTION TERM
OPTIONS TO PER EXPIRATION
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jerry B. Gin................... -- -- -- -- -- --
Vernon G. Wong................. -- -- -- -- -- --
Benjamin F. Ross............... 5,000 1.9% $0.75 11/7/09 $2,350.00 $6,000.00
</TABLE>
The following table shows information as of December 31, 1999 concerning the
number and value of unexercised options held by each of the executive officers
listed in the summary compensation table above. Options shown as exercisable in
the table below are immediately exercisable. However, we have rights to
repurchase shares of the common stock underlying some of these options upon
termination of the holder's employment with us. Accordingly, the value of
unexercised in-the-money options listed below has been calculated on the basis
of the deemed fair value as determined by the board, less the applicable
exercise price per share, multiplied by the number of shares issued upon
exercise.
There were no options exercised by any of our executive officers in the year
1999. The following table sets forth the number of shares acquired and the
number and value of securities underlying unexercised options held by the named
executive officers at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
UPON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jerry B. Gin......... -- --
Vernon G. Wong....... -- --
Benjamin F. Ross..... -- -- 63,067 45,683
</TABLE>
EMPLOYMENT AGREEMENTS
In March 2000, we entered into an executive employment agreement with Donald J.
Eaton, our Chairman of the Board and Chief Executive Officer. The employment
agreement provides for an annual salary of $185,000, subject to a $10,000
increase after the effective date of the initial public
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offering, and for the payment of an annual bonus of up to 30% of his salary,
awardable at the board's discretion. As a part of Mr. Eaton's compensation, we
granted him an early exercise for incentive stock options to purchase 700,000
shares of common stock, subject to a five year vesting schedule and our option
to repurchase the unvested shares. If we terminate Mr. Eaton's employment
without cause, he will be entitled to receive his salary for an additional
nine months and will vest the additional portion of his common stock that would
have vested during the additional nine months.
In March 2000, we entered into an employment agreement with Douglas Hawkins, our
Chief Financial Officer and Senior Vice President. The agreement provides for an
annual salary of $160,000 and the payment of an annual bonus of up to 20% of his
salary, awardable at the board's discretion. As a part of Mr. Hawkins'
compensation, we granted Mr. Hawkins incentive stock options to purchase 300,000
shares of common stock, 225,000 of which are subject to a five year vesting
schedule. His agreement also provides that if we terminate Mr. Hawkins without
cause, he will be entitled to receive his salary for an additional six months.
We expect to enter into an executive employment agreement with Michael Nash, our
Executive Vice President of Sales and Marketing, on similar terms as our
employment agreement with Mr. Hawkins.
Each of the options issued to Mr. Eaton, Mr. Hawkins and Mr. Nash contain a
provision that provides for the immediate acceleration and vesting of all the
optionee's unvested options in the event that we experience a change of control
and the optionee's employment is either terminated without cause, the optionee's
place of employment is moved more than 50 miles following the change of control,
or there is a material alteration or reduction in the optionee's employment
responsibilities.
EMPLOYEE BENEFIT PLANS
2000 EQUITY INCENTIVE PLAN
In March 2000, we amended and restated our 1991 Stock Option Plan and renamed it
as the 2000 Equity Incentive Plan. As of March 31, 2000, options to purchase an
aggregate of 2,343,191 shares of common stock were outstanding under this plan.
SHARE RESERVE
A total of 5,500,000 shares of our common stock have been reserved for issuance
under the 2000 incentive plan. On January 1 of each year, commencing with
January 1, 2001, the share reserve will increase by the greater of the
following:
- - 5% of our total outstanding common stock (on a fully diluted, as converted
basis) at the time of the increase; or
- - the number of shares of common stock subject to stock awards granted under
this plan during the prior 12-month period.
Notwithstanding the foregoing, the board may provide for a lesser increase in
the aggregate number of shares of common stock that is available for issuance
under the plan as they deem appropriate. Subject to adjustments for stock
combinations or splits, the increase in the maximum aggregate number of shares
of our common stock available for issuance under this plan shall not exceed
50,000,000 shares of common stock.
When a stock award expires or is terminated before it is exercised, the shares
not acquired pursuant to the stock award again become available for issuance
under this plan.
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ADMINISTRATION
Our board of directors administers this plan. Our board of directors, however,
may delegate this authority to a committee of one or more board members. Our
board of directors or a committee of the board has the authority to construe,
interpret and amend the plan as well as to determine:
- - the recipient of any stock award;
- - the number of stock awards a recipient may receive;
- - the grant date of a stock award;
- - the number of shares subject to a stock award;
- - the exercisability and vesting of a stock award;
- - the exercise price of a stock award;
- - the type of consideration to receive stock under a stock award; and
- - the other terms of a stock award.
Our board of directors may amend or modify the plan at any time. However, no
amendment or modification shall adversely affect the rights and obligations with
respect to stock awards already made unless the holder consents to that
amendment or modification. In addition, our board of directors may, if required
or desirable, seek the approval of our stockholders to:
- - increase the maximum number of shares issuable under incentive stock options
under the 2000 incentive plan or the rate at which shares are added to the
reserve of our 2000 incentive plan (except for permissible adjustments in
the event of certain changes in our capitalization);
- - materially modify the eligibility requirements for participation; or
- - materially increase the benefits accruing to participants.
ELIGIBILITY
The 2000 incentive plan permits us to grant stock awards to our employees,
directors and consultants or certain of our affiliates. A stock award made under
the plan may be an incentive stock option, or ISO, within the meaning of Section
422 of the Internal Revenue Code, a nonstatutory stock option, or NSO, a right
to purchase restricted stock or a restricted stock bonus.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to the chief
executive officer or any of the four highest compensated officers (excluding the
chief executive officer) in a taxable year to the extent that the compensation
of that officer exceeds $1,000,000. To prevent options granted under the 2000
Equity Plan from being included in this compensation, in any calendar year the
board may not grant options under the 2000 Equity Plan to an employee covering
an aggregate of more than 1,000,000 shares.
STOCK OPTION PROVISIONS GENERALLY
In general, the duration of a stock option granted under the plan cannot exceed
ten years. The exercise price of an ISO cannot be less than 100% of the fair
market value of the common stock on the date of grant. The exercise price of an
NSO cannot be less than 85% of the fair market value of the common stock on the
date of grant. An ISO may be transferred only on death, but an NSO may also be
transferable to the extent permitted in the stock option agreement.
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Unless the terms of an optionholder's stock option agreement provide for earlier
or later termination, if all of an optionholder's service relationships with us
and our affiliates terminate, then generally that optionholder (or that
optionholder's beneficiary if that optionholder has died) may exercise vested
options within:
- - 18 months after that date, if termination is due to death;
- - 12 months after that date, if termination is due to disability; or
- - 3 months after that date, if termination is for any reason other than
disability or death.
ISOs may be granted only to our employees (including those of our affiliates).
The aggregate fair market value, determined at the time of grant, of shares of
our common stock with respect to which ISOs are exercisable for the first time
by an optionholder during any calendar year under all of our stock plans may not
exceed $100,000. An ISO granted to a person who at the time of grant owns or is
deemed to own more than 10% of the total combined voting power of us or any of
our affiliates must have a term of no more than five years and an exercise price
that is at least 110% of fair market value at the time of grant.
PROVISIONS OF OTHER STOCK AWARDS GENERALLY
Our board or directors or a committee of the board determines the purchase price
of other stock awards, which for nonstatutory stock options and stock purchase
awards cannot be less than 50% of our stock's fair market value at the time of
grant. Stock bonuses, however, may be awarded in consideration of past services
without additional payment. Shares that we sell or award under the plan may, but
need not be, restricted and subject to a repurchase option in our favor in
accordance with a vesting schedule. Our board of directors or a committee of our
board, however, may accelerate the vesting of restricted stock.
EFFECT ON STOCK AWARDS OF A CHANGE IN CONTROL
The plan provides that in the event of a change in control of us, the surviving
entity may assume all outstanding stock awards or substitute similar stock
awards for them. If the surviving entity determines not to assume or substitute
for these stock awards, the vesting in full of stock awards held by persons
whose service with us or our affiliates has not already terminated will
accelerate prior to this change in control. Awards not assumed or substituted
and not exercised prior to the effective date of the change in control will
terminate and cease to be outstanding on the effective date of the change in
control.
OTHER PROVISIONS
If there is a transaction or event not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend, or stock
split, the board will appropriately adjust the class and the maximum number of
shares subject to this plan, the maximum number of shares available for ISOs,
and the Section 162(m) limit.
PLAN TERMINATION
The plan may be suspended or terminated by the board at any time, but in any
event will terminate the day before the tenth anniversary of the plan.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our 2000 Employee Stock Purchase Plan in March
2000, and our stockholders subsequently approved this plan.
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54
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
SHARE RESERVE
A total of 400,000 shares of our common stock are authorized for issuance under
the plan. On the last day of each fiscal year, beginning with December 31, 2000,
and including and ending on December 31, 2009, the share reserve will increase
by the greater of the following:
- - 2% of our total outstanding common stock, on a fully-diluted, as converted
basis;
- - the number of shares issued under the plan in the preceding 12-month period;
or
- - a lesser amount as determined by our board of directors at or prior to the
date of the increase.
In any event, the maximum aggregate number of shares that may be sold under the
plan will not increase by more than 5,000,000 shares.
The plan is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended. Under
the plan, eligible employees will be able to purchase our common stock at a
discounted price in periodic offerings. The plan and the first offering under
the plan will commence on the effective date of this offering.
ELIGIBILITY
All employees are eligible to participate in the plan so long as they are
employed by us, or a US-incorporated subsidiary designated by our board of
directors, for at least 20 hours weekly, for at least five months per calendar
year. Any employee who is a 5% stockholder is not eligible to participate in the
plan.
OFFERINGS
Under the plan, each offering after the initial offering will be 24 months long
and will be divided into shorter purchase periods, approximately six months
long, unless specifically lengthened or shortened by our board of directors.
Unless our board determines otherwise, participating employees in the initial
offering will purchase our common stock at a price per share equal to the lesser
of:
- - 85% of the fair market value of a share of our common stock on the first day
of the offering; or
- - 85% of the fair market value of a share of our common stock on the purchase
date.
The first offering under the plan will begin on the effective date of this
offering and end on May 31, 2002, and the shares will be registered on a
registration statement on Form S-8 soon after the effective date of this
offering. Therefore, new 24-month offering periods commence every 6 months on
each May 31 and November 30 following the initial offering. The fair market
value of the shares on the first date of this offering will be the price per
share at which our shares are first sold to the public as specified in the final
prospectus with respect to this offering. Otherwise, fair market value generally
means the closing sales price (rounded up where necessary to the nearest whole
cent) for these shares (or the closing bid, if no sales were reported) as quoted
on the Nasdaq National Market on the last trading day prior to the relevant
determination date, as reported in THE WALL STREET JOURNAL.
Our board of directors may provide that employees who become eligible to
participate after the offering period begins nevertheless may enroll in the
offering. These employees will purchase our stock at the lower of:
- - 85% of the fair market value of a share on the day they began participating
in the purchase plan; or
- - 85% of the fair market value of a share on the purchase date.
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55
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
Participating employees may authorize payroll deductions of up to 15% of their
compensation for the purchase of stock under the plan. Employees may end their
participation in an offering before a purchase period ends. Participation ends
automatically on termination of employment.
OTHER PROVISIONS
Our board of directors may grant eligible employees purchase rights under the
plan only if the purchase rights together with any other purchase rights granted
under other employee stock purchase plans established by us or by our
affiliates, if any, do not permit the employee's rights to purchase our stock to
accrue at a rate which exceeds $25,000 worth of our stock (based on its fair
market value at the time the purchase right was granted) for each calendar year
in which the purchase rights are outstanding.
Upon a change in control of us, the successor corporation may either assume or
replace outstanding purchase rights. Alternatively, the time for exercise of
purchase rights under the ongoing offering period(s) will be accelerated and our
stock will be purchased for the participants immediately before the change in
control.
SHARES ISSUED
The plan will not be effective until the effective date of this offering.
Therefore, as of the date hereof, no shares of our common stock have been
purchased under the plan.
PLAN TERMINATION
The plan will terminate when the share reserve is exhausted, unless our board of
directors terminates it sooner.
401(k) PLAN
We sponsor a 401(k) plan, a defined contribution plan intended to qualify under
Section 401(a) and 401(k) of the Internal Revenue Code of 1986. All employees
are eligible to participate. Participants may make pre-tax contributions to the
401(k) plan of up to 15% of their eligible earnings, subject to a statutorily
prescribed annual limit. Under the 401(k) plan, each employee is fully vested in
his or her deferred salary contributions. Employee contributions are held and
invested by the 401(k) plan's trustee.
We also have a 401(k) matching plan, intended to be a tax-qualified defined
contribution under subsections 401(a) and (m) and section 415 of the Internal
Revenue Code of 1986. Each participant who makes elective deferral contributions
to the savings plan is eligible to have up to 50% of the elective deferral made
for each plan year subject to a $1,000 per year limitation.
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56
<PAGE>
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RELATED PARTY TRANSACTIONS
SALES OF SECURITIES
The following executive officers, directors or holders of more than 5% 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 SERIES D
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Jerry B. Gin........................ 1,659,829 -- 71,834 -- --
Vernon G. Wong...................... 1,619,829 -- 50,084 -- --
King Y. Lee......................... 120,500 50,000 165,385 47,620 66,666
Donald J. Eaton..................... 700,000(1)
FIVE PERCENT STOCKHOLDERS
Transpac Capital Pte. Ltd........... 2,100,000
Tjoa Thian Song..................... 1,034,483 571,428 200,000
Date(s) of Purchase................. 1989 to 1993 1992 to 1993 1994 to 1997 1998 2000
</TABLE>
- ------------
(1) Includes 600,000 shares issued upon the early exercise of stock options
which are subject to our repurchase option. Our repurchase option lapses as
follows: one-fifth of the shares vest at the end of the first year
anniversary of Mr. Eaton's employment, and the balance of the shares vest in
equal monthly portions over the next 48 months after the first year
anniversary.
For additional information regarding the ownership of securities by executive
officers, directors and stockholders who beneficially own 5% for more of our
outstanding common stock, please see "Principal stockholders."
INVESTOR RIGHTS AGREEMENT
Upon the closing of this offering, all shares of our outstanding Series A,
Series B, Series C and Series D Preferred Stock will be automatically converted
into common stock on a one for one basis. We have entered into an agreement with
the directors, officers and 5% stockholders, under which these and other
preferred stockholders will have registration rights with respect to their
shares of common stock following this offering. See "Description of Capital
Stock--Registration Rights" for a further description of the terms of this
agreement.
OTHER TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
In April 1994, Jerry Gin, our co-founder and President borrowed $150,000 from us
under a promissory note due in April 2004. In April 1994, Vernon Wong, our
co-founder and Chief Scientific Officer borrowed $150,000 from us under a
promissory note due in April 2003. The notes were used by Mr. Gin and Mr. Wong
to each purchase 600,000 shares of our common stock at the price of $0.25 per
share. These notes are collateralized by a pledge of shares of common stock of
the Company and bear no interest.
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57
<PAGE>
RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
STOCK OPTIONS
Stock option grants to our executive officers and directors are described in
this prospectus under the captions "Management--Board Compensation" and
"--Executive Compensation."
Executive employment agreements are described in this prospectus under the
caption "Management--Employment Agreements."
RELATIONSHIP WITH TRANSPAC
On October 3, 1995, we entered into an agreement with Transpac Capital
Pte. Ltd. for Transpac to provide us with the aggregate sum of $7,400,000 in
three advances. The advances were to be in the form of a loan convertible into
Series B preferred stock. We received the initial advance of $2,000,000 in
October 1995. In 1997, Transpac acquired 2,100,000 shares of our Series B
preferred stock for an aggregate purchase price of $5,400,000, completing the
amounts that were to be provided to us under the 1995 agreement. The loan and
accrued interest are due on October 2000 and carries interest at the compounded
annual rate of 8%. Transpac has the right to convert all or any portion of the
$2,000,000 loan and accrued interest on the loan into Series B preferred stock
at $2.00 per share for the first $2.0 million and $2.75 per share for amounts
between $2.0 million and $4.0 million. As of March 31, 2000, the outstanding
amount, including accrued interest under this note, was approximately
$2,832,000.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with our directors and
officers to indemnify these persons to the full extent permitted by law. We also
intend to execute these agreements with our future directors and officers.
We believe that each of the foregoing transactions were in our best interest. As
a matter of policy the transactions were, and all future transactions between
ourselves and any of our officers, directors or principal stockholders will be,
approved by a majority of the independent and disinterested members of the board
of directors. Furthermore, the transactions will be on terms no less favorable
to us than could be obtained from unaffiliated third parties and will be in
connection with bona fide business purposes.
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58
<PAGE>
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PRINCIPAL STOCKHOLDERS
The following table shows information known to us with respect to the beneficial
ownership of our common stock as of March 31, 2000, and as adjusted to reflect
the sale of the shares of common stock offered under this prospectus by:
- - each person or group of affiliated persons who is known by us to own
beneficially 5% or more of our common stock;
- - each of our directors;
- - each officer listed in the "Summary compensation" table above; and
- - all of our directors and executive officers as a group.
Except as indicated in the footnotes to this table and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of our common stock shown as
beneficially owned by them. Beneficial ownership and percentage ownership are
determined in accordance with the rules of the SEC. The table below includes the
number of shares underlying options and warrants which are exercisable within 60
days from March 31, 2000 and assumes the conversion of all shares of our
preferred stock into shares of our common stock prior to this offering. It is
therefore based on 17,324,817 shares of our common stock outstanding prior to
this offering and shares outstanding immediately after this offering.
The address for those individuals for which an address is not otherwise
indicated is: 639 North Pastoria Avenue, Sunnyvale, California 94085.
<TABLE>
<CAPTION>
SHARES ISSUABLE
PURSUANT TO
WARRANTS AND
OUTSTANDING OPTIONS
SHARES OF EXERCISABLE WITHIN PERCENT OWNED PERCENT
COMMON 60 DAYS OF BEFORE THIS OWNED AFTER
BENEFICIAL OWNER STOCK MARCH 31, 2000 OFFERING THIS OFFERING
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Donald J. Eaton (1)............................ 700,000 700,000 4.0
Jerry B. Gin................................... 1,691,663 407,750 12.1
Vernon G. Wong................................. 1,709,913 446,250 12.4
Douglas Hawkins (2)............................ 300,000 1.7
Michael Nash (3)............................... 300,000 1.7
Benjamin F. Ross............................... 66,500 *
King Y. Lee (4)................................ 450,171 41,666 2.8
Michael F. Bigham.............................. -- 50,000 * --
Ernest Mario................................... -- 50,000 * --
All directors and executive officers as a group
(9 persons)..................................
FIVE PERCENT STOCKHOLDERS
Transpac Capital Pte Ltd. (5).................. 3,412,000 19.7
6 Shenton Way, #20-09 DBS
Tower Two, Singapore 068809
Tjoa Thian Song................................ 1,805,911 10.4
</TABLE>
- ---------
* Less than one percent.
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59
<PAGE>
PRINCIPAL STOCKHOLDERS
- --------------------------------------------------------------------------------
(1) Includes 600,000 shares issued upon the early exercise of stock options
which are subject to our repurchase option. Our repurchase option lapses as
follows: one-fifth of the shares vest at the end of the first year
anniversary of Mr. Eaton's employment, and the balance of the shares vest in
equal monthly portions over the next 48 months after the first year
anniversary.
(2) Includes 75,000 shares that are vested and 225,000 shares that may be
exercised early subject to our right of repurchase on unvested shares.
Mr. Hawkins' shares vest in the same manner as Mr. Eaton set forth above.
(3) Includes 75,000 shares that are vested and 225,000 shares that may be
exercised early subject to our right of repurchase on unvested shares.
Mr. Nash's shares vest in the same manner as Mr. Eaton set forth above.
(4) Includes 25,000 shares of Series B Preferred Stock issued on March 3, 1996,
115,385 shares of Series B Preferred Stock purchased on April 25, 1996 and
47,620 shares of Series C Preferred Stock held by Ping C. Lee Trust.
Ping C. Lee, the Trustee of the Ping C. Lee Trust, is the wife of King C.
Lee.
(5) Includes 857,556 shares of Series B Preferred Stock held by Transpac
Industrial Holdings Limited, 236,334 shares of Series B Preferred Stock held
by Regional Investment Company Limited and a note convertible into 1,312,000
shares of Series B Preferred Stock at March 31, 2000.
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<PAGE>
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DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock, as
well as options and warrants to purchase our common stock, and provisions of our
certificate of incorporation and our bylaws, all as will be in effect upon the
closing of this offering. This description is only a summary. You should also
refer to the certificate and bylaws which have been filed with the SEC as
exhibits to our registration statement, of which this prospectus forms a part.
the descriptions of the common stock and preferred stock, as well as options and
warrants to purchase our common stock, reflect changes to our capital structure
that will occur upon the closing of this offering in accordance with the terms
of the certificate.
Upon completion of this offering, our authorized capital stock will consist of
75,000,000 shares of common stock, par value $.001 per share, and 5,000,000
shares of preferred stock, par value $.001 per share.
COMMON STOCK
As of March 31, 2000, there were 5,104,819 shares of common stock outstanding
and held of record by 78 stockholders. There will be shares of common
stock outstanding upon the closing of this offering, which gives effect to the
issuance of shares of common stock offered by us under this prospectus
and the conversion of preferred stock discussed below.
Each share of common stock has identical rights and privileges in every respect.
The holders of our common stock are entitled to vote upon all matters submitted
for vote to our stockholders and are entitled to one vote for each share of
common stock held.
Subject to the prior rights and preferences, if any, applicable to shares of
preferred stock or any series of preferred stock, the holders of common stock
are entitled to receive such dividends, payable in cash, stock or otherwise, as
may be declared by our board of directors out of any funds legally available for
the payment of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the holders
of common stock will be entitled to receive after distribution in full of the
preferential amounts, if any, to be distributed to the holders of preferred
stock or any series of preferred stock, all of the remaining assets available
for distribution ratably in proportion to the number of shares of common stock
held by them. Holders of common stock have no preferences or any preemptive
conversion or exchange rights.
PREFERRED STOCK
As of March 31, 2000, there were 9,990,225 shares of convertible preferred stock
outstanding. Upon the closing of this offering, all outstanding shares of
convertible preferred stock will be converted into shares of our common
stock and will be held of record by 191 stockholders. These shares of
convertible preferred stock will no longer be authorized, issued or outstanding.
Our certificate of incorporation authorizes the issuance of 5,000,000 shares of
preferred stock, par value $.001 per share.
Our board is authorized to provide for the issuance of shares of preferred stock
in one or more series, and to fix for each series voting rights, if any,
designations, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions as provided in a
resolution or resolutions adopted by the board. The board may authorize the
issuance of shares of
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61
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
preferred stock with terms and conditions which could discourage a takeover or
other transaction that holders of some or a majority of shares of common stock
might believe to be in the best interests or in which holders of common stock
might receive a premium for their shares over the then market price.
REGISTRATION RIGHTS
Pursuant to agreements between us and the holders of 8,628,258 shares of our
common stock that will be outstanding after this offering, these holders are
entitled to require us for a period of two years following this offering to
register the sales of their shares under the Securities Act of 1933.
Prior to the conversion of these shares to common stock in this offering, these
holders were comprised of the holders of Series A, Series C and Series D
Preferred Stock, certain holders of Series B Preferred Stock and Tjoa Than Song.
In addition, Transpac Industrial Holdings Limited and Transpac Capital Pte Ltd
are entitled to require us for two years following this offering to register the
sales of 1,321,473 shares issuable upon conversion of a convertible note.
The Series A holders are entitled under their respective agreements to the same
registration rights that are granted to future purchasers of the company's
stock. The registration rights held by other stockholders are summarized below.
Subject to limitations, Tjoa Thian Song's registration rights include the
following:
- - one demand registration right that the holder may exercise no sooner than
180 days after our initial public offering, which requires us to register
sales of a holder's shares, subject to the discretion of our board of
directors to delay the registration not more than once in any twelve month
period; and
- - an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering.
Subject to limitations, the registration rights of Transpac Industrial Holdings
Limited and Transpac Capital Pte Ltd, include the following:
- - an unlimited number of demand registration rights that holders may exercise
no sooner than 120 days after our initial public offering, which require us
to register sales of a holder's shares; and
- - an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering,
subject to the discretion of the managing underwriter of the offering.
Subject to limitations, the registration rights of the Series C holders include
the following:
- - one demand registration right that holders may exercise no sooner than 180
days after our initial public offering, which require us to register sales
of a holder's shares, subject to the discretion of our board of directors to
delay the registration not more than once in any twelve month period;
- - two piggyback registration rights that require us to register sales of a
holder's shares when we undertake a public offering, subject to the
discretion of the managing underwriter of the offering; and
- - an unlimited number of rights to require us to register sales of shares on
Form S-3, a short form of registration statement permitted to be used by
some companies, which holders may exercise if they request registration of
the sale of more than $1.0 million of common stock provided that Form S-3 is
available for such offering and subject to the discretion of our board of
directors to delay the registration not more than once in any twelve-month
period.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
Subject to limitations, the registration rights of the Series D holders include
the following:
- - two demand registration rights that holders may exercise no sooner than 180
days after our initial public offering, which require us to register sales
of a holder's shares, subject to the discretion of our board of directors to
delay the registration not more than once in any twelve month period;
- - an unlimited number of piggyback registration rights that require us to
register sales of a holder's shares when we undertake a public offering,
subject to the discretion of the managing underwriter of the offering to
decrease the amount that holder may register to not less than twenty-five
percent (25%) of the total offering; and
- - two rights to require us to register sales of shares on Form S-3, a short
form of registration statement permitted to be used by some companies, which
holders may exercise if they request registration of the sale of more than
$500,000 of common stock provided that Form S-3 is available for such
offering and subject to the discretion of our board of directors to delay
the registration not more than twice in any twelve-month period.
We will bear all registration expenses if these registration rights are
exercised, other than underwriting discounts and commissions. These registration
rights terminate as to a holder's shares when that holder may sell those shares
under Rule 144(k) of the Securities Act, which for most parties means two years
after the acquisition of the shares from us or when a holder owning less than
one percent of our outstanding common stock may sell such holder's shares under
Rule 144 during any ninety day period.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates acquisitions of Delaware corporations. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date the person becomes an interested stockholder, unless:
- - our board of directors approved the business combination or the transaction
in which the person became an interested stockholder prior to the date the
person attained this status;
- - upon consummation of the transaction that resulted in the person becoming an
interested stockholder, the person owned at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced, excluding
shares owned by persons who are directors and also officers; or
- - on or subsequent to the date the person became an interested stockholder,
our board of directors approved the business combination and our
stockholders other than the interested stockholder authorized the
transaction at an annual or special meeting of stockholders.
Section 203 defines a "business combination" to include:
- - any merger or consolidation involving the corporation and the interested
stockholder;
- - any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- - in general, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder;
or
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63
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
- - the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as any person who,
together with the person's affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status did own, 15%
or more of a corporation's voting stock.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws will provide that any action
required or permitted to be taken by our stockholders at an annual or special
meeting may be taken only if it is properly brought before the meeting, and may
not be taken by written action in lieu of a meeting. The bylaws limit who may
call a special meeting of our stockholders. Under our bylaws, stockholders
wishing to propose business to be brought before a meeting of stockholders will
be required to comply with various advance notice requirements. Finally, our
certificate of incorporation and bylaws do not permit stockholders to take any
action without a meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Norwest Bank Minnesota,
N.A.
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64
<PAGE>
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock.
The market price of our common stock after this offering could decline as a
result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Such sales also could
make it more difficult for us to sell equity securities in the future at a time
and price that we deem appropriate. Based on the number of shares outstanding at
March 31, 2000, after this offering, we will have outstanding shares of
common stock. Of these shares, the shares being offered hereby are freely
tradable. This leaves shares eligible for sale in the public market as
follows:
<TABLE>
<CAPTION>
NUMBER
OF SHARES DATE
- -----------------------------------------------------------------------------
<S> <C>
After the date of this prospectus
At various time after 90 days from the date of this
prospectus under Rule 701
At various times after 180 days from the date of this
prospectus, subject, in some cases, to volume limitations
under Rule 144
</TABLE>
The holders of our common stock, including all of our directors and
officers, together with the holders of options to purchase shares of
common stock, have entered into lock-up agreements under which they have agreed
with the underwriters not to offer, sell, contract to sell, hedge or otherwise
dispose of, directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any of its common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus continuing through the date 180 days
after the date of this prospectus, without the prior written consent of Warbug
Dillon Read LLC.
In general, under Rule 144 of the Securities Act of 1933, a person or persons
whose shares are required to be aggregated, including an affiliate, whose shares
have been owned for at least one year is entitled to sell, within any
three-month period after the date of this prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of common
stock--approximately shares immediately after this offering--or the
average weekly trading volume in our common stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person who is not deemed to have been an affiliate
of ours at any time during the 90 days preceding a sale and whose shares have
been beneficially owned by nonaffiliates for at least two years would be
entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from one
of our affiliates, such person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.
Following 90 days after the date of this prospectus, shares issued upon exercise
of options that we granted prior to the date of this offering will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance upon
Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule 144.
As of March 31, 2000, options to purchase a total of 2,343,191 shares of common
stock were outstanding, 872,350 of which were currently exercisable. Of these
2,343,191 shares, shares may be eligible for sale in the public market at
various times after 90 days from the date of this prospectus.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Upon the closing of this offering, we intend to file a registration statement to
register for resale the shares of common stock reserved for issuance under
our stock option plans. We expect the registration statement to become effective
immediately upon filing. Shares issued upon the exercise of stock options
granted under our stock option plans will be eligible for resale in the public
market from time to time subject to vesting and, in the case of certain options,
the expiration of the lock-up agreements referred to above.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 9,949,731 shares of our common
stock that will be outstanding after this offering, including 1,321,473 shares
issued under the convertible loan, 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.
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<PAGE>
- --------------------------------------------------------------------------------
UNDERWRITING
Oculex and the underwriters for the offering named below have entered into an
underwriting agreement concerning the shares being offered. Subject to
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Warburg Dillon Read LLC, Banc of
America Securities LLC and Dain Rauscher Incorporated are the representatives of
the underwriters.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------
<S> <C>
Warburg Dillon Read LLC.....................................
Banc of America Securities LLC..............................
Dain Rauscher Incorporated..................................
------
Total...................................................
======
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have a 30-day option to buy from us up to an
additional shares at the initial public offering price less the
underwriting discounts and commissions to cover these sales. If any shares are
purchased under this option, the underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase up to
an additional shares.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Per share................................................... $ $
Total................................................... $ $
</TABLE>
We estimate that the total expenses of the offering payable by us, excluding
underwriting discounts and commissions, will be approximately $ .
Shares sold by the underwriters to the public will initially be offered at the
initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
The underwriters have informed us that they do not expect discretionary sales to
exceed % of the shares of common stock to be offered.
Oculex, its directors, officers and all of its stockholders have agreed with the
underwriters not to offer, sell, contract to sell, hedge or otherwise dispose
of, directly or indirectly, or file with the SEC a registration statement under
the Securities Act relating to, any of its common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, without the prior written consent of Warburg Dillon
Read LLC.
- --------------------------------------------------------------------------------
67
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be negotiated by us and the
representatives. The principal factors to be considered in determining the
initial public offering price include:
- - the information set forth in this prospect and otherwise available to the
representatives;
- - the history and the prospects for the industry in which we compete;
- - the ability of our management;
- - our prospects for future earnings, the present state of our development and
our current financial position;
- - the general condition of the securities markets at the time of this
offering; and
- - the recent market price of, and the demand for, publicly traded common stock
of generally comparable companies.
In connection with the offering, the underwriters may purchase and sell shares
of common stock in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market, in
the over-the-counter market or otherwise.
We have agreed to indemnify the several underwriters against some liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments that the underwriters may be required to make in respect thereof.
- --------------------------------------------------------------------------------
68
<PAGE>
- --------------------------------------------------------------------------------
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed
upon for us by Cooley Godward LLP, Palo Alto, California. As of the date of this
prospectus, Cooley Godward LLP owns an aggregate of 3,269 shares of our common
stock. Dewey Ballantine LLP, New York, New York is acting as counsel for the
underwriters in connection with various legal matters relating to the shares of
common stock offered by this prospectus.
EXPERTS
Ernst &Young LLP, independent auditors, have audited our consolidated 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've 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.
The statements in this prospectus as set forth under the captions "Risk
factors--The uncertainty of patent and proprietary technology protection may
adversely affect us," "--Our success will depend partly on our ability to
operate without infringing upon or misappropriating the proprietary rights of
others" and "--The rights we rely upon to protect our trade secrets may not be
adequate, enabling third parties to use our technology" and
"Business--Intellectual Property" have been passed upon by Flehr Hohbach Test
Albritton & Herbert, San Francisco, California, our patent counsel and experts
on such matters and are included herein upon its review and approval.
- --------------------------------------------------------------------------------
69
<PAGE>
- --------------------------------------------------------------------------------
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
shares of common stock to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information with respect to us and the shares of common stock to be sold in this
offering, reference is made to the registration statement. Statements contained
in this prospectus as to the contents of nay contract, agreement or other
document referred to are not necessarily complete. Whenever a reference is made
in this prospectus to any contract or other document of ours, the reference may
not be complete, and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.
You may read and copy all or any portion of the registration statement or any
other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.
This prospectus includes statistical data that were obtained from industry
publications. These industry publications generally indicate that the authors of
these publications have obtained information from sources believed to be
reliable, but do not guarantee the accuracy and completeness of their
information. While we believe these industry publications to be reliable, we
have not independently verified their data.
We have filed with the Securities and Exchange Commission a registration
statement (of which this prospectus forms a part) on Form S-1 with respect to
the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedule thereto. For further information with respect to us and
the shares of common stock offered hereby, reference is made to the registration
statement, including the exhibits and schedules thereto. Statements contained in
this prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, where any contract is an exhibit to the
registration statement, each statement with respect to the contract is qualified
in all respects by the provisions of the relevant exhibit, to which reference is
hereby made. You may read and copy any document we file at the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and the Securities and Exchange Commission's
Regional Offices located at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center,
13th Floor, New York, New York 10048. You may call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information about the operation of the
public reference rooms.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for quotation on the Nasdaq National Market, such reports, proxy and information
statements and other information may also be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, NW, Washington, D.C.
20006.
- --------------------------------------------------------------------------------
70
<PAGE>
Oculex Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ----------------------------------------------------------------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Shareholders' Equity.............. F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
- --------------------------------------------------------------------------------
F-1
<PAGE>
Oculex Pharmaceuticals, Inc.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Oculex Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Oculex
Pharmaceuticals, Inc. as of December 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' 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 consolidated financial position of Oculex
Pharmaceuticals, Inc. at December 31, 1998 and 1999, and the consolidated
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.
San Jose, California
March 12, 2000,
except for Note 9, as to which the date is
April , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that it will be signed upon completion of
the reincorporation and other matters described in Note 9 to the consolidated
financial statements.
/s/ ERNST & YOUNG LLP
San Jose, California
April 5, 2000
- --------------------------------------------------------------------------------
F-2
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
LIABILITIES AND
SHAREHOLDERS'
DECEMBER 31, EQUITY
1998 1999 DECEMBER 31, 1999
- --------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $3,410,145 $2,723,858
Short-term investments............................... 5,908,706 --
Other current assets................................. 153,400 229,603
----------- -----------
Total current assets............................... 9,472,251 2,953,461
Property and equipment, net............................ 1,228,750 1,189,712
Other assets........................................... 135,199 396,201
----------- -----------
Total assets........................................... $10,836,200 $4,539,374
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $204,909 $250,156 $250,156
Accrued compensation................................. 91,695 106,170 106,170
Other accrued liabilities............................ 75,794 256,917 256,917
Current portion of deferred revenue.................. 15,000 15,000 15,000
Current portion of capital lease obligations......... 151,414 138,911 138,911
Convertible loan with Transpac....................... -- 2,777,436 --
----------- ----------- --------------
Total current liabilities.............................. 538,812 3,544,590 767,154
Deferred revenue....................................... 105,000 90,000 90,000
Convertible loan with Transpac......................... 2,570,831 -- --
Non-current portion of capital lease obligations....... 186,084 69,509 69,509
Other long-term liabilities............................ 232,279 359,211 359,211
Shareholders' equity:
Preferred stock, no par value, issuable in series;
11,000,000 shares authorized; aggregate liquidation
preference of $23,354,688 at December 31, 1999:
Series A convertible preferred stock, 330,000
shares designated; 330,000 shares issued and
outstanding at December 31, 1998 and 1999, no
shares pro forma.................................. 591,250 591,250 --
Series B convertible preferred stock, 7,500,000
shares designated; 5,267,878 shares issued and
outstanding at December 31, 1998 and 1999, no
shares pro forma.................................. 13,424,136 13,424,136 --
Series C convertible preferred stock, 1,500,000
shares designated; 1,328,296 shares issued and
outstanding at December 31, 1998 and 1999, no
shares pro forma.................................. 6,973,550 6,973,550 --
Common stock, no par value, 20,000,000 shares
authorized; 3,915,041 shares and 3,966,522 shares
issued and outstanding at December 31, 1998 and
1999, 12,175,400 shares pro forma................... 503,105 1,714,388 25,480,760
Deferred compensation related to stock options....... -- (748,970) (748,970)
Notes receivable from shareholders................... (300,000) (300,000) (300,000)
Accumulated other comprehensive income (loss)........ (34,672) (44,736) (44,736)
Accumulated deficit.................................. (13,954,175) (21,133,554) (21,133,554)
----------- ----------- --------------
Total shareholders' equity............................. 7,203,194 476,064 3,253,500
----------- ----------- --------------
Total liabilities and shareholders' equity............. $10,836,200 $4,539,374 $4,539,374
=========== =========== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-3
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Product sales......................................... $-- $-- $20,800
Grants................................................ 39,000 131,100 206,383
Contracts............................................. 215,000 15,000 15,000
------------ ------------ ------------
Total revenue....................................... 254,000 146,100 242,183
Costs and expenses:
Cost of product sales................................. -- -- 34,900
Research and development.............................. 2,924,030 5,526,844 5,717,134
Selling, general and administrative................... 884,753 963,090 1,432,389
Amortization of deferred compensation................. -- -- 294,746
------------ ------------ ------------
Total costs and expenses............................ 3,808,783 6,489,934 7,479,169
------------ ------------ ------------
Loss from operations.................................... 3,554,783 6,343,834 7,236,986
Interest income......................................... 417,922 610,934 296,639
Interest expense........................................ (189,416) (235,749) (239,032)
------------ ------------ ------------
Net loss................................................ $ (3,326,277) $ (5,968,649) $ (7,179,379)
============ ============ ============
Basic and diluted net loss per share.................... $(0.86) $(1.53) $(1.82)
============ ============ ============
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share..... 3,868,067 3,911,239 3,941,239
============ ============ ============
Pro forma basic and diluted net loss per share
(unaudited)........................................... $(0.59)
============
Weighted average shares used in computing pro forma
basic and diluted net loss per share (unaudited)...... 12,112,552
============
</TABLE>
- ---------
For the year ended December 31, 1999, research and development and selling,
general and administrative expenses exclude approximately $264,000 and $31,000,
respectively, of amortization of deferred compensation expense
See accompanying notes.
- --------------------------------------------------------------------------------
F-4
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK
SERIES A SERIES B SERIES C
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... 330,000 $591,250 2,904,493 $7,350,501 -- $--
Issuance of common stock upon
exercise of options at
$0.25--$0.50 per share in
November and December
1997........................ -- -- -- -- -- --
Issuance of Series B
convertible preferred stock
to investors at $2.00--$2.75
per share for cash from
January through December
1997........................ -- -- 2,363,385 6,073,635 -- --
Issuance of Series C
convertible preferred stock
to investors at $5.25 per
share for cash in December
1997........................ -- -- -- -- 484,762 2,545,000
Net loss..................... -- -- -- -- -- --
Change in unrealized gain
on available-for-sale
investments............... -- -- -- -- -- --
Total comprehensive loss..... -- -- -- -- -- --
------- -------- --------- ----------- ---------- ----------
Balance at December 31, 1997... 330,000 591,250 5,267,878 13,424,136 484,762 2,545,000
Issuance of common stock upon
exercise of options at
$0.25--$0.75 per share for
cash from February through
October 1998................ -- -- -- -- -- --
Issuance of Series C
convertible preferred stock
to investors at $5.25 per
share for cash from January
through June 1998........... -- -- -- -- 843,534 4,428,550
Net loss..................... -- -- -- -- -- --
Change in unrealized gain
on available-for-sale
investments............... -- -- -- -- -- --
Change in cumulative
translation adjustment.... -- -- -- -- -- --
Total comprehensive loss.......
------- -------- --------- ----------- ---------- ----------
Balance at December 31, 1998... 330,000 $591,250 5,267,878 $13,429,136 1,328,296 $6,973,550
<CAPTION>
COMMON STOCK DEFERRED NOTES ACCUMULATED
NUMBER COMPENSATION RECEIVABLE OTHER
OF RELATED TO FROM COMPREHENSIVE
SHARES AMOUNT STOCK OPTIONS SHAREHOLDERS INCOME (LOSS)
- ------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996... 3,865,061 $487,599 $-- $(300,000) $71,491
Issuance of common stock upon
exercise of options at
$0.25--$0.50 per share in
November and December
1997........................ 28,904 9,670 -- -- --
Issuance of Series B
convertible preferred stock
to investors at $2.00--$2.75
per share for cash from
January through December
1997........................ -- -- -- -- --
Issuance of Series C
convertible preferred stock
to investors at $5.25 per
share for cash in December
1997........................ -- -- -- -- --
Net loss..................... -- -- -- -- --
Change in unrealized gain
on available-for-sale
investments............... -- -- -- -- (36,289)
Total comprehensive loss..... -- -- -- -- --
---------- ---------- ------------ --------- --------
Balance at December 31, 1997... 3,893,965 497,269 -- (300,000) 35,202
Issuance of common stock upon
exercise of options at
$0.25--$0.75 per share for
cash from February through
October 1998................ 21,076 5,836 -- -- --
Issuance of Series C
convertible preferred stock
to investors at $5.25 per
share for cash from January
through June 1998........... -- -- -- -- --
Net loss..................... -- -- -- -- --
Change in unrealized gain
on available-for-sale
investments............... -- -- -- -- (35,202)
Change in cumulative
translation adjustment.... -- -- -- -- (34,672)
Total comprehensive loss.......
---------- ---------- ------------ --------- --------
Balance at December 31, 1998... 3,915,041 $503,105 $-- $(300,000) $(34,672)
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
- ------------------------------- ---------------------------------
<S> <C> <C>
Balance at December 31, 1996... $(4,659,249) $3,541,592
Issuance of common stock upon
exercise of options at
$0.25--$0.50 per share in
November and December
1997........................ -- 9,670
Issuance of Series B
convertible preferred stock
to investors at $2.00--$2.75
per share for cash from
January through December
1997........................ -- 6,073,635
Issuance of Series C
convertible preferred stock
to investors at $5.25 per
share for cash in December
1997........................ -- 2,545,000
Net loss..................... (3,326,277) (3,326,277)
Change in unrealized gain
on available-for-sale
investments............... -- (36,289)
------------
Total comprehensive loss..... -- (3,362,566)
------------ ------------
Balance at December 31, 1997... (7,985,526) 8,807,331
Issuance of common stock upon
exercise of options at
$0.25--$0.75 per share for
cash from February through
October 1998................ -- 5,836
Issuance of Series C
convertible preferred stock
to investors at $5.25 per
share for cash from January
through June 1998........... -- 4,428,550
Net loss..................... (5,968,649) (5,968,649)
Change in unrealized gain
on available-for-sale
investments............... -- (35,202)
Change in cumulative
translation adjustment.... -- (34,672)
------------
Total comprehensive loss....... (6,038,523)
------------ ------------
Balance at December 31, 1998... $(13,954,175) $7,203,194
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-5
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK
SERIES A SERIES B SERIES C
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998.... 330,000 $591,250 5,267,878 $13,424,136 1,328,296 $6,973,550
Issuance of common stock upon
exercise of options at
$0.31--$0.75 per share in
November and December 1999... -- -- -- -- -- --
Deferred compensation related
to stock options............. -- -- -- -- -- --
Amortization of deferred
compensation................. -- -- -- -- -- --
Compensation related to
issuance of grants to
consultants.................. -- -- -- -- -- --
Issuance of warrants to
consultants for services..... -- -- -- -- -- --
Net loss...................... -- -- -- -- -- --
Change in cumulative
translation adjustment..... -- -- -- -- -- --
Total comprehensive loss...... -- -- -- -- -- --
------- -------- --------- ----------- --------- ----------
Balance at December 31, 1999.... 330,000 $591,250 5,267,878 $13,424,136 1,328,296 $6,973,550
======= ======== ========= =========== ========= ==========
<CAPTION>
COMMON STOCK DEFERRED NOTES ACCUMULATED
NUMBER COMPENSATION RECEIVABLE OTHER
OF RELATED TO FROM COMPREHENSIVE
SHARES AMOUNT STOCK OPTIONS SHAREHOLDERS INCOME (LOSS)
- -------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998.... 3,915,041 $503,105 $-- $(300,000) $(34,672)
Issuance of common stock upon
exercise of options at
$0.31--$0.75 per share in
November and December 1999... 51,481 21,007 -- -- --
Deferred compensation related
to stock options............. -- 1,043,716 (1,043,716) -- --
Amortization of deferred
compensation................. -- -- 294,746 -- --
Compensation related to
issuance of grants to
consultants.................. -- 28,000 -- -- --
Issuance of warrants to
consultants for services..... -- 118,560 -- -- --
Net loss...................... -- -- -- -- --
Change in cumulative
translation adjustment..... -- -- -- -- (10,064)
Total comprehensive loss...... -- -- -- -- --
---------- ---------- ------------ --------- --------
Balance at December 31, 1999.... 3,966,522 $1,714,388 $(748,970) $(300,000) $(44,736)
========== ========== ============ ========= ========
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
- -------------------------------- ---------------------------------
<S> <C> <C>
Balance at December 31, 1998.... $(13,954,175) $7,203,194
Issuance of common stock upon
exercise of options at
$0.31--$0.75 per share in
November and December 1999... -- 21,007
Deferred compensation related
to stock options............. -- --
Amortization of deferred
compensation................. -- 294,746
Compensation related to
issuance of grants to
consultants.................. -- 28,000
Issuance of warrants to
consultants for services..... -- 118,560
Net loss...................... (7,179,379) (7,179,379)
Change in cumulative
translation adjustment..... -- (10,064)
------------
Total comprehensive loss...... -- (7,189,443)
------------ ------------
Balance at December 31, 1999.... $(21,133,554) $476,064
============ ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-6
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(3,326,277) $(5,968,649) $(7,179,379)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 239,084 324,525 400,214
Amortization of investments discount...................... (293,561) (479,406) (91,294)
Amortization of deferred compensation..................... -- -- 294,746
Compensation related to issuance of grants to
consultants.............................................. -- -- 28,000
Warrants issued to consultants for services............... -- -- 118,560
Accrued interest on convertible loan...................... 176,095 193,548 206,605
Changes in assets and liabilities:
Other current assets.................................... (99,390) 92,296 (76,203)
Other non-current assets................................ (3,673) (84,114) (261,002)
Accounts payable........................................ 2,060 92,819 45,247
Accrued compensation.................................... 39,008 29,356 14,475
Other accrued liabilities............................... 3,303 (74,512) 181,123
Deferred revenue........................................ 135,000 (15,000) (15,000)
Other long-term liabilities............................. 19,008 205,351 126,932
--------------- --------------- ---------------
Net cash used in operating activities....................... (3,109,343) (5,683,786) (6,206,976)
INVESTING ACTIVITIES
Purchase of property and equipment.......................... (353,906) (223,889) (332,984)
Purchase of short-term investments.......................... (12,703,200) (21,560,752) --
Proceeds from maturities of short-term investments.......... 10,000,000 23,000,000 6,000,000
--------------- --------------- ---------------
Net cash provided by (used in) investing activities......... (3,057,106) 1,215,359 5,667,016
FINANCING ACTIVITIES
Payments under capital lease obligations.................... (65,465) (179,964) (157,270)
Proceeds from convertible loan.............................. -- -- --
Proceeds from issuance of convertible preferred stock....... 8,618,635 4,428,550 --
Proceeds from issuance of common stock...................... 9,670 5,836 21,007
--------------- --------------- ---------------
Net cash provided by (used in) financing activities......... 8,562,840 4,254,422 (136,263)
--------------- --------------- ---------------
Change in cumulative translation on adjustment.............. -- (34,672) (10,064)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents........ 2,396,391 (248,677) (686,287)
Cash and cash equivalents at beginning of year.............. 1,262,431 3,658,822 3,410,145
--------------- --------------- ---------------
Cash and cash equivalents at end of year.................... $3,658,822 $3,410,145 $2,723,858
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $13,699 $38,655 $239,032
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Equipment purchased under capital leases.................... $209,588 $207,110 $28,192
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
F-7
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Oculex Pharmaceuticals, Inc. (the "Company" or "Oculex") was incorporated in the
state of California on July 3, 1989 to develop and manufacture novel drug
delivery systems that solve the significant problems associated with treating
intraocular diseases.
As a company focused on drug delivery, Oculex is not engaged in the time- and
capital-intensive search for newly discovered therapeutic compounds. Instead,
the Company's initial research and development programs have focused on known
pharmaceuticals that have demonstrated ophthalmic activity. Oculex then
formulates these drugs with its proprietary delivery technologies to permit the
controlled, timed release of drugs at the disease site.
Through December 31, 1998, the Company was active in product development, the
acquisition of equipment and facilities and raising capital; and through that
date was considered to be a development stage company. In 1999, the Company
completed clinical trials of its initial product and received approval to begin
selling the product in Mexico and Singapore. Consequently, the Company is no
longer considered to be in the development stage.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries in Singapore and China, Oculex Asia
Pharmaceuticals Pte Ltd ("Oculex Asia"), listed in Singapore, and Oculex China
Pharmaceuticals, Inc. ("Oculex China"), incorporated in Delaware. The operations
of Oculex China have been minimal through December 31, 1999. All significant
intercompany accounts and transactions have been eliminated.
FOREIGN CURRENCY TRANSLATION
The Company prepares its financial statements in US dollars, which is also the
Company's functional currency.
The functional currency of Oculex Asia is the Singapore dollar, since the
Singapore dollar is the primary currency in the economic environment in which
Oculex Asia conducts its operations. Monetary and nonmonetary accounts are
translated using the foreign exchange rate at the balance sheet date in
accordance with Statement of Financial Accounting Standards No. 52, FOREIGN
CURRENCY TRANSLATION. Operational accounts are translated and recorded at the
rate in effect at the date of the transaction. The effect of foreign currency
translation is reported in shareholders' equity as a component of accumulated
other comprehensive income (loss).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
F-8
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents are
invested in the money market funds with major financial institutions.
Investments classified as available-for-sale securities are carried at fair
market value based on quoted market prices with unrealized gains and losses, net
of tax, reported as other comprehensive income / loss until realized. Realized
gains and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in interest income. The Company
invests its excess cash in high-quality, short-term debt instruments. None of
the Company's debt security instruments had maturities greater than one year.
Interest and dividends on the investments are included in interest income.
Through December 31, 1999, there were no material realized gains or losses on
investments.
Cash equivalents and short-term investments at December 31, 1998 and 1999 were
as follows:
<TABLE>
<CAPTION>
1998 1999
GROSS GROSS
AMORTIZED UNREALIZED AMORTIZED UNREALIZED
COST GAIN (LOSS) FAIR VALUE COST GAIN (LOSS) FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents:
Cash...................... $153,242 $-- $153,242 $357,582 $-- $357,582
Money market funds........ 1,264,152 -- 1,264,152 377,526 -- 377,526
---------- ---------- ---------- ---------- ---------- ----------
1,417,394 -- 1,417,394 735,108 -- 735,108
Available-for-sale
securities:
Commercial paper.......... 1,992,751 -- 1,992,751 1,988,750 -- 1,988,750
---------- ---------- ---------- ---------- ---------- ----------
Total cash and cash
equivalents............... $3,410,145 $-- $3,410,145 $2,723,858 $-- $2,723,858
========== ========== ========== ========== ========== ==========
Short-term investments:
Commercial paper.......... $5,908,706 $-- $5,908,706 $-- $-- $--
========== ========== ========== ========== ========== ==========
</TABLE>
The Company limits its concentration of risk by diversifying its investments
among a variety of issuers.
PROPERTY AND EQUIPMENT
The Company records property and equipment at cost and calculates depreciation
using the straight-line method over the estimated useful lives of the assets,
generally five years. Furniture and equipment leased under capital leases are
amortized over the shorter of the asset life or the remaining lease term.
Amortization of capital leases is included in depreciation expense.
REVENUE RECOGNITION
Product sales are recognized upon the passage of title to customers, which
coincides with the date of shipment.
Grant revenues are recognized according to the type of grant.
Expenditure-related grants, which include grants relating to manpower and
training costs, are taken to income as the relevant expenses are incurred.
Asset-related grants, which include grants relating to the purchase of approved
research
- --------------------------------------------------------------------------------
F-9
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
and development equipment, are recognized as revenues over the years and in the
proportions in which the depreciation on those assets is charged. All grant
revenues recognized to date have been received from an agency of the Singapore
government.
Contract revenues are recognized when the Company's earnings process is complete
as specified in the related contract and there is no uncertainty regarding
collection. Upfront license fees for which there is ongoing involvement with the
license are recognized as revenues over the contractual term of the arrangement
or an estimated time period if no such contractual term is specified. Payments
received for completion of specified contractual milestones are recognized when
earned.
ADVERTISING EXPENSES
Advertising expenses are charged to operations as incurred and were immaterial
for all periods presented.
OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) is comprised of foreign currency
translation losses of $(34,672) and $(44,736) at December 31, 1998 and 1999,
respectively.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of vested
outstanding shares of common stock. Diluted net loss per share is computed using
the weighted-average number of shares of vested common stock outstanding and,
when dilutive, unvested common stock outstanding, potential common shares from
options and warrants to purchase common stock using the treasury stock method
and from convertible securities using the as-if-converted basis. All potential
common shares have been excluded from the computation of diluted net loss per
share for all periods presented because the effect would be antidilutive.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No.
98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of Oculex's proposed
initial public offering ("IPO"), are included in the calculation of basic and
diluted net loss per share as if they were outstanding for all periods
presented. To date, Oculex has not had any issuances or grants for nominal
consideration.
Basic and diluted pro forma net loss per share have been computed as described
above and also give effect, under Securities and Exchange Commission guidance,
to (i) the automatic conversion of the preferred stock into shares of common
stock effective upon the closing of Oculex's IPO as if their conversion occurred
at the original date of issuance and (ii) the conversion of the convertible loan
with Transpac into the weighted average number of shares of common stock into
which the loan was convertible during the period.
- --------------------------------------------------------------------------------
F-10
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table presents the computation of basic and diluted and pro forma
basic and diluted net loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Historical net loss......................................... $(3,326,277) $(5,968,649) $(7,179,379)
=========== =========== ===========
Basic and diluted:
Weighted average shares used in computing basic and
diluted net loss per share............................... 3,868,067 3,911,239 3,941,239
=========== =========== ===========
Basic and diluted net loss per share........................ $(0.86) $(1.53) $(1.82)
=========== =========== ===========
Pro forma (unaudited):
Shares used above........................................... 3,941,239
Weighted-average of convertible preferred stock and
convertible loan outstanding, as if converted............. 8,171,313
-----------
Shares used in computing pro forma basic and diluted net
loss per share............................................ 12,112,552
===========
Pro forma basic and diluted net loss per share.............. $(0.59)
===========
</TABLE>
The total number of unvested and potential common shares excluded from
calculation of diluted net loss per share was 550,969, 510,451 and 555,359 for
the years ended December 31, 1997, 1998 and 1999, respectively. These
instruments have been excluded because their effect would be antidilutive.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principle Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB Opinion No. 25"), and complies
with the disclosure provisions of Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS No. 123"). Under APB
Opinion No. 25, compensation expense is based on the difference between the fair
value of the Company's stock on the date of grant and the exercise price.
The Company accounts for stock awards issued to non-employees in accordance with
the provisions of SFAS No. 123 and Emerging Issues Task Force Consensus No.
96-18 ("EITF No. 96-18"). Under SFAS No. 123 and EITF No. 96-18, stock awards
issued to non-employees are accounted for at their fair value.
UNAUDITED PRO FORMA LIABILITIES AND SHAREHOLDERS' EQUITY
If the offering contemplated by this prospectus is consummated, each share of
convertible preferred stock outstanding will automatically be converted into one
share of common stock. Unaudited pro forma shareholders' equity at December 31,
1999 reflects the assumed conversion of convertible preferred stock based on the
shares of convertible preferred stock outstanding at December 31, 1999 and the
conversion of the convertible loan with Transpac Capital ("Transpac") into
1,282,704 shares of common stock (see Note 5).
- --------------------------------------------------------------------------------
F-11
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("SFAS No. 133"). SFAS No. 133 establishes methods for
accounting for derivative financial instruments and hedging activities related
to those instruments, as well as other hedging activities. Because Oculex does
not currently hold any derivative instruments and does not engage in hedging
activities, the adoption of SFAS No. 133 is not expected to have a significant
impact on its financial position, results of operations or cash flows. Oculex
will be required to implement SFAS No. 133, as amended, for the year ending
December 31, 2001.
2. TRANSACTIONS WITH OFFICERS
The Company holds notes receivable of $300,000 from two officers of the Company.
These notes are collateralized by a pledge of shares of common stock of the
Company and bear no interest. One of the notes in the amount of $150,000 is due
in April 2003 while the other is due in April 2004. The notes were used to
purchase 1,200,000 shares of common stock at $0.25 per share.
As of December 31, 1998 and 1999, approximately $66,000 and $318,000 were
contributed by the Company to a trust for the benefit of these same officers.
These amounts are included in other assets and other long-term liabilities in
the accompanying consolidated balance sheet.
3. PROPERTY AND EQUIPMENT
Property and equipment comprised the following at December 31:
<TABLE>
<CAPTION>
1998 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Computer equipment and software............................. $144,407 $158,123
Machinery and equipment..................................... 94,668 1,739,260
Furniture and fixtures...................................... 1,426,606 100,532
Leasehold improvements...................................... 272,295 282,075
---------- ----------
1,937,976 2,279,990
Less accumulated depreciation and amortization.............. 709,226 1,090,278
---------- ----------
$1,228,750 $1,189,712
========== ==========
</TABLE>
4. LEASE OBLIGATIONS AND EQUIPMENT LOANS
The Company leases its principal facility under a noncancelable operating lease,
expiring in May 2003. The agreement provides for a rent escalation each year.
Rent expense under operating leases was $220,612, $285,227 and $345,422 for the
years ended December 31, 1997, 1998 and 1999, respectively.
The Company also leases certain property and equipment under noncancelable lease
agreements that are accounted for as capital leases. Property and equipment at
December 31, 1998 and 1999 include assets under capital leases of $624,900 and
$667,029, respectively. Accumulated amortization related to leased assets was
$196,010 and $297,711 at December 31, 1998 and 1999, respectively.
- --------------------------------------------------------------------------------
F-12
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under capital leases and operating leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
- -----------------------------------------------------------------------------------
<S> <C> <C>
Years ending December 31:
2000...................................................... $166,958 $320,383
2001...................................................... 52,100 234,064
2002...................................................... 10,787 232,320
2003...................................................... -- 78,164
-------- --------
Total minimum lease and principal payments.................. 229,845 $864,931
========
Amount representing interest................................ 21,425
--------
Present value of future lease payments...................... 208,420
Current portion of capital lease obligations................ 138,911
--------
Noncurrent portion of capital lease obligations............. $69,509
========
</TABLE>
In January 2000, the Company entered into a lease for additional space which
expires in February 2005. The approximate annual minimum payments under this
lease are $570,000.
5. CONVERTIBLE LOAN WITH TRANSPAC
On October 3, 1995, Oculex entered into an agreement (the "Agreement") with
Transpac for a loan that was convertible into Series B preferred stock.
According to the Agreement, Transpac is to make available to Oculex the
aggregate sum of $7,400,000 in three advances. The Company received the initial
advance of $2,000,000 in October 1995. In 1997, Transpac acquired 2,100,000
shares of Series B preferred stock for a total of $5,400,000, completing the
amounts that were to be made available to Oculex per the terms of the Agreement.
Transpac owns 30.3% of the Company's outstanding preferred stock as of
December 31, 1999. As specified in the Agreement, Transpac has the right to
convert all or any part of the loan and all accrued interest (at 8.0% annually)
into shares of Series B preferred stock at $2.00 per share for the first $2.0
million and at $2.75 per share for amounts between $2.0 million and $4.0
million. At December 31, 1999, no loan amounts had been converted.
The loan, including the accrued interest, is due in October 2000, subject to the
exercise rights of Transpac.
6. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 11,000,000 shares of preferred stock, of
which 330,000, 7,500,000, and 1,500,000 shares have been designated as
Series A, B and C convertible preferred stock, respectively. Each share of
Series A, B and C convertible preferred stock has equal voting rights as
compared to shares of common stock on an as-if converted basis.
Series A shareholders are not entitled to dividends. Series B and C shareholders
are entitled to annual noncumulative cash dividends, when and as declared by the
board, but only out of funds that are legally available, at the rate of $0.18
and $0.315 per share, respectively, of each outstanding share of
- --------------------------------------------------------------------------------
F-13
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series B and C preferred stock (as adjusted for any stock dividends,
combinations, or splits with respect to such shares) in preference to the
holders of any other stock. No dividends have been declared or paid by the
Company.
Series A, B and C shareholders have a liquidation preference of $1.75, $3.00,
and $5.25 per share, respectively, or $23,354,688 in aggregate, plus all
declared but unpaid dividends. After payment has been made to the Series A, B
and C shareholders, the remaining assets of the Company that are legally
available for distribution, if any, shall be distributed ratably to the holders
of the common stock and Series A, B and C preferred stock on an as if-converted
basis.
Each share of Series A, B and C preferred stock is convertible, at the option of
the holder, at any time after the date of issuance of such shares, into one
share of common stock. Conversion of the Series A, B and C preferred stock is
automatic at the earlier of an initial public offering in excess of $5,000,000
at an offering price of not less than $5.25 per share or the election by more
than 50% of the shares held by Series A, B and C shareholders.
WARRANTS
In 1995, the Company issued warrants to two directors to purchase a total of
49,999 shares of Series B preferred stock at an exercise price of $3.00 per
share. The warrants expire at the earlier of the closing of an initial public
offering of the Company's common stock pursuant to a registration statement
under the Securities Act of 1933 or March 6, 2005 for half of the shares and
April 15, 2005 for the remainder of the shares.
In 1994 and 1995, the Company issued warrants to its founders to purchase
750,000 shares of the Company's common stock at an exercise price of $0.25 per
share and 104,000 shares of Series B preferred stock at an exercise price of
$3.00 per share. These warrants were issued for accrued but unpaid salary earned
by the founders between July 1992 and September 1995. The warrants expire on the
earlier of the closing of an initial public offering of the Company's common
stock pursuant to a registration statement under the Securities Act of 1933 or
(i) October 31, 2004 for 500,000 common shares and 70,000 Series B preferred
shares; (ii) April 28, 2005 for 34,000 Series B preferred shares; or
(iii) October 2, 2005 for 250,000 common shares.
In 1999, the Company issued a warrant to a consultant to purchase 12,000 shares
of the Company's common stock at $0.75 per share. This warrant was issued as an
in-kind payment for services provided to the Company in 1999. The warrant
expires on the earlier of the tenth anniversary of the date of issuance, the
closing of an initial public offering of the Company's common stock pursuant to
a registration statement under the Securities Act of 1933, or the closing date
of a merger or consolidation of the Company with or into any other entity,
including a reverse triangular merger involving the Company (other than a merger
or consolidation in which the holders of the voting power of the Company
immediately prior to such consolidation or merger hold a majority of the
surviving or resulting entity immediately following such consolidation or
merger). The Company recorded an expense of approximately $119,000 in 1999
associated with this warrant.
At December 31, 1999, no warrants had been exercised.
STOCK OPTION PLAN
The Amended 1991 Stock Option Plan was adopted in July 1991. Options granted
under the plan may be either incentive stock options or supplemental stock
options. The Company has reserved 3,470,000
- --------------------------------------------------------------------------------
F-14
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shares of common stock for issuance under the plan. Options granted under the
plan expire no later than ten years from the date of grant. For incentive stock
options and supplemental stock options, the option price shall be at least 100%
and 85%, respectively, of the fair value on the date of grant, as determined by
the board. If, at the time the Company grants an option and the optionee
directly or by attribution owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the option price
shall be at least 110% of the fair value and shall not be exercisable more than
five years after the date of grant.
Options typically vest over a 5 year period but may be granted with different
vesting terms.
Option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER PRICE PER
FOR GRANT OF SHARES PRICE PER SHARE AGGREGATE SHARE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996........... 794,171 975,688 $0.13 -- $0.35 226,226 $0.23
Options granted...................... (488,056) 488,056 $0.25 -- $0.75 265,185 $0.54
Options exercised.................... -- (28,904) $0.25 -- $0.50 (9,670) $0.33
Options canceled..................... 52,961 (52,961) $0.25 -- $0.35 (13,603) $0.26
--------- --------- --------
Balance at December 31, 1997........... 359,076 1,381,879 $0.13 -- $0.75 468,138 $0.34
Options granted...................... (154,812) 154,812 $0.25 -- $0.75 115,366 $0.75
Options exercised.................... -- (21,076) $0.25 -- $0.75 (5,836) $0.28
Options canceled..................... 15,084 (15,084) $0.35 -- $0.75 (8,855) $0.59
--------- --------- --------
Balance at December 31, 1998........... 219,348 1,500,531 $0.13 -- $0.75 568,813 $0.38
Increase in shares reserved.......... 1,670,000 -- $-- -- $--
Options granted...................... (170,630) 170,630 $0.75 127,973 $0.75
Options exercised.................... -- (51,481) $0.25 -- $0.75 (21,007) $0.41
Options canceled..................... 39,310 (39,310) $0.25 -- $0.75 (24,524) $0.62
--------- --------- --------
Balance at December 31, 1999........... 1,758,028 1,580,370 $0.13 -- $0.75 $651,255 $0.41
========= ========= ========
</TABLE>
At December 31, 1997, 1998 and 1999, options to purchase 831,189, 989,880 and
1,083,221 shares, respectively, were exercisable at prices ranging from $0.13 to
$0.75. The weighted average exercise price per share and weighted average
contractual life of options outstanding at December 31, 1999 were $0.32 and
approximately six years, respectively. The weighted average estimated fair value
of stock options granted during 1997, 1998 and 1999 was $0.13, $0.19 and $0.18,
respectively.
STOCK-BASED COMPENSATION
The Company has elected to follow APB Opinion No. 25 and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No. 25, when the exercise price of the
Company's employee and director stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The effect of applying the minimum value method under SFAS 123 to the Company's
stock option grants did not result in pro forma net loss that is materially
different from historical amounts reported.
- --------------------------------------------------------------------------------
F-15
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Therefore, such pro forma disclosure information is not separately presented
herein. Future pro forma net income and earnings/loss per share results may be
materially different from actual amounts presented.
The fair value of the Company's stock-based awards to employees was estimated
assuming the expected life of the options of five years, no expected dividend
yield, no volatility as the minimum value method was used, and a risk free
interest rate of 6.0%, 5.5% and 5.6% for the years ended December 31, 1997, 1998
and 1999, respectively.
During 1999 the Company granted options for 3,130 shares to consultants for
services rendered. In accordance with SFAS No. 123, these options have been
accounted for at fair value. The resulting expense of approximately $28,000 has
been charged to expenses in 1999 as the related services have been rendered in
1999.
DEFERRED COMPENSATION
During the year ended December 31, 1999, the Company recorded aggregate deferred
compensation of $1,044,000 representing the difference between the exercise
price of stock options granted during 1999 and the deemed fair value of the
Company's common stock. The amortization of deferred compensation is charged to
operations over the vesting period of the options (generally 5 years) using an
accelerated method. For the year ended December 31, 1999, deferred compensation
amortization was approximately $295,000.
7. DISTRIBUTION AND LICENSING AGREEMENTS
In April 1997, the Company entered into two distribution and licensing
agreements with Storz Instruments (Storz) (a subsidiary of Bausch & Lomb) for
Surodex, the Company's initial product candidate. The agreements provide Storz
with exclusive distributor rights for the United States, Canada, the Republic of
South Africa, and Europe. The agreements required a $150,000 license fee, which
was received and is being recognized by the Company as revenue over the life of
the arrangement of 10 years. The agreements also provide the Company the
opportunity to earn specified payments upon reaching certain product development
milestones. In 1997, the Company achieved a defined milestone by completing
Phase II clinical trials for Surodex in the U.S. and received $200,000, which
was recognized as revenue. The remaining milestone is FDA or foreign equivalent
product approval, requiring a payment of $250,000 to $1,250,000 upon reaching
the milestone, depending upon when the milestone is reached. No milestones were
reached in 1998 or 1999, and no milestone payments were received. In accordance
with the agreements, the Company is entitled to receive royalties based on sales
of Surodex by Storz. No sales of Surodex by Storz have been made through
December 31, 1999.
8. INCOME TAXES
As of December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $10,100,000 and $2,000,000, respectively. The
Company also had federal and California research and development tax credit
carryforwards of approximately $500,000 and $300,000. The federal and state net
operating loss and credit carryforwards will expire at various dates beginning
in the year 2000 through 2019, if not utilized.
- --------------------------------------------------------------------------------
F-16
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Utilization of the net operating loss and credit carryforwards may be subject to
a substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
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 at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $3,100,000 $3,500,000
Capitalized research and development expenses............. 2,100,000 3,900,000
Research credit carryforwards............................. 600,000 800,000
Other..................................................... -- 100,000
---------- ----------
Total deferred tax assets................................... 5,800,000 8,300,000
Valuation allowance......................................... (5,800,000) (8,300,000)
---------- ----------
Net deferred taxes.......................................... $-- $--
========== ==========
</TABLE>
Because of the Company's lack of earnings history, the deferred tax asset has
been fully offset by a valuation allowance. The valuation allowance increased by
$1,400,000 and $2,500,000 during the years ended December 31, 1998 and 1999.
9. SUBSEQUENT EVENTS
In March 2000, Oculex's board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with the proposed IPO.
REINCORPORATION IN DELAWARE
Prior to the completion of the proposed IPO, the board will approve the
reincorporation of Oculex in the State of Delaware. The reincorporation is
expected to be approved by the stockholders prior to the closing date of
Oculex's initial public offering.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Prior to the completion of the proposed IPO, Oculex will amend and restate its
Certificate of Incorporation to provide for authorized capital stock of
75,000,000 shares of common stock and 5,000,000 shares of undesignated preferred
stock.
STOCK PLANS
In March 2000, the board amended and restated the 1991 Plan and renamed it as
the 2000 Equity Incentive Plan (the "2000 Plan"). This amendment increased the
number of shares available under the 2000 Plan to 5,500,000 shares.
In March 2000, the board approved the 2000 Employee Stock Purchase Plan (the
"Purchase Plan"). A total of 400,000 shares of common stock has been reserved
for issuance under the Purchase Plan, as
- --------------------------------------------------------------------------------
F-17
<PAGE>
OCULEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
well as an automatic annual increase on the first day of each of Oculex's fiscal
years beginning in 2001 and ending in 2009 equal to the greater of 2% of
Oculex's outstanding common stock on the last day of the immediately preceding
fiscal year or the number of shares issued under the Purchase Plan in the
preceding 12-month period or a lessor number of shares determined by the Board.
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, will be implemented in a series of overlapping offering
periods of approximately 24 months duration, with new offering periods, other
than the first offering period, commencing on May 31 and November 30 of each
year. Each offering period will generally consist of four consecutive purchase
periods of six months duration, at the end of which an automatic purchase will
be made by the participant. The initial offering and purchase periods are
expected to begin on the effective date of Oculex's initial public offering.
Eligible employees will be able to purchase common stock through payroll
deductions, which may not exceed 15% of an employee's compensation, at a price
equal to the lower of 85% of the fair market value of Oculex's common stock at
the beginning of each offering period or the end of each purchase period. Under
the Purchase Plan employees are not allowed to purchase more than $25,000 of
stock in each calendar year.
All of the above board actions are expected to be approved by the stockholders
prior to the completion of Oculex's initial public offering.
STOCK OPTION GRANTS
Subsequent to December 31, 1999, Oculex approved grants to employees for options
to purchase 1,674,340 shares of common stock at $0.75 per share and 452,080
shares of common stock at $2.00 per share. Oculex will record additional
deferred stock compensation with regard to these grants.
SERIES D CONVERTIBLE PREFERRED STOCK
In March 2000, Oculex closed a Series D convertible preferred stock financing.
Oculex raised approximately $15.8 million by issuing 3,064,051 shares in
connection with this closing. The rights, preferences and privileges of the
holders of this stock are similar to those of the holders of Series A, B and C
convertible preferred stock.
In connection with the issuance of the Series D Convertible preferred stock, the
Company will record a non-cash charge during the three months ended March 31,
2000 to accrete the value of the convertible preferred stock to its fair value.
This non-cash charge will be recorded as an increase in accumulated deficit with
a corresponding credit to preferred stock and will be recorded at the date of
issuance which was the period in which the shares become eligible for
conversion.
- --------------------------------------------------------------------------------
F-18
<PAGE>
[OCULEX EMBLEM]
<PAGE>
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All the amounts shown are estimates except
for the registration fee, the Nasdaq National Market listing fee and the NASD
filing fee.
<TABLE>
<CAPTION>
<S> <C>
Registration fee............................................ $21,252
Nasdaq National Market listing fee.......................... *
NASD filing fee............................................. 8,550
Blue sky qualification fees and expenses.................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer agent and registrar fees........................... *
Directors' and Officers' Insurance.......................... *
Miscellaneous............................................... *
-------
Total............................................... $ *
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
- - for any breach of duty of loyalty to us or to our stockholders;
- - for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- - under Section 174 of the Delaware General Corporation Law; or
- - for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that we
must indemnify our directors and executive officers and may indemnify its other
officers and employees and agents to the fullest extent permitted by Delaware
law. We believe that indemnification under our amended and restated certificate
of incorporation covers negligence and gross negligence on the part of
indemnified parties.
We have entered into indemnification agreements with each of our directors and
officers. These agreements, among other things, require us to indemnify each
director and officer for some expenses including attorneys' fees, judgments,
fines and settlement amounts incurred by any of these persons in any action or
proceeding, including any action by us or in our right, arising out of person's
services as our director or officer, any subsidiary of ours or any other company
or enterprise to which the person provides services at our request.
- --------------------------------------------------------------------------------
II-1
<PAGE>
PART II
- --------------------------------------------------------------------------------
The underwriting agreement will provide for indemnification by our underwriters,
our directors, our officers who sign the registration statement, and our
controlling persons for some liabilities, including liabilities arising under
the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1997, we have sold and issued unregistered securities to a
limited number of persons, as described below. None of these transactions
involved any underwriters, underwriting discounts or commissions, or any public
offering, and we believe that each transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) thereof,
Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit
plans and contracts relating to compensation as provided under Rule 701. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. We
believe that all recipients had adequate access to information about us, through
their relationships with us.
Since January 1, 1997, we have sold and issued the following unregistered
securities:
(1) From January 1, 1997 to March 31, 2000, we granted incentive stock options
and nonstatutory stock options to purchase an aggregate of 2,055,691 shares
of our common stock at exercise prices ranging from $0.25 to $0.75 per share
to employees, directors and consultants under the 2000 Equity Incentive
Plan.
(2) From January 1997 to December 1997, we sold an aggregate of 2,363,385 shares
of our Series B Preferred Stock to six private investors for an aggregate
purchase price of $6,073,635.
(3) From December 1997 to June 1998, we sold an aggregate of 1,328,296 shares of
our Series C Preferred Stock to 24 private investors for an aggregate
purchase price of $6,973,550.
(4) In 1999, we issued a warrant to a consultant to purchase 12,000 shares of
our common stock at an exercise price of $0.75 per share. The warrant
expires upon the closing of the Initial Public Offering.
(5) In March 2000, we sold an aggregate of 3,064,051 shares of our Series D
Preferred Stock to 55 private investors for an aggregate purchase price of
$16,086,267.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of Registrant, to be effective
upon Registrant's reincorporation in Delaware.
3.2* Amended and Restated Certificate of Incorporation of
Registrant to be effective upon the closing of the
offering made pursuant to this Registration Statement.
3.3* Bylaws of Registrant to be effective upon Registrant's
reincorporation in Delaware and upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Investor Rights Agreement between Registrant and the holders
of the Registrant's Series C Preferred Stock.
4.3 Investor Rights Agreement between Registrant and certain
holders of the Registrant's Series B Preferred Stock.
</TABLE>
- --------------------------------------------------------------------------------
II-2
<PAGE>
PART II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
4.4 Investor Rights Agreement between Registrant and the holders
of the Registrant's Series D Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement between the Registrant and its
officers and directors.
10.2 Registrant's 2000 Equity Incentive Plan and related
documents.
10.3 Registrant's 2000 Employee Stock Purchase Plan and related
documents.
10.4 Registrant's 401(k) Plan effective January 1, 1996.
10.5 Lease Agreement, dated January 5, 2000, between Registrant
and The Irvine Company.
10.6 Lease Agreement, dated October 29, 1998, between Registrant
and Ed Nino.
10.7 Lease Agreement, dated January 19, 1996, between Registrant
and Pastoria Limited Partnership.
10.8* Lease Agreement Extension, dated December 8, 1999, and Lease
Agreement dated November 22, 1996, between Registrant and
Bioprocessing Technology Centre.
10.9 Employment Agreement, dated March 8, 2000, between
Registrant and Donald J. Eaton.
10.10 Employment Agreement, dated March 10, 2000, between
Registrant and Douglas Hawkins.
10.11* Employment Agreement between Registrant and Michael Nash.
10.12+ Research Agreement, dated December 15, 1999, between
Registrant and Allergan Sales, Inc.
10.13+ Distribution, Supply and License Agreement for the US, dated
April 14, 1997 between Registrant and Storz Instrument
Company.
10.14+ Distribution, Supply and License Agreement for foreign
territories, dated April 14, 1997 between Registrant and
Storz Instrument Company.
10.15 Second Supplemental Agreement, dated December 8, 1997, by
and between Registrant, Dr. Jerry Gin and Dr. Vernon Wong,
and Transpac Industrial Holdings Limited, Transpac Capital
Pte Ltd. and Regional Investment Company Limited.
10.16+ International Distribution Agreement, dated April 1997,
between Registrant and Laboratorios Sophia.
21.1 List of Registrant's Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
23.3* Consent of Flehr Hohbach Test Albritton & Herbert.
24.1 Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule.
</TABLE>
- ------------
* TO BE FILED BY AMENDMENT.
+ CONFIDENTIAL TREATMENT REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS
EXHIBIT. OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
(B) FINANCIAL STATEMENT SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE,
OR BECAUSE THE INFORMATION IS INCLUDED IN THE FINANCIAL STATEMENTS OR THE
NOTES THERETO.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of this prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) That for purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
- --------------------------------------------------------------------------------
II-3
<PAGE>
PART II
- --------------------------------------------------------------------------------
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against these liabilities (other than the payment by 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 a director, officer, or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether the indemnification by it is against
public policy as expressed in the Securities Act of 1933, and will be
governed by the final adjudication of this issue.
(4) 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.
- --------------------------------------------------------------------------------
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Santa Clara, State of
California, on the 6th day of April, 2000.
<TABLE>
<S> <C> <C>
OCULEX PHARMACEUTICALS, INC.
By: /s/ DONALD J. EATON
------------------------------------------
Donald J. Eaton
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Donald J. Eaton and Douglas Hawkins, and each of them,
his true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to execute any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto in all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to
the requirements of the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
APRIL 6, 2000 IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ DONALD J. EATON Chief Executive Officer and Director April 6, 2000
----------------------------------------
Donald J. Eaton
/s/ DOUGLAS HAWKINS Chief Financial Officer, Senior Vice April 6, 2000
---------------------------------------- President
Douglas Hawkins
/s/ JERRY B. GIN President and Director April 6, 2000
----------------------------------------
Jerry B. Gin
/s/ VERNON G. WONG Chief Scientific Officer and Director April 6, 2000
----------------------------------------
Vernon G. Wong
/s/ KING Y. LEE Director April 6, 2000
----------------------------------------
King Y. Lee
/s/ ERNEST MARIO Director April 6, 2000
----------------------------------------
Ernest Mario
/s/ MICHAEL F. BIGHAM Director April 6, 2000
----------------------------------------
Michael F. Bigham
</TABLE>
- --------------------------------------------------------------------------------
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Certificate of Incorporation of Registrant, to be effective
upon Registrant's reincorporation in Delaware.
3.2* Amended and Restated Certificate of Incorporation of
Registrant to be effective upon the closing of the offering
made pursuant to this Registration Statement.
3.3* Bylaws of Registrant to be effective upon Registrant's
reincorporation in Delaware and upon the closing of the
offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Investor Rights Agreement between Registrant and the holders
of the Registrant's Series C Preferred Stock.
4.3 Investor Rights Agreement between Registrant and certain
holders of the Registrant's Series B Preferred Stock.
4.4 Investor Rights Agreement between the Registrant and the
holders of the Registrant's Series D Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement between the Registrant and its
officers and directors.
10.2 Registrant's 2000 Equity Incentive Plan and related
documents.
10.3 Registrant's 2000 Employee Stock Purchase Plan and related
documents.
10.4 Registrant's 401(k) Plan effective January 1, 1996.
10.5 Lease Agreement, dated January 5, 2000, between Registrant
and The Irvine Company.
10.6 Lease Agreement, dated October 29, 1998, between Registrant
and Ed Nino.
10.7 Lease Agreement, dated January 19, 1996, between Registrant
and Pastoria Limited Partnership.
10.8* Lease Agreement Extension, dated December 8, 1999, and Lease
Agreement dated November 22, 1996, between Registrant and
Bioprocessing Technology Centre.
10.9 Employment Agreement, dated March 8, 2000, between
Registrant and Donald J. Eaton.
10.10 Employment Agreement, dated March 10, 2000, between
Registrant and Douglas Hawkins.
10.11* Employment Agreement between Registrant and Michael Nash.
10.12+ Research Agreement, dated December 15, 1999, between
Registrant and Allergan Sales, Inc.
10.13+ Distribution, Supply and License Agreement for the US, dated
April 14, 1997 between Registrant and Storz Instrument
Company.
10.14+ Distribution, Supply and License Agreement for foreign
territories, dated April 14, 1997 between Registrant and
Storz Instrument Company.
10.15 Second Supplemental Agreement, dated December 8, 1997, by
and between Registrant, Dr. Jerry Gin and Dr. Vernon Wong,
and Transpac Industrial Holdings Limited, Transpac Capital
Pte Ltd. and Regional Investment Company Limited.
10.16+ International Distribution Agreement, dated April 1997,
between Registrant and Laboratorios Sophia.
21.1 List of Registrant's Subsidiaries.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
23.3* Consent of Flehr Hohbach Test Albritton & Herbert.
24.1 Power of Attorney. Reference is made to the signature page.
27.1 Financial Data Schedule.
</TABLE>
- ------------
* TO BE FILED BY AMENDMENT.
+ CONFIDENTIAL TREATMENT REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF THIS
EXHIBIT. OMITTED PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
(B) FINANCIAL STATEMENT SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE,
OR BECAUSE THE INFORMATION IS INCLUDED IN THE FINANCIAL STATEMENTS OR THE
NOTES THERETO.
<PAGE>
Exhibit 4.2
OCULEX PHARMACEUTICALS, INC.
INVESTOR RIGHTS AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
SECTION 1. GENERAL..............................................................1
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER...............................3
2.1 Restrictions on Transfer.......................................3
2.2 Demand Registration............................................4
2.3 Piggyback Registrations........................................5
2.4 Form S-3 Registration..........................................6
2.5 Expenses of Registration.......................................7
2.6 Obligations of the Company.....................................8
2.7 Termination of Registration Rights.............................9
2.8 Delay of Registration; Furnishing Information..................9
2.9 Indemnification................................................9
2.10 Assignment of Registration Rights.............................12
2.11 Amendment of Registration Rights..............................12
2.12 Subordination.................................................12
2.13 "Market Stand-Off"Agreement...................................12
2.14 Rule 144 Reporting............................................13
SECTION 3. COVENANTS OF THE COMPANY............................................13
3.1 Basic Financial Information and Reporting.....................13
3.2 Inspection Rights.............................................14
3.3 Confidentiality of Records....................................14
3.4 Reservation of Common Stock...................................14
3.5 Real Property Holding Corporation.............................14
3.6 Visitation Rights.............................................14
3.7 Termination of Covenants......................................15
SECTION 4. RIGHTS OF FIRST REFUSAL.............................................15
4.1 Subsequent Offerings..........................................15
4.2 Exercise of Rights............................................15
4.3 Issuance of Equity Securities to Other Persons................15
4.4 Termination of Rights of First Refusal........................16
4.5 Transfer of Rights of First Refusal...........................16
4.6 Excluded Securities...........................................16
SECTION 5. MISCELLANEOUS.......................................................17
5.1 Governing Law.................................................17
5.2 Survival......................................................17
5.3 Successors and Assigns........................................17
5.4 Entire Agreement..............................................17
5.5 Severability..................................................17
5.6 Amendment and Waiver..........................................17
<PAGE>
TABLE OF CONTENTS
Page
----
<S> <C>
5.7 Delays or Omissions...........................................18
5.8 Notices.......................................................18
5.9 Attorneys'Fees................................................18
5.10 Titles and Subtitles..........................................18
5.11 Counterparts..................................................18
</TABLE>
2
<PAGE>
OCULEX PHARMACEUTICALS, INC.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
the ___th day of ____________________, 1997, by and among OCULEX
PHARMACEUTICALS, INC., a California corporation (the "Company") and certain
purchasers of the Company's Series C Preferred Stock ("Series C Stock") set
forth on Exhibit A hereto (as may be updated from time to time in accordance
with Section 5.6(c)). The purchasers of the Series C Stock listed on Exhibit A
hereto shall be referred to hereinafter as the "Investors" and each individually
as an "Investor."
RECITALS
WHEREAS, the Company proposes to sell and issue up to One Million Five
Hundred Thousand (1,500,000) shares of its Series C Stock pursuant to a Stock
Subscription Agreement (each and collectively, the "Purchase Agreement"); and
WHEREAS, as a condition of entering into the Purchase Agreement, the
Investors have requested that the Company extend to them registration rights,
information rights and other rights as set forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"HOLDER" means any person owning of record Shares or
Registrable Securities that have not been sold to the public or any assignee of
record of such Registrable Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock at a per share price not less
than $5.25 per share and for total proceeds of not less than $5.0 million
(before deduction of underwriters' commissions and expenses) registered under
the Securities Act.
"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
effectiveness of such registration statement or document.
1
<PAGE>
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company
issued or issuable upon conversion of the Shares; and (ii) any Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Section 2 of this Agreement
are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number
of shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, reasonable fees and disbursements
not to exceed Ten Thousand Dollars ($10,000) of a single special counsel for the
Holders, 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.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"SHARES" shall mean the Company's Series C Stock issued
pursuant to the Purchase Agreement and held by the Investors listed on Exhibit A
hereto (as updated from time to time) and their permitted assigns.
"FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
"SEC" OR "COMMISSION" means the Securities and Exchange
Commission.
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any portion
of the Shares or Registrable Securities unless and until:
2
<PAGE>
(i) There is then in effect a registration statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the terms of
this Agreement, (B) such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (C) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no
such registration statement or 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 family
member(s) or any trust for the benefit of an individual Holder or the Holder's
family member(s), provided the transferee will be subject to the terms of this
Agreement to the same extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable Securities shall
(unless otherwise permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
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2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of more than a majority of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities having an aggregate offering price to
the public in excess of $5,000,000 (a "Qualified Public Offering"), then the
Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of this
Section 2.2, use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
or any request pursuant to Section 2.4 and the Company shall include such
information in the written notice referred to in Section 2.2(a) or Section
2.4(a) as applicable. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding
any other provision of this Section 2.2 or Section 2.4, if the underwriter
advises the Company that marketing factors require a limitation of the number
of securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to its Initial Offering; or
(ii) after the Company has effected one (1) registration
pursuant to this Section 2.2, and such registration has been declared or
ordered effective; or
(iii) during the period starting with the date of filing of,
and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to the Initial Offering; provided
that the Company makes reasonable good faith efforts to cause such registration
statement to become effective;
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(iv) if within thirty (30) days of receipt of a written request from
Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the
Holders of the Company's intention to make its Initial Offering within ninety
(90) days; or
(v) if the Company shall furnish to Holders requesting a registration
statement pursuant to this Section 2.2, a certificate signed by the Chairman of
the Board stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of
a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company, but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or other
transactions under Rule 145 of the Securities Act) and will afford each such
Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, subject to Section 2.3(c) and the other terms
and conditions set forth herein.
(a) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder to be included in a registration pursuant to this Section 2.3
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and third, to any
shareholder of the Company (other than a Holder) on a pro rata basis. No such
reduction shall reduce the securities being offered by the Company for its own
account to be included in the registration and underwriting.
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(b) The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 2.3 prior to the
effectiveness of such registration whether or not any Holder has elected to
include securities in such registration. The Registration Expenses of such
withdrawn registration shall be borne by the Company in accordance with Section
2.5 hereof.
(c) The piggyback registration rights under this Section
2.3 shall terminate after any of the Holders have included any of their
Registrable Securities in two public offerings of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to employee benefit plans or with respect to corporate reorganizations
or other transactions under Rule 145 of the Securities Act).
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any)
at an aggregate price to the public of less than $1,000,000, or
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating
that in the good faith judgment of the Board of Directors of the Company,
it would be seriously detrimental to the Company and its shareholders for
such Form S-3 Registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days
after receipt of the request of the Holder or Holders under this Section
2.4: provided, that such right to delay a request shall be exercised by
the Company not more than once in any twelve (12) month period, or
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(iv) if the Company has already effected one (1) registration on
Form S-3 for the Holders pursuant to this Section 2.4, or
(v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2.2 or any
registration under Section 2.3 or Section 2.4 herein shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
hereunder, shall be borne by the holders of the securities so registered pro
rata on the basis of the number of shares so registered. The Company shall
not, however, be required to pay for expenses of any registration proceeding
begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the Initiating Holders (or the Holder or Holders
who submitted a written request pursuant to Section 2.4) unless (a) the
withdrawal is based upon material adverse information concerning the Company
of which the Initiating Holders (or the Holder or Holders who submitted a
written request pursuant to Section 2.4) were not aware at the time of such
request or (b) the Holders of a majority of Registrable Securities agree to
forfeit their right to one requested registration pursuant to Section 2.2 or
Section 2.4, as applicable, in which event such right shall be forfeited by
all Holders. If the Holders are required to pay the Registration Expenses,
such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the
number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
clause (a) above, then the Holders shall not forfeit their rights pursuant to
Section 2.2 or Section 2.4 to a demand registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all 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 up to ninety (90)
days or, if earlier, until the Holder or Holders have completed the distribution
related thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other
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documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them.
(d) Use all 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 qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect three (3) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the
Exchange Act, and (ii) all Registrable Securities held by and issuable to
such Holder may be sold under Rule 144 during any ninety (90) day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
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(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
(c) The Company shall have no obligation with respect to
any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers, directors and
legal counsel of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer, director, legal
counsel, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this Section 2.9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
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(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 qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 2.9(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 2.9
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party 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 to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section
2.9 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
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such indemnified party thereunder, 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
Violation(s) 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 proceeds from the
offering received by such Holder.
(e) The obligations of the Company and Holders under this
Section 2.9 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term 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.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities
which (i) is a subsidiary, parent, general partner, limited partner or
retired partner of a Holder or (ii) is a Holder's family member or trust for
the benefit of an individual Holder, or a Holder's family member or (iii)
acquires at least one hundred thousand (100,000) shares of Registrable
Securities (adjusted for stock splits and combinations); provided however,
(A) the transferor shall, within ten (10) days after such transfer, furnish
to the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights
are being assigned and (B) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section
2 may be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least a
majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section 2.11 shall be binding upon
each Holder and the Company. By acceptance of any benefits under this Section
2, Holders of Registrable Securities hereby agree to be bound by the
provisions hereunder.
2.12 SUBORDINATION. Notwithstanding anything herein to the contrary,
the registration rights granted pursuant to Section 2 of the Agreement shall
be subordinate to the registration rights previously granted to existing
shareholders.
2.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company or
the representative of the underwriters of Common Stock (or other securities)
of the Company, each Holder shall not sell or otherwise transfer or dispose
of
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any Common Stock (or other securities) of the Company held by such Holder (other
than those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that:
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company enter into
similar agreements and the Company uses its best efforts to cause all other
holders of at least 1% of the Company's securities to enter into similar
agreements.
The obligations described in this Section 2.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities
to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
SECTION 3. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account
in which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will
set aside on its books all such proper accruals and reserves as shall be
required under generally accepted accounting principles consistently applied.
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(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within one hundred twenty (120) days
thereafter, the Company will furnish each Investor, owning not less than two
hundred thousand (200,000) shares of Registrable Securities (as adjusted for
stock splits and combinations) (a "Major Investor"), a consolidated balance
sheet of the Company, as at the end of such fiscal year, and a consolidated
statement of income and a consolidated statement of cash flows of the Company,
for such year, all prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.
(c) The Company will furnish each Major Investor, as soon
as practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company as of the end
of such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for the current fiscal year
to date, prepared in accordance with generally accepted accounting principles,
with the exception that no notes need be attached to such statements and
year-end audit adjustments may not have been made.
3.2 INSPECTION RIGHTS. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as
often as may be reasonably requested; provided, however, that the Company
shall not be obligated under this Section 3.2 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Preferred Stock, all Common Stock issuable from time to
time upon such conversion.
3.5 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it
will operate in a manner such that it will not become a "United States real
property holding corporation" as that term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder
("FIRPTA"). The Company agrees to make determinations as to its status as a
USRPHC, and
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will file statements concerning those determinations with the Internal
Revenue Service, in the manner and at the times required under Reg. Section
1.897-2(h), or any supplementary or successor provision thereto. Within 30
days of a request from an Investor or any of its partners, the Company will
inform the requesting party, in the manner set forth in Reg. Section 1.897-
2(h)(1)(iv) or any supplementary or successor provision thereto, whether that
party'S interest in the Company constitutes a United States real property
interest (within the meaning of Internal Revenue Code Section 897(c)(1) and
the regulations thereunder) and whether the Company has provided to the
Internal Revenue Service all required notices as to its USRPHC status.
3.6 VISITATION RIGHTS. The Company shall allow one representative
designated the Investors to attend all meetings of the Company's board of
directors in a nonvoting capacity.
3.7 TERMINATION OF COVENANTS. All covenants of the Company contained
in Section 3 of this Agreement shall expire and terminate as to each Investor
on the effective date of the registration statement pertaining to the Initial
Offering.
SECTION 4. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Major Investor shall have a right of
first refusal to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 4.6 hereof. Each Investor's pro rata share is equal to
the ratio of (A) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of
the Shares) which such Investor is deemed to be a holder immediately prior to
the issuance of such Equity Securities to (B) the total number of shares of
the Company's outstanding Common Stock (including all shares of Common Stock
issued or issuable upon conversion of the Shares or upon the exercise of any
outstanding warrants or options) immediately prior to the issuance of the
Equity Securities. The term "Equity Securities" shall mean (i) any Common
Stock, Preferred Stock or other security of the Company, (ii) any security
convertible, with or without consideration, into any Common Stock, Preferred
Stock or other security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to
or purchase any Common Stock, Preferred Stock or other security or (iv) any
such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Major Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Investor shall have fifteen (15) days from the giving of such notice to agree
to purchase its pro rata share of the Equity Securities for the price and
upon the terms and conditions specified in the notice by giving written
notice to the Company and stating therein the quantity of Equity Securities
to be purchased. Notwithstanding the foregoing, the Company shall not be
required to offer or sell such Equity Securities to any Investor who would
cause the Company to be in violation of applicable federal securities laws by
virtue of such offer or sale.
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4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of
the Major Investors elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Major
Investors who do so elect and shall offer such Major Investors the right to
acquire such unsubscribed shares (which shall be apportioned among such Major
Investors on a pro rata basis to the extent such Major Investors
oversubscribe for such shares). The Major Investors shall have five (5) days
after receipt of such notice to notify the Company of its election to
purchase all or a portion thereof of the unsubscribed shares. If the
Investors fail to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in
respect of which the Major Investor's rights were not exercised, at a price
and upon general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the Major
Investors pursuant to Section 4.2 hereof. If the Company has not sold such
Equity Securities within ninety (90) days of the notice provided pursuant to
Section 4.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the Major Investors in
the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Section 4 shall not apply to, and shall terminate
upon the effective date of the registration statement pertaining to the
Company's Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
of each Major Investor under this Section 4 may be transferred to the same
parties, subject to the same restrictions as any transfer of registration
rights pursuant to Section 2.10.
4.6 EXCLUDED SECURITIES. The rights of first refusal established by
this Section 4 shall have no application to any of the following Equity
Securities:
(a) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors;
(b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement; and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement, provided that the rights
of first refusal established by this Section 4 applied with respect to the
initial sale or grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(e) shares of Common Stock issued upon conversion of the
Shares;
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(f) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing from a bank or similar financial
institution;
(g) any Equity Securities that are issued by the Company pursuant
to a registration statement filed under the Securities Act; and
(h) shares of the Company's Common Stock or Preferred Stock
issued in connection with strategic transactions involving the Company and
other entities, including (A) joint ventures, manufacturing, marketing or
distribution arrangements or (B) technology transfer or development
arrangements; provided that such strategic transactions and the issuance of
shares therein, has been approved by the Company's Board of Directors.
SECTION 5. MISCELLANEOUS.
5.1 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.
5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.
5.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Purchase Agreement and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof and no party shall
be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein
and therein.
5.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
5.6 AMENDMENT AND WAIVER.
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(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of at least a majority of the Registrable Securities.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of at least a
majority of the Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company to include additional
purchasers of Shares as "Investors," "Holders" and parties hereto.
5.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character
on any Holder's part of any breach, default or noncompliance under the
Agreement or any waiver on such Holder's part of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under
this Agreement, by law, or otherwise afforded to Holders, shall be cumulative
and not alternative.
5.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the party to be notified at the address as set forth on the
signature pages hereof or Exhibit A hereto or at such other address as such
party may designate by ten (10) days advance written notice to the other
parties hereto.
5.9 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
5.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
5.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
OCULEX PHARMACEUTICALS, INC.
By:
-----------------------------------------------------------------------------
Jerry B. Gin
President
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<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Aggregate
Name Shares Purchase Price
- ---- ------ --------------
<S> <C> <C>
DBS Capital Investments 190,476 1,000,000
Total: 190,476 $1,000,000
============
======================================================================
</TABLE>
20
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Exhibit 4.3
OCULEX PHARMACEUTICALS, INC.
REGISTRATION RIGHTS AGREEMENT
MARCH __, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
I. GENERAL.......................................................................................................1
1.1 Definitions.....................................................................................1
II. REGISTRATION.................................................................................................2
2.1 Demand Registration.............................................................................2
2.2 Piggyback Registrations.........................................................................3
2.2.1 Underwriting...........................................................................3
2.2.2 Right to Terminate Registration........................................................3
2.3 Expenses of Registration........................................................................3
2.4 Obligations of the Company......................................................................3
2.5 Termination of Registration Rights..............................................................4
2.6 Delay of Registration; Furnishing Information...................................................4
2.7 Indemnification.................................................................................4
2.8 Assignment of Registration Rights...............................................................6
2.9 Amendment of Registration Rights................................................................6
2.10 "Market Stand-Off" Agreement....................................................................7
III. MISCELLANEOUS...............................................................................................7
3.1 Governing Law...................................................................................7
3.2 Survival........................................................................................7
3.3 Successors and Assigns..........................................................................7
3.4 Severability....................................................................................7
3.5 Amendment and Waiver............................................................................7
3.6 Delays or Omissions.............................................................................8
3.7 Notices.........................................................................................8
3.8 Attorneys' Fees.................................................................................8
3.9 Titles and Subtitles............................................................................8
3.10 Counterparts....................................................................................8
3.11 Entire Agreement................................................................................8
</TABLE>
1
<PAGE>
OCULEX PHARMACEUTICALS, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of the _____ day of March, 1997, by and between OCULEX PHARMACEUTICALS, INC., a
California corporation (the "Company") and TJOA THIAN SONG, (the "Investor").
RECITALS
WHEREAS, the Company sold to Investor One Million Thirty Four Thousand
Four Hundred Eighty Three (1,034,483) shares of its Series B Preferred Stock
("Series B Preferred") in a Stock Purchase Agreement dated June 25, 1996, by and
between the Company and the Investor (the "Purchase Agreement"); and
WHEREAS, the Company wishes to grant registration rights to the
Investor in consideration for a Market Stand-Off Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:
I. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such Registrable
Securities.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
"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 effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company issued
or issuable upon conversion of the Shares; and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which the
transferror's rights under Section 2 of this Agreement are not assigned.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Sections 2.1 and 2.2 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses.
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"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"SHARES" shall mean the Company's Series B Preferred issued pursuant to
the Purchase Agreement.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
II. REGISTRATION
2.1 DEMAND REGISTRATION.
2.1.1 If the Company shall receive a written request from
the Investor that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities having an
aggregate offering price to the public in excess of $5,000,000, then the
Company shall use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Investor requests to be registered.
2.1.2 The Company shall not be required to effect a
registration pursuant to this Section 2.1:
(i) prior to the third anniversary of the date of
this Agreement; or
(ii) after the Company has effected one
registration pursuant to this Section 2.1, and such registration has been
declared or ordered effective; or
(iii) during the period starting with date of
filing of, and ending on the date one hundred eighty (180) days following the
effective date of the registration statement pertaining to the Initial Offering;
provided that the Company makes reasonable good faith efforts to cause such
registration statement to become effective; or
(iv) if within thirty (30) days of receipt of a
written request from the Investor pursuant to Section 2.1.1, the Company gives
notice to the Investor of the Company's intention to make its Initial Offering
within ninety (90) days; or
(v) if the Company shall furnish to the Investor
a certificate stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Investor;
provided that such right to delay a request shall be exercised by the Company
not more than once in any twelve (12) month period.
2.2 PIGGYBACK REGISTRATIONS. The Company shall notify the
Investor in writing at least thirty (30) days prior to the filing of any
registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or
2
<PAGE>
other transactions under Rule 145 of the Securities Act) and will afford the
Investor an opportunity to include in such registration statement all or part
of such Registrable Securities held by the Investor. If the Investor desires
to include in any such registration statement all or any part of the
Registrable Securities held by the Investor, Investor shall, within fifteen
(15) days after the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the intended method of
disposition of the Registrable Securities by the Investor. If the Investor
decides not to include all of his Registrable Securities in any registration
statement thereafter filed by the Company, the Investor shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent such registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon
the terms and conditions set forth herein.
2.2.1 UNDERWRITING. If the registration statement under
which the Company gives notice under this Section 2.2 is for an underwritten
offering, the Company shall so advise the Investor. In such event, the right
of the Investor to be included in a registration pursuant to this Section 2.2
shall be conditioned upon the Investor's participation in such underwriting
and the inclusion of the Investor's Registrable Securities in the
underwriting to the extent provided herein. The Investor shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
the inclusion of the Registrable Securities would jeopardize the successful
sale of such other securities proposed to be sold by such underwriter or
underwriters, the Company shall not be obligated to include the Registrable
Securities in the registration.
2.2.2 RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right to terminate or withdraw any registration initiated or
withdraw any registration initiated by it under this Section 2.2 prior to the
effectiveness of such registration whether or not the Investor has elected to
include securities in such registration. The Registration Expenses of such
withdrawn registration shall be borne by the Company in accordance with
Section 2.3 hereof.
2.3 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2.1 or any
registration under Section 2.2 herein shall be borne by the Company. All
Investor related Selling Expenses incurred in connection with any
registrations hereunder shall be borne by the Investor. The Company shall
not, however, be required to pay for expenses of any registration proceeding
begun pursuant to Section 2.1, the request of which has been subsequently
withdrawn by the Investor unless the withdrawal is based upon material
adverse information concerning the Company of which the Investor was not
aware at the time of request or the Investor agrees to forfeit the demand
registration right pursuant to Section 2.1.
2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
2.4.1 Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective.
2.4.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
3
<PAGE>
2.4.3 Furnish to the Investor such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as he may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by him.
2.4.4 Use all 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
Investor, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
2.4.5 In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter(s) of such offering.
The Investor participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
2.4.6 Notify the Investor of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
2.5 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect three (3) years after the date of the Company's Initial Offering. In
addition, the Investor's registration rights shall expire if (i) the Company
has completed its Initial Offering and is subject to the provisions of the
Exchange Act, (ii) the Investor (together with his affiliates, partners and
former partners) holds less than 1% of the Company's outstanding Common Stock
(treating all shares of convertible Preferred Stock on an as converted basis)
and (iii) all Registrable Securities held by and issuance to the Investor may
be sold under Rule 144 during any ninety (90) day period.
2.6 DELAY OF REGISTRATION; FURNISHING INFORMATION.
2.6.1 The Investor shall not have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.6.2 It shall be a condition precedent to the obligations
of the Company to take any action pursuant to Section 2.1 or 2.2 that the
Investor shall furnish to the Company such information regarding himself, the
Registrable Securities held by him and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.7 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under Sections 2.1 or 2.2:
2.7.1 To the extent permitted by law, the Company will
indemnify and hold harmless the Investor, against any losses, claims, damages,
or liabilities (joint or several) to which he may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the
4
<PAGE>
following statements, omissions or violations (collectively a "Violation") by
the Company: (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law in connection with the
offering covered by such registration statement; and the Company will
reimburse the Investor for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided however, that the indemnity agreement
contained in this Section 2.7.1 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld, nor shall the Company be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in
connection with such registration by the Investor.
2.7.2 To the extent permitted by law, the Investor will, if
Registrable Securities held by the Investor are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by the
Investor under an instrument duly executed by the Investor and stated to be
specifically for use in connection with such registration; and the Investor will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 2.7.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Investor, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 2.7
exceed the proceeds from the offering received by the Investor.
2.7.3 Promptly after receipt by an indemnified party under
this Section 2.7 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party 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 to deliver
written notice to the indemnifying party within a reasonable time
5
<PAGE>
of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 2.7, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 2.7.
2.7.4 If the indemnification provided for in this Section
2.7 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 thereunder, 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
Violation(s) 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 proceeds from the offering received by such Holder.
2.7.5 The obligations of the Company and Holders under this
Section 2.7 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term 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. In the event any offering of Registrable Securities is
underwritten, and the underwriting agreement provides for indemnification and/or
contribution by the Company and the Holders offering securities thereunder, the
indemnification and/or contribution obligations of the Company and the Holders
hereunder shall in no event exceed the obligations of the parties set forth in
such underwriting agreement.
2.8 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities
which acquires at least five hundred thousand (500,000) shares of Registrable
Securities (adjusted for stock splits and combinations); provided however,
(A) the transferor shall, within ten (10) days after such transfer, furnish
to the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights
are being assigned and (B) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.
2.9 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 2 may be amended or terminated and the observance thereof may be
waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of the Company and the
Investor. Any amendment, termination or waiver effected in accordance with
this Section 2.8 shall be binding upon the Investor and the Company. By
acceptance of any benefits under this Section 2, the Investor hereby agrees
to be bound by the provisions hereunder.
2.10 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as
the representative of the underwriters of Common Stock (or other securities)
of the Company, the Investor shall not sell or otherwise transfer or dispose
of any Shares or Common Stock (or other securities) of the Company held by
the Investor (other than those included in the registration) for a
6
<PAGE>
period specified by the representative of the underwriters not to exceed one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided however,
that all officers and directors of the Company enter into similar agreements.
The Company may impose stop-transfer instructions with respect to the shares
of Common Stock (or other securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
III. MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California without giving effect to
principles of conflicts of laws thereof.
3.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Investor
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators
of the parties hereto and shall inure to the benefit of and be enforceable by
each person who shall be a holder of Registrable Securities from time to
time; provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.
3.4 SEVERABILITY. In case any provision of the Agreement shall
be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
3.5 AMENDMENT AND WAIVER.
3.5.1 Except as otherwise expressly provided, this Agreement
may be amended or modified only upon the written consent of the Company and the
Investor.
3.5.2 Except as otherwise expressly provided, the
obligations of the Company and the rights of the Investor under this
Agreement may be waived only with the written consent of the Investor.
3.5.3 Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company to include additional
purchasers of Shares as "Investors," "Holders" and parties hereto.
3.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to the Investor, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on Investor's part of any breach, default or
noncompliance under the Agreement or any waiver on Investor's part of any
provisions or conditions
7
<PAGE>
of this Agreement must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under
this Agreement, by law, or otherwise afforded to Investor, shall be
cumulative and not alternative.
3.7 NOTICES. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or
(iv) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the party to be notified at the address
as set forth on the signature pages hereof or at such other address as such
party may designate by ten (10) days advance written notice to the other
parties hereto.
3.8 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party
in such dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or
with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
3.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
3.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
3.11 ENTIRE AGREEMENT. This Agreement, the Purchase Agreement
and the other documents delivered pursuant thereto constitute the full and
entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date set forth above.
COMPANY: INVESTOR:
OCULEX PHARMACEUTICALS, INC. TJOA THIAN SONG
By: /s/ Jerry B. Gin By: /s/ Tjoa Thian Song
------------------------------- -------------------------------
President Tjoa Thian Song
9
<PAGE>
Exhibit 4.4
OCULEX PHARMACEUTICALS, INC.
SERIES D PREFERRED STOCK
INVESTOR RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 GENERAL................................................................................................1
1.1 Definitions.....................................................................................1
SECTION 2 REGISTRATION; RESTRICTIONS ON TRANSFER.................................................................3
2.1 Restrictions on Transfer........................................................................3
2.2 Demand Registration.............................................................................4
2.3 Piggyback Registrations.........................................................................5
2.4 Form S-3 Registration...........................................................................6
2.5 Expenses of Registration........................................................................7
2.6 Obligations of the Company......................................................................8
2.7 Termination of Registration Rights..............................................................9
2.8 Delay of Registration; Furnishing Information...................................................9
2.9 Indemnification.................................................................................9
2.10 Assignment of Registration Rights..............................................................11
2.11 Amendment of Registration Rights...............................................................12
2.12 Limitation on Subsequent Registration Rights...................................................12
2.13 "Market Stand-Off" Agreement; Agreement to Furnish Information.................................12
2.14 Rule 144 Reporting.............................................................................13
SECTION 3 COVENANTS OF THE COMPANY..............................................................................13
3.1 Basic Financial Information and Reporting......................................................13
3.2 Inspection Rights..............................................................................14
3.3 Confidentiality of Records.....................................................................14
3.4 Reservation of Common Stock....................................................................14
3.5 Proprietary Information and Inventions Agreement...............................................15
3.6 Use of Funds...................................................................................15
3.7 Termination of Covenants.......................................................................15
SECTION 4 RIGHTS OF FIRST REFUSAL...............................................................................15
4.1 Subsequent Offerings...........................................................................15
4.2 Exercise of Rights.............................................................................15
4.3 Issuance of Equity Securities to Other Persons.................................................16
4.4 Termination and Waiver of Rights of First Refusal..............................................16
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
4.5 Transfer of Rights of First Refusal............................................................16
4.6 Excluded Securities............................................................................16
SECTION 5 MISCELLANEOUS.........................................................................................17
5.1 Governing Law..................................................................................17
5.2 Survival.......................................................................................17
5.3 Successors and Assigns.........................................................................17
5.4 Entire Agreement...............................................................................17
5.5 Severability...................................................................................17
5.6 Amendment and Waiver...........................................................................18
5.7 Delays or Omissions............................................................................18
5.8 Notices........................................................................................18
5.9 Attorneys' Fees................................................................................18
5.10 Titles and Subtitles...........................................................................18
5.11 Additional Investors...........................................................................19
5.12 Counterparts...................................................................................19
</TABLE>
ii.
<PAGE>
OCULEX PHARMACEUTICALS, INC.
SERIES D PREFERRED STOCK
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as
of the ____ day of March, 2000, by and among OCULEX PHARMACEUTICALS, INC., a
California corporation (the "Company") and the Purchasers of the Company's
Series D Preferred Stock (the "Investors") listed on EXHIBIT A hereto, and as
amended to add further Purchasers from time to time.
RECITALS
WHEREAS, Investors are purchasing shares of the Company's Series D
Preferred Stock (the "Series D Stock") pursuant to that certain Series D
Preferred Stock Purchase Agreement (the "Purchase Agreement") (the "Financing");
WHEREAS, the obligations in the Purchase Agreement are conditioned
upon the execution and delivery of this Agreement; and
WHEREAS, in connection with the consummation of the Financing, the
parties desire to enter into this Agreement in order to grant registration,
information rights and other rights to the Investor as set forth below.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree hereto as follows:
SECTION 1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor or similar registration form under
the Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
"Holder" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 2.10 hereof.
1.
<PAGE>
"Initial Offering" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act.
"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
effectiveness of such registration statement or document.
"Registrable Securities" means (a) Common Stock of the Company
issued or issuable upon conversion of the Shares; and (b) any Common Stock of
the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number
of shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (a) are
then issued and outstanding or (b) are issuable pursuant to then exercisable
or convertible securities.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, reasonable fees and
disbursements not to exceed fifteen thousand ($15,000) of a single special
counsel for the Holders, 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).
"SEC" or "Commission" means the Securities and Exchange
Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"Shares" shall mean the Company's Series D Stock issued
pursuant to the Purchase Agreement and held by the Investors listed on
EXHIBIT A hereto and their permitted assigns.
"Special Registration Statement" shall mean a registration
statement relating to any employee benefit plan or with respect to any
corporate reorganization or other transaction under Rule 145 of the
Securities Act.
2.
<PAGE>
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER.
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by
the terms of this Agreement, (B) such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (C) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such
shares under the Securities Act. It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144 except
in unusual circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or 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
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (C) to the Holder's
family member or trust for the benefit of an individual Holder; PROVIDED that
in each case the transferee will be subject to the terms of this Agreement to
the same extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to
the Company) reasonably acceptable to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
3.
<PAGE>
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the
Company shall receive a written request from the Holders of a majority of the
Registrable Securities (the "Initiating Holders") that the Company file a
registration statement under the Securities Act covering the registration of
at least a majority of the Registrable Securities then outstanding (or a
lesser percent if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $5,000,000 (a "Qualified
Public Offering")), then the Company shall, within thirty (30) days of the
receipt thereof, give written notice of such request to all Holders, and
subject to the limitations of this Section 2.2, effect, as expeditiously as
reasonably possible, the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a)
or Section 2.4(a), as applicable. In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding
any other provision of this Section 2.2 or Section 2.4, if the underwriter
advises the Company that marketing factors require a limitation of the number
of securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may
be included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a PRO RATA basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of (A) the third anniversary of
the date of this Agreement or (B) one hundred eighty (180) days following the
effective date of the registration statement pertaining to the Initial
Offering;
(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective;
4.
<PAGE>
(iii) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2(a), the Company gives
notice to the Holders of the Company's intention to make its Initial Offering
within ninety (90) days;
(iv) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by
the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be effected
at such time, in which event the Company shall have the right to defer such
filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; PROVIDED that such right to delay a
request shall be exercised by the Company not more than once in any twelve
(12) month period; or
(v) if the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 2.4 below.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders
of Registrable Securities in writing at least fifteen (15) days prior to the
filing of any registration statement under the Securities Act for purposes of
a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company, but excluding Special Registration Statements) and will afford
each such Holder an opportunity to include in such registration statement all
or part of such Registrable Securities held by such Holder. Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days after the
above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant
to this Section 2.3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of the Agreement, if the underwriter determines in good
faith that marketing factors require a limitation of the number of shares to
be underwritten, the number of shares that may be included in the
underwriting shall be allocated, first, to the Company; second, to the
Holders and holders which acquired registration rights through the purchase
of the Company's Preferred Stock ("Other Holders") on a PRO RATA basis based
on the total number of Registrable Securities and other shares registrable as
former shares
5.
<PAGE>
of Preferred Stock of the Company held by the Holders and Other Holders; and
third, to any shareholder of the Company (other than a Holder) on a PRO RATA
basis. No such reduction shall (i) reduce the securities being offered by the
Company for its own account to be included in the registration and
underwriting, or (ii) reduce the amount of securities of the selling Holders
and Other Holders included in the registration below twenty-five percent
(25%) of the total amount of securities included in such registration, unless
such offering is the Initial Offering and such registration does not include
shares of any other selling shareholders, in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. If any Holder disapproves of the terms of any
such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter, delivered at least ten (10)
business days prior to the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder which is a
partnership or corporation, the partners, retired partners and shareholders
of such Holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing
person shall be deemed to be a single "Holder," and any PRO RATA reduction
with respect to such "Holder" shall be based upon the aggregate amount of
shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5 hereof.
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 (or any successor to Form
S-3) or any similar short-form registration statement and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice
from the Company; PROVIDED, HOWEVER, that the Company shall not be obligated
to effect any such registration, qualification or compliance pursuant to this
Section 2.4:
(i) if Form S-3 is not available for such offering by the
Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and
6.
<PAGE>
such other securities (if any) at an aggregate price to the public of less
than five hundred thousand dollars ($500,000), or
(iii) if within thirty (30) days of receipt of a written
request from any Holder or Holders pursuant to this Section 2.4, the Company
gives notice to such Holder or Holders of the Company's intention to make a
public offering within ninety (90) days, other than pursuant to a Special
Registration Statement;
(iv) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than ninety (90) days
after receipt of the request of the Holder or Holders under this Section 2.4;
PROVIDED, that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period, or
(v) if the Company has already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 2.4, or
(vi) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. Registrations effected pursuant to
this Section 2.4 shall not be counted as demands for registration or
registrations effected pursuant to Sections 2.2 or 2.3, respectively. All
such Registration Expenses incurred in connection with registrations
requested pursuant to this Section 2.4 after the first two (2) registrations
shall be paid by the selling Holders PRO RATA in proportion to the number of
shares sold by each.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2.2 or any
registration under Section 2.3 or Section 2.4 herein shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
hereunder, shall be borne by the holders of the securities so registered PRO
RATA on the basis of the number of shares so registered. The Company shall
not, however, be required to pay for expenses of any registration proceeding
begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which the
Initiating Holders were not aware at the time of such request or (b) the
Holders of a majority of Registrable Securities agree to forfeit their right
to one requested registration pursuant to Section 2.2 or Section 2.4, as
applicable, in which event such right shall be forfeited by all Holders). If
the Holders are required to pay the Registration Expenses, such expenses
shall be borne by the holders of securities (including Registrable
Securities) requesting such registration in proportion to the
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number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
clause (a) above, then the Holders shall not forfeit their rights pursuant to
Section 2.2 or Section 2.4 to a demand registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all 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 up to thirty (30)
days or, if earlier, until the Holder or Holders have completed the
distribution related thereto. The Company shall not be required to file,
cause to become effective or maintain the effectiveness of any registration
statement that contemplates a distribution of securities on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement for the period set
forth in paragraph (a) above.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its 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 qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing. The Company will use reasonable efforts to amend
or supplement such prospectus in order to cause such prospectus not to
include any untrue statement of a material fact or omit to state a material
fact required to be stated
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therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(g) Use its reasonable efforts to furnish, on the date that
such Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters, (i) an opinion, dated as
of such date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering addressed to the
underwriters.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect two (2) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (a) the Company has
completed its Initial Offering and is subject to the provisions of the
Exchange Act, (b) such Holder (together with its affiliates, partners and
former partners) holds less than 1% of the Company's outstanding Common Stock
(treating all shares of convertible Preferred Stock on an as converted basis)
and (c) all Registrable Securities held by and issuable to such Holder (and
its affiliates, partners, former partners, members and former members) may be
sold under Rule 144 during any ninety (90) day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation
or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in Section 2.2 or
Section 2.4, whichever is applicable.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses,
9.
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claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by the
Company: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law in connection with the
offering covered by such registration statement; and the Company will pay as
incurred to each such Holder, partner, officer, director, underwriter or
controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED HOWEVER, that the indemnity agreement
contained in this Section 2.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any
such case for any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished expressly for use
in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(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 qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers
and each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors
or officers or any person who controls such Holder, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or other such Holder,
or partner, director, officer or controlling person of such other Holder may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such
Holder will pay as incurred any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person, underwriter
or other Holder, or partner, officer, director or controlling person of such
other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action if it is judicially determined that there
was such a Violation; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 2.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; PROVIDED FURTHER, that in no event shall any
indemnity under this Section 2.9 exceed the proceeds from the offering
received by such Holder.
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(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.9,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party 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 to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 2.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 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 thereunder, 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 Violation(s) 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 Holders under this
Section 2.9 shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of this agreement.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term 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.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities
which (a) is a general partner, limited partner or retired partner of a
Holder, (b) is a Holder's family member or trust for the benefit of an
individual Holder, or (c) acquires at least fifty thousand (50,000) shares of
Registrable Securities (as adjusted for stock
11.
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splits and combinations); PROVIDED, HOWEVER, (i) the transferor shall, within
ten (10) days after such transfer, furnish to the Company written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and (ii) such
transferee shall agree to be subject to all restrictions set forth in this
Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders
of at least seventy-five percent (75%) of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this Section
2.11 shall be binding upon each Holder and the Company. By acceptance of any
benefits under this Section 2, Holders of Registrable Securities hereby agree
to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. Other than as
provided in Section 5.11, after the date of this Agreement, the Company shall
not, without the prior written consent of the Holders of at least
seventy-five percent (75%) of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any
securities of the Company that would grant such holder registration rights
senior to those granted to the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION.
Each Holder hereby agrees that such Holder shall not sell, transfer, make any
short sale of, grant any option for the purchase of, or enter into any
hedging or similar transaction with the same economic effect as a sale, any
Common Stock (or other securities) of the Company held by such Holder (other
than those included in the registration) for a period specified by the
representative of the underwriters of Common Stock (or other securities) of
the Company not to exceed one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act; PROVIDED that:
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company and holders of at
least one percent (1%) of the Company's voting securities enter into similar
agreements.
Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In
addition, if requested by the Company or the representative of the underwriters
of Common Stock (or other securities) of the Company, each Holder shall provide,
within ten (10) days of such request, such information as may be required by the
Company or such representative in connection with the completion of any public
offering of the Company's securities pursuant to a registration statement filed
under the Securities Act. The obligations described in this Section 2.13 shall
not apply to a registration relating solely to employee benefit plans on Form
S-1 or Form S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form S-4 or
similar forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the
12.
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foregoing restriction until the end of said one hundred eighty (180) day
period. Each Holder agrees that any transferee of any shares of Registrable
Securities shall be bound by this Section 2.13.
2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its
securities to the general public;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
of the Securities Act, and of the Exchange Act (at any time after it has
become subject to such reporting requirements); a copy of the most recent
annual or quarterly report of the Company; and such other reports and
documents as a Holder may reasonably request in availing itself of any rule
or regulation of the SEC allowing it to sell any such securities without
registration.
SECTION 3. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account
in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered
in accordance with generally accepted accounting principles consistently
applied, and will set aside on its books all such proper accruals and
reserves as shall be required under generally accepted accounting principles
consistently applied.
(b) As soon as practicable after the end of each fiscal year of
the Company, and in any event within one hundred twenty (120) days
thereafter, to the extent requested by an Investor the Company will furnish
such Investor a balance sheet of the Company, as at the end of such fiscal
year, and a statement of income and a statement of cash flows of the Company,
for such year, all prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.
(c) So long as an Investor (with its affiliates) shall own not
less than one hundred thousand (100,000) shares of Registrable Securities (as
adjusted for stock splits and combinations) (a "Major Investor"), the Company
will furnish such Major Investor, as soon as practicable after the end of the
first, second and third quarterly accounting periods in each fiscal
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year of the Company, and in any event within forty-five (45) days thereafter,
to the extent requested by such Investor a balance sheet of the Company as of
the end of each such quarterly period, and a statement of income and a
statement of cash flows of the Company for such period and for the current
fiscal year to date, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to
such statements and year-end audit adjustments may not have been made.
(d) To the extent requested by such Major Investor the Company
will furnish each a Major Investor (i) at least thirty (30) days prior to the
beginning of each fiscal year and annual budget and operating plans for such
fiscal year (and as soon as available, any subsequent revisions thereto); and
(ii) as soon as practicable after the end of each month, and in any event
within twenty (20) days thereafter, a balance sheet of the Company as of the
end of each such month, and a statement of income and a statement of cash
flows of the Company for such month, and a statement of income and a
statement of cash flows of the Company for such month and for the current
fiscal year to date, including a comparison to plan figures for such period,
prepared in accordance with generally accepted accounting principles
consistently applied, with the exception that no notes need be attached to
such statements and year-end audit adjustments may not have been made.
3.2 INSPECTION RIGHTS. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as
often as may be reasonably requested; PROVIDED, HOWEVER, that the Company
shall not be obligated under this Section 3.2 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed. For so long as Pharmbio Growth Fund PTE LTD is a Major Investor,
it shall have five days advance notice of the Company's regular meetings of
its Board of Directors and an opportunity to observe such regular Board
Meetings, provided, however; that the Board of Directors may exclude Pharmbio
Growth Fund PTE LTD from all or a portion of the Board Meetings if the Board
determines in good faith that the subject matter thereof is Confidential and
should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner,
subsidiary or parent of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Preferred Stock, all Common Stock issuable from time to
time upon such conversion.
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3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all employees and consultants to execute and deliver a
Proprietary Information and Inventions Agreement.
3.6 USE OF FUNDS. The Company shall use funds acquired from
Pharmbio Growth Fund PTE LTD for the purpose of operating and expanding the
Company's business in Singapore, including; (i) the expansion of Oculex Asia
into an integrated operation with development, manufacturing and sales and
marketing, and (ii) the setting up of a commercial scale GMP manufacturing
facility in Singapore for drug delivery systems for the eye.
3.7 TERMINATION OF COVENANTS. All covenants of the Company
contained in Section 3 of this Agreement shall expire and terminate as to
each Investor upon the earlier of (i) the effective date of the registration
statement pertaining to the Initial Offering or (ii) upon (a) the sale, lease
or other disposition of all or substantially all of the assets of the Company
or (b) an acquisition of the Company by another corporation or entity by
consolidation, merger or other reorganization in which the holders of the
Company's outstanding voting stock immediately prior to such transaction own,
immediately after such transaction, securities representing less than fifty
percent (50%) of the voting power of the corporation or other entity
surviving such transaction, PROVIDED that this Section 3.16(ii)(b) shall not
apply to a merger effected exclusively for the purpose of changing the
domicile of the Company (a "Change in Control").
SECTION 4. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Major Investor shall have a right of
first refusal to purchase its PRO RATA share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 4.6 hereof. Each Investor's PRO RATA share is equal to
the ratio of (a) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of
the Shares) which such Investor is deemed to be a holder immediately prior to
the issuance of such Equity Securities to (b) the total number of shares of
the Company's outstanding Common Stock (including all shares of Common Stock
issued or issuable upon conversion of the Shares or upon the exercise of any
outstanding warrants or options) immediately prior to the issuance of the
Equity Securities. The term "Equity Securities" shall mean (i) any Common
Stock, Preferred Stock or other security of the Company, (ii) any security
convertible, with or without consideration, into any Common Stock, Preferred
Stock or other security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to
or purchase any Common Stock, Preferred Stock or other security or (iv) any
such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Major Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Investor shall have fifteen (15) days from the giving of such notice to agree
to purchase its PRO RATA share of the Equity Securities for the price and
upon the terms and conditions specified in the notice by giving written
notice to the Company and stating therein the quantity of Equity Securities
to be purchased. Notwithstanding the foregoing, the Company shall not be
required to
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offer or sell such Equity Securities to any Major Investor who would cause
the Company to be in violation of applicable federal securities laws by
virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of
the Major Investors elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Major
Investors who do so elect and shall offer such Major Investors the right to
acquire such unsubscribed shares. The Major Investors shall have five (5)
days after receipt of such notice to notify the Company of its election to
purchase all or a portion thereof of the unsubscribed shares. If the Major
Investors fail to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in
respect of which the Major Investor's rights were not exercised, at a price
and upon general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the Major
Investors pursuant to Section 4.2 hereof. If the Company has not sold such
Equity Securities within ninety (90) days of the notice provided pursuant to
Section 4.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the Major Investors in
the manner provided above.
4.4 TERMINATION AND WAIVER OF RIGHTS OF FIRST REFUSAL. The rights
of first refusal established by this Section 4 shall not apply to, and shall
terminate upon the earlier of (i) effective date of the registration
statement pertaining to the Company's Initial Offering or (ii) a Change in
Control. The rights of first refusal established by this Section 4 may be
amended, or any provision waived with the written consent of Major Investors
holding a majority of the Registrable Securities held by all Major Investors,
or as permitted by Section 5.6.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of each Major Investor under this Section 4 may be transferred to the
same parties, subject to the same restrictions as any transfer of
registration rights pursuant to Section 2.10.
4.6 EXCLUDED SECURITIES. The rights of first refusal established by
this Section 4 shall have no application to any of the following Equity
Securities:
(a) shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or
other rights) as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like issued or to be issued after the Series D
Original Issue Date (as defined in the Company's Articles of Incorporation)
to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary, pursuant to stock purchase or stock option plans
or other arrangements that are approved by the Board of Directors;
(b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants
outstanding as of the date of this Agreement; and stock issued pursuant to
any such rights or agreements granted after the date of this Agreement;
PROVIDED that the rights of first refusal established by this Section 4
applied with respect to the initial sale or grant by the Company of such
rights or agreements;
(c) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
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(d) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(e) shares of Common Stock issued upon conversion of the Shares;
(f) any Equity Securities issued pursuant to any equipment
leasing or loan arrangement, or debt financing from a bank or similar
financial or lending institution;
(g) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act; and
(h) any Equity Securities issued in connection with strategic
transactions involving the Company and other entities, including (i) joint
ventures, manufacturing, marketing or distribution arrangements or (ii)
technology transfer or development arrangements; PROVIDED that such strategic
transactions and the issuance of shares therein, has been approved by the
Company's Board of Directors.
SECTION 5. MISCELLANEOUS.
5.1 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.
5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.
5.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Purchase Agreement and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and no party shall be liable
or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
5.5 SEVERABILITY. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such
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invalidity, illegality, or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein.
5.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may
be amended or modified only upon the written consent of the Company and the
holders of at least seventy-five percent (75%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of at least seventy-five percent
(75%) of the Registrable Securities.
(c) For the purposes of determining the number of Holder or
Investors entitled to vote or exercise any rights hereunder, the Company
shall be entitled to rely solely on the list of record holders of its stock
as maintained by or on behalf of the Company.
5.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character
on any Holder's part of any breach, default or noncompliance under the
Agreement or any waiver on such Holder's part of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under
this Agreement, by law, or otherwise afforded to Holders, shall be cumulative
and not alternative.
5.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed electronic mail or
facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or
(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the party to be notified at the address as
set forth on the signature pages hereof or Exhibit A hereto or at such other
address as such party may designate by ten (10) days advance written notice
to the other parties hereto.
5.9 ATTORNEYS' FEES. In the event that any suit or action is
instituted to enforce any provision in this Agreement, the prevailing party
in such dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or
with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
5.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
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5.11 ADDITIONAL INVESTORS.
(a) Notwithstanding anything to the contrary contained herein,
if the Company shall issue additional shares of its Series D Preferred Stock
pursuant to the Purchase Agreement, any purchaser of such shares of Preferred
Stock may become a party to this Agreement by executing and delivering an
additional counterpart signature page to this Agreement and shall be deemed
an "Investor" hereunder.
(b) Notwithstanding anything to the contrary contained herein,
if the Company shall issue Equity Securities in accordance with Section 4.6
(c), (f) or (h) of this Agreement, any purchaser of such Equity Securities
may become a party to this Agreement by executing and delivering an
additional counterpart signature page to this Agreement and shall be deemed
an "Investor" hereunder.
5.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: INVESTOR:
OCULEX PHARMACEUTICALS, INC.
By: By:
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Print: Print Name:
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Title: Title:
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Address:
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NAME:
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By:
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Print Name:
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Title:
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NAME:
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By:
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Print Name:
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Title:
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INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Address:
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Address:
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Address:
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A-1
INVESTOR RIGHTS AGREEMENT
<PAGE>
Exhibit 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of March, 2000 by
and between OCULEX PHARMACEUTICALS, INC., a Delaware corporation (the
"Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
______________ of the Corporation, the Corporation has determined and agreed to
enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other
fiduciary of an affiliate of the Corporation (including any employee benefit
plan of the Corporation) faithfully and to the best of his ability so long as
he is duly elected and qualified in accordance with the provisions of the
Bylaws or other applicable charter documents of the Corporation or such
affiliate; PROVIDED, HOWEVER, that Agent may at any time and for any reason
resign from such position (subject to any contractual obligation that Agent
may have assumed apart from this Agreement) and that the Corporation or any
affiliate shall have no obligation under this Agreement to continue Agent in
any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from
time to time (but, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than the Bylaws or the
Code permitted prior to adoption of such amendment).
1.
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3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys'
fees), witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay because of
any claim or claims made against or by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative (including an action by or in
the right of the Corporation) to which Agent is, was or at any time becomes a
party, or is threatened to be made a party, by reason of the fact that Agent
is, was or at any time becomes a director, officer, employee or other agent
of Corporation, or is or was serving or at any time serves at the request of
the Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
Section 43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting
of profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach
of Agent's duty of loyalty to the Corporation or resulted in any personal
profit or advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a
valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding
was authorized by the Board of Directors of the Corporation, (iii) such
indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers
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vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) and shall continue thereafter so
long as Agent shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
arbitrational, administrative or investigative, by reason of the fact that
Agent was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and
amounts paid in settlement and any other amounts that Agent becomes legally
obligated to pay in connection with any action, suit or proceeding referred
to in Section 3 hereof even if not entitled hereunder to indemnification for
the total amount thereof, and the Corporation shall indemnify Agent for the
portion thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit
or proceeding, Agent will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to
which Agent notifies the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate
therein at its own expense;
(b) except as otherwise provided below, the Corporation
may, at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense thereof,
with counsel reasonably satisfactory to Agent. After notice from the
Corporation to Agent of its election to assume the defense thereof, the
Corporation will not be liable to Agent under this Agreement for any legal or
other expenses subsequently incurred by Agent in connection with the defense
thereof except for reasonable costs of investigation or otherwise as provided
below. Agent shall have the right to employ separate counsel in such action,
suit or proceeding but the fees and expenses of such counsel incurred after
notice from the Corporation of its assumption of the defense thereof shall be
at the expense of Agent unless (i) the employment of counsel by Agent has
been authorized by the Corporation, (ii) Agent shall have reasonably
concluded that there may be a conflict of interest between the Corporation
and Agent in the conduct of the defense of such action or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, in each of which cases the fees and expenses of Agent's separate
counsel shall be at the expense of the Corporation. The Corporation shall not
be entitled to assume the defense of any action, suit or proceeding brought
by or on behalf of the Corporation or as to which Agent shall have made the
conclusion provided for in clause (ii) above; and
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(c) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent, which shall not be unreasonably
withheld. The Corporation shall be permitted to settle any action except that
it shall not settle any action or claim in any manner which would impose any
penalty or limitation on Agent without Agent's written consent, which may be
given or withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by Agent in connection with such proceeding upon receipt of
an undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim
is made within ninety (90) days of request therefor. Agent, in such
enforcement action, if successful in whole or in part, shall be entitled to
be paid also the expense of prosecuting his claim. It shall be a defense to
any action for which a claim for indemnification is made under Section 3
hereof (other than an action brought to enforce a claim for expenses pursuant
to Section 8 hereof, provided that the required undertaking has been tendered
to the Corporation) that Agent is not entitled to indemnification because of
the limitations set forth in Section 4 hereof. Neither the failure of the
Corporation (including its Board of Directors or its stockholders) to have
made a determination prior to the commencement of such enforcement action
that indemnification of Agent is proper in the circumstances, nor an actual
determination by the Corporation (including its Board of Directors or its
stockholders) that such indemnification is improper shall be a defense to the
action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
the Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's
Certificate of Incorporation or Bylaws, agreement, vote of stockholders or
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office.
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12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
and shall inure to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Corporation, expressly
to assume and agree to perform this Agreement in the same manner and to the
same extent that the Corporation would be required to perform if no such
succession had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity
or unenforceability shall not affect the validity or enforceability of the
other provisions hereof. Furthermore, if this Agreement shall be invalidated
in its entirety on any ground, then the Corporation shall nevertheless
indemnify Agent to the fullest extent provided by the Bylaws, the Code or any
other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the
existence of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with
postage prepaid:
(a) If to Agent, at the address indicated on the signature
page hereof.
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(b) If to the Corporation, to
Oculex Pharmaceuticals, Inc.
639 N. Pastoria Avenue
Sunnyvale, CA 94086-2917
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
OCULEX PHARMACEUTICALS, INC.
By:
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Title:
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AGENT
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Address:
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6.
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Exhibit 10.2
OCULEX PHARMACEUTICALS, INC.
2000 EQUITY INCENTIVE PLAN
ADOPTED March 23, 2000
APPROVED BY STOCKHOLDERS _______________, 2000
TERMINATION DATE: _______________, 2010
1. PURPOSES.
(a) AMENDMENT AND RESTATEMENT. The Plan initially was
established as the 1991 Stock Option Plan effective as of July 19, 1991 (the
"Initial Plan"). The Initial Plan hereby is amended and restated in its
entirety and renamed the 2000 Equity Incentive Plan effective upon adoption
by the Board.
(b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to
receive Stock Awards are the Employees, Directors and Consultants of the
Company and its Affiliates.
(c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to
provide a means by which eligible recipients of Stock Awards may be given an
opportunity to benefit from increases in value of the Common Stock through
the granting of the following Stock Awards: (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire
restricted stock.
(d) GENERAL PURPOSE. The Company, by means of the Plan, seeks
to retain the services of the group of persons eligible to receive Stock
Awards, to secure and retain the services of new members of this group and to
provide incentives for such persons to exert maximum efforts for the success
of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the
Board appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Oculex Pharmaceuticals, Inc., a Delaware
corporation.
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(g) "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory
services and who is compensated for such services or (ii) who is a member of
the Board of Directors of an Affiliate. However, the term "Consultant" shall
not include either Directors who are not compensated by the Company for their
services as Directors or Directors who are merely paid a director's fee by
the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service
with the Company or an Affiliate, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Participant's Continuous
Service shall not be deemed to have terminated merely because of a change in
the capacity in which the Participant renders service to the Company or an
Affiliate as an Employee, Consultant or Director or a change in the entity
for which the Participant renders such service, provided that there is no
interruption or termination of the Participant's Continuous Service. For
example, a change in status from an Employee of the Company to a Consultant
of an Affiliate or a Director will not constitute an interruption of
Continuous Service. The Board or the chief executive officer of the Company,
in that party's sole discretion, may determine whether Continuous Service
shall be considered interrupted in the case of any leave of absence approved
by that party, including sick leave, military leave or any other personal
leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and
the four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the
Company.
(k) "DISABILITY" means (i) before the Listing Date, the
inability of a person, in the opinion of a qualified physician acceptable to
the Company, to perform the major duties of that person's position with the
Company or an Affiliate of the Company because of the sickness or injury of
the person and (ii) after the Listing Date, the permanent and total
disability of a person within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day
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of determination, as reported in THE WALL STREET JOURNAL or such other source
as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common
Stock shall be determined in a manner consistent with Section 260.140.50 of
Title 10 of the California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security
of the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange or designated (or approved for designation) upon
notice of issuance as a national market security on an interdealer quotation
system if such securities exchange or interdealer quotation system has been
certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is
not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant
or in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing
Date, 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.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory
Stock Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject to the terms
and conditions of the Plan.
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(v) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is
granted pursuant to the Plan or, if applicable, such other person who holds
an outstanding Stock Award.
(y) "PLAN" means this Oculex Pharmaceuticals, Inc. 2000 Equity
Incentive Plan.
(z) "RULE 16b-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(bb) "STOCK AWARD" means any right granted under the Plan,
including an Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between
the Company and a holder of a Stock Award evidencing the terms and conditions
of an individual Stock Award grant. Each Stock Award Agreement shall be
subject to the terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the
Plan unless and until the Board delegates administration to a Committee, as
provided in subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject
to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; what type or combination of types of Stock
Award shall be granted; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
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permitted to receive Common Stock pursuant to a Stock Award; and the number
of shares of Common Stock with respect to which a Stock Award shall be
granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the
Plan to a Committee or Committees of one (1) or more members of the Board,
and the term "Committee" shall apply to any person or persons to whom such
authority has been delegated. If administration is delegated to a Committee,
the Committee shall have, in connection with the administration of the Plan,
the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the
discretion of the Board, a Committee may consist solely of two or more
Outside Directors, in accordance with Section 162(m) of the Code, and/or
solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.
Within the scope of such authority, the Board or the Committee may (1)
delegate to a committee of one or more members of the Board who are not
Outside Directors the authority to grant Stock Awards to eligible persons who
are either (a) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock
Award or (b) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code and/or) (2) delegate to a committee of one or
more members of the Board who are not Non-Employee Directors the authority to
grant Stock Awards to eligible persons who are not then subject to Section 16
of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations,
interpretations and constructions made by the Board in good faith shall not
be subject to review by any person and shall be final, binding and conclusive
on all persons.
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4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11
relating to adjustments upon changes in Common Stock, the Common Stock that
may be issued pursuant to Stock Awards shall not exceed in the aggregate Five
Million Five Hundred Thousand (5,500,000) shares of Common Stock.
(b) EVERGREEN SHARE RESERVE INCREASE.
(i) Notwithstanding subsection 4(a) hereof, on the last
day of each fiscal year (the "Calculation Date") for a period of ten (10)
years, commencing in 2000, the aggregate number of shares of Common Stock
that is available for issuance under the Plan shall automatically be
increased by that number of shares equal to the greater of (1) five percent
(5%) of the Diluted Shares Outstanding or (2) the number of shares of Common
Stock subject to Stock Awards granted under the Plan during the prior
12-month period; provided, however, that the Board, from time to time, may
provide for a lesser increase in the aggregate number of shares of Common
Stock that is available for issuance under the Plan
(ii) Subject to the provisions of Section 11 hereof
relating to adjustments upon changes in securities, the increase in the
maximum aggregate number of shares of Common Stock that is available for
issuance pursuant to Incentive Stock Options granted under the Plan shall not
exceed Fifty Million (50,000,000) shares of Common Stock.
(iii) "Diluted Shares Outstanding" shall mean, as of any
date, (1) the number of outstanding shares of Common Stock of the Company on
such Calculation Date, plus (2) the number of shares of Common Stock issuable
upon such Calculation Date assuming the conversion of all outstanding
Preferred Stock and convertible notes, plus (3) the additional number of
dilutive Common Stock equivalent shares outstanding as the result of any
options or warrants outstanding during the fiscal year, calculated using the
treasury stock method.
(c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock
Award shall for any reason expire or otherwise terminate, in whole or in
part, without having been exercised in full, the shares of Common Stock not
acquired under such Stock Award shall revert to and again become available
for issuance under the Plan.
(d) SOURCE OF SHARES. The shares of Common Stock subject to the
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
(e) SHARE RESERVE LIMITATION. Prior to the Listing Date and to
the extent then required by Section 260.140.45 of Title 10 of the California
Code of Regulations, the total number of shares of Common Stock issuable upon
exercise of all outstanding Options and the total number of shares of Common
Stock provided for under any stock bonus or similar plan of the Company shall
not exceed the applicable percentage as calculated in accordance with the
conditions and exclusions of Section 260.140.45 of Title 10 of the California
Code of
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Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made.(1)
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock
Options may be granted only to Employees. Stock Awards other than Incentive
Stock Options may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS.
(i) A Ten Percent Stockholder shall not be granted an
Incentive Stock Option unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of the Common Stock
at the date of grant and the Option is not exercisable after the expiration
of five (5) years from the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder
shall not be granted a Nonstatutory Stock Option unless the exercise price of
such Option is at least (i) one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant or (ii) such lower percentage
of the Fair Market Value of the Common Stock at the date of grant as is
permitted by Section 260.140.41 of Title 10 of the California Code of
Regulations at the time of the grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder
shall not be granted a restricted stock award unless the purchase price of
the restricted stock is at least (i) one hundred percent (100%) of the Fair
Market Value of the Common Stock at the date of grant or (ii) such lower
percentage of the Fair Market Value of the Common Stock at the date of grant
as is permitted by Section 260.140.41 of Title 10 of the California Code of
Regulations at the time of the grant of the Option.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of
Section 11 relating to adjustments upon changes in the shares of Common
Stock, no Employee shall be eligible to be granted Options covering more than
Three Million (3,000,000) shares of Common Stock during any calendar year.
This subsection 5(c) shall not apply prior to the Listing Date and, following
the Listing Date, this subsection 5(c) shall not apply until (i) the earliest
of: (1) the first material modification of the Plan (including any increase
in the number of shares of Common Stock reserved for issuance under the Plan
in accordance with Section 4); (2) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (3) the expiration of the
Plan; or (4) the first meeting of stockholders at which Directors are to be
elected that occurs after the
- -----------------------------
(1) Section 260.140.45 generally provides that the total number of
shares issuable upon exercise of all outstanding options (exclusive of
certain rights) and the total number of shares called for under any stock
bonus or similar plan shall not exceed a number of shares which is equal to
30% of the then outstanding shares of the issuer (convertible preferred or
convertible senior common shares counted on an as if converted basis),
exclusive of shares subject to promotional waivers under Section 260.141,
unless a percentage higher than 30% is approved by at least two-thirds of the
outstanding shares entitled to vote.
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close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
(d) CONSULTANTS.
(i) Prior to the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, either the
offer or the sale of the Company's securities to such Consultant is not
exempt under Rule 701 of the Securities Act ("Rule 701") because of the
nature of the services that the Consultant is providing to the Company, or
because the Consultant is not a natural person, or as otherwise provided by
Rule 701, unless the Company determines that such grant need not comply with
the requirements of Rule 701 and will satisfy another exemption under the
Securities Act as well as comply with the securities laws of all other
relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall
not be eligible for the grant of a Stock Award if, at the time of grant, a
Form S-8 Registration Statement under the Securities Act ("Form S-8") is not
available to register either the offer or the sale of the Company's
securities to such Consultant because of the nature of the services that the
Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by the rules governing the use of
Form S-8, unless the Company determines both (i) that such grant (A) shall be
registered in another manner under the Securities Act (E.G., on a Form S-3
Registration Statement) or (B) does not require registration under the
Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities
laws of all other relevant jurisdictions.
(iii) Rule 701 and Form S-8 generally are available to
consultants and advisors only if (i) they are natural persons; (ii) they
provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii)
the services are not in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and, if certificates are issued, a separate certificate
or certificates will be issued for shares of Common Stock purchased on
exercise of each type of Option. The provisions of separate Options need not
be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of
each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, no Option granted prior to the Listing
Date shall be exercisable after the expiration of ten (10) years from the
date it was granted, and no Incentive Stock Option granted on or after
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the Listing Date shall be exercisable after the expiration of ten (10) years
from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Incentive Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option on the date the Option is granted. Notwithstanding the
foregoing, an Incentive Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to
the provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Nonstatutory Stock Option granted prior to the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market
Value of the Common Stock subject to the Option on the date the Option is
granted. The Board shall determine the exercise price of each Nonstatutory
Stock Option granted on or after the Listing Date. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price
lower than that set forth herein if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is
exercised or (ii) at the discretion of the Board at the time of the grant of
the Option (or subsequently in the case of a Nonstatutory Stock Option) (1)
by delivery to the Company of other Common Stock, (2) according to a deferred
payment or other similar arrangement with the Optionholder or (3) in any
other form of legal consideration that may be acceptable to the Board. Unless
otherwise specifically provided in the Option, the purchase price of Common
Stock acquired pursuant to an Option that is paid by delivery to the Company
of other Common Stock acquired, directly or indirectly from the Company,
shall be paid only by shares of the Common Stock of the Company that have
been held for more than six (6) months (or such longer or shorter period of
time required to avoid a charge to earnings for financial accounting
purposes). At any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive
Stock Option shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
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satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A
Nonstatutory Stock Option granted prior to the Listing Date shall not be
transferable except by will or by the laws of descent and distribution and,
to the extent provided in the Option Agreement, to such further extent as
permitted by Section 260.140.41(d) of Title 10 of the California Code of
Regulations at the time of the grant of the Option, and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. A
Nonstatutory Stock Option granted on or after the Listing Date shall be
transferable to the extent provided in the Option Agreement. If the
Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime
of the Optionholder only by the Optionholder. Notwithstanding the foregoing,
the Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(g) VESTING GENERALLY. The total number of shares of Common
Stock subject to an Option may, but need not, vest and therefore become
exercisable in periodic installments that may, but need not, be equal. The
Option may be subject to such other terms and conditions on the time or times
when it may be exercised (which may be based on performance or other
criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g) are
subject to any Option provisions governing the minimum number of shares of
Common Stock as to which an Option may be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding
the foregoing subsection 6(g), to the extent that the following restrictions
on vesting are required by Section 260.140.41(f) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an
Employee who is not an Officer, Director or Consultant shall provide for
vesting of the total number of shares of Common Stock at a rate of at least
twenty percent (20%) per year over five (5) years from the date the Option
was granted, subject to reasonable conditions such as continued employment;
and
(ii) Options granted prior to the Listing Date to
Officers, Directors or Consultants may be made fully exercisable, subject to
reasonable conditions such as continued employment, at any time or during any
period established by the Company.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the
Optionholder's death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination) but only within such period of time
ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder's Continuous Service (or such longer or
shorter period specified in the Option Agreement, which period shall not be
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less than thirty (30) days for Options granted prior to the Listing Date
unless such termination is for cause), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in
subsection 6(a) or (ii) the expiration of a period of three (3) months after
the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event that an
Optionholder's Continuous Service terminates as a result of the
Optionholder's Disability, the Optionholder may exercise his or her Option
(to the extent that the Optionholder was entitled to exercise such Option as
of the date of termination), but only within such period of time ending on
the earlier of (i) the date twelve (12) months following such termination (or
such longer or shorter period specified in the Option Agreement, which period
shall not be less than six (6) months for Options granted prior to the
Listing Date) or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for
a reason other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise such Option as of the date of
death) by the Optionholder's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person designated to
exercise the option upon the Optionholder's death pursuant to subsection 6(e)
or 6(f), but only within the period ending on the earlier of (1) the date
eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement, which period shall not be less than
six (6) months for Options granted prior to the Listing Date) or (2) the
expiration of the term of such Option as set forth in the Option Agreement.
If, after death, the Option is not exercised within the time specified
herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option. Subject to the "Repurchase Limitation" in
subsection 10(h), any unvested shares of Common Stock so purchased may be
subject to a repurchase
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option in favor of the Company or to any other restriction the Board
determines to be appropriate.
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation"
in subsection 10(h), the Option may, but need not, include a provision
whereby the Company may elect, prior to the Listing Date, to repurchase all
or any part of the vested shares of Common Stock acquired by the Optionholder
pursuant to the exercise of the Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not,
include a provision whereby the Company may elect, prior to the Listing Date,
to exercise a right of first refusal following receipt of notice from the
Optionholder of the intent to transfer all or any part of the shares of
Common Stock received upon the exercise of the Option. Except as expressly
provided in this subsection 6(o), such right of first refusal shall otherwise
comply with any applicable provisions of the Bylaws of the Company.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change
from time to time, and the terms and conditions of separate stock bonus
agreements need not be identical, but each stock bonus agreement shall
include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an
Affiliate for its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor
of the Company in accordance with a vesting schedule to be determined by the
Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 10(h), in the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) Transferability. For a stock bonus award made before
the Listing Date, rights to acquire shares of Common Stock under the stock
bonus agreement shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a stock bonus award made on or after
the Listing Date, rights to acquire shares of Common Stock under the stock
bonus agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the stock bonus agreement, as the Board
shall determine in its discretion, so long as
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Common Stock awarded under the stock bonus agreement remains subject to the
terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions
as the Board shall deem appropriate. The terms and conditions of the
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate restricted stock purchase agreements need
not be identical, but each restricted stock purchase agreement shall include
(through incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of
subsection 5(b) regarding Ten Percent Stockholders, the purchase price under
each restricted stock purchase agreement shall be such amount as the Board
shall determine and designate in such restricted stock purchase agreement.
For restricted stock awards made prior to the Listing Date, the purchase
price shall not be less than eighty-five percent (85%) of the Common Stock's
Fair Market Value on the date such award is made or at the time the purchase
is consummated. For restricted stock awards made on or after the Listing
Date, the Board shall determine the purchase price.
(ii) CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any
time that the Company is incorporated in Delaware, then payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law,
shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option
in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 10(h), in the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the
terms of the restricted stock purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made
before the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall not be transferable except by will
or by the laws of descent and distribution and shall be exercisable during
the lifetime of the Participant only by the Participant. For a restricted
stock award made on or after the Listing Date, rights to acquire shares of
Common Stock under the restricted stock purchase agreement shall be
transferable by the Participant only upon such terms and conditions as are
set forth in the restricted stock purchase agreement, as the Board shall
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determine in its discretion, so long as Common Stock awarded under the
restricted stock purchase agreement remains subject to the terms of the
restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock
Awards, the Company shall keep available at all times the number of shares of
Common Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain
from each regulatory commission or agency having jurisdiction over the Plan
such authority as may be required to grant Stock Awards and to issue and sell
shares of Common Stock upon exercise of the Stock Awards; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act the Plan, any Stock Award or any Common Stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell Common Stock upon
exercise of such Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall
have the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will
vest in accordance with the Plan, notwithstanding the provisions in the Stock
Award stating the time at which it may first be exercised or the time during
which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares of Common Stock subject to such Stock Award unless and until such
Participant has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan
or any instrument executed or Stock Award granted pursuant thereto shall
confer upon any Participant any right to continue to serve the Company or an
Affiliate in the capacity in effect at the time the Stock Award was granted
or shall affect the right of the Company or an Affiliate to terminate (i) the
employment of an Employee with or without notice and with or without cause,
(ii) the service of a Consultant pursuant to the terms of such Consultant's
agreement with the Company or an Affiliate or (iii) the service of a Director
pursuant to the Bylaws of the Company or an Affiliate,
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and any applicable provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent
that the aggregate Fair Market Value (determined at the time of grant) of
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by any Optionholder during any calendar year (under all
plans of the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a
Participant, as a condition of exercising or acquiring Common Stock under any
Stock Award, (i) to give written assurances satisfactory to the Company as to
the Participant's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business
matters and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Stock
Award; and (ii) to give written assurances satisfactory to the Company
stating that the Participant is acquiring Common Stock subject to the Stock
Award for the Participant's own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall
be inoperative if (1) the issuance of the shares of Common Stock upon the
exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (2) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may,
upon advice of counsel to the Company, place legends on stock certificates
issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to,
legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the
terms of a Stock Award Agreement, the Participant may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of Common Stock under a Stock Award by any of the following means
(in addition to the Company's right to withhold from any compensation paid to
the Participant by the Company) or by a combination of such means: (i)
tendering a cash payment; (ii) authorizing the Company to withhold shares of
Common Stock from the shares of Common Stock otherwise issuable to the
Participant as a result of the exercise or acquisition of Common Stock under
the Stock Award, provided, however, that no shares of Common Stock are
withheld with a value exceeding the minimum amount of tax required to be
withheld by law; or (iii) delivering to the Company owned and unencumbered
shares of Common Stock.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the
extent required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants
at least annually. This subsection 10(g) shall not apply to key
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Employees whose duties in connection with the Company assure them access to
equivalent information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option
shall be specified in the Stock Award and may be either at Fair Market Value
at the time of repurchase or at not less than the original purchase price. To
the extent required by Section 260.140.41 and Section 260.140.42 of Title 10
of the California Code of Regulations at the time a Stock Award is made, any
repurchase option contained in a Stock Award granted prior to the Listing
Date to a person who is not an Officer, Director or Consultant shall be upon
the terms described below:
(i) FAIR MARKET VALUE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination
of employment at not less than the Fair Market Value of the shares of Common
Stock to be purchased on the date of termination of Continuous Service, then
(i) the right to repurchase shall be exercised for cash or cancellation of
purchase money indebtedness for the shares of Common Stock within ninety (90)
days of termination of Continuous Service (or in the case of shares of Common
Stock issued upon exercise of Stock Awards after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period
as may be agreed to by the Company and the Participant (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
regarding "qualified small business stock") and (ii) the right terminates
when the shares of Common Stock become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option
gives the Company the right to repurchase the shares of Common Stock upon
termination of Continuous Service at the original purchase price, then (i)
the right to repurchase at the original purchase price shall lapse at the
rate of at least twenty percent (20%) of the shares of Common Stock per year
over five (5) years from the date the Stock Award is granted (without respect
to the date the Stock Award was exercised or became exercisable) and (ii) the
right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Options after such date of termination, within ninety
(90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the
Common Stock subject to the Plan, or subject to any Stock Award, without the
receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend
in property other than cash, stock split, liquidating dividend, combination
of shares, exchange of shares, change in corporate structure or other
transaction not involving the receipt of consideration by the Company), the
Plan will be appropriately adjusted in the class(es) and maximum number of
securities subject to the Plan pursuant to subsection 4(a) and the maximum
number of securities subject to award to any person pursuant to subsection
5(c), and the outstanding Stock Awards will be appropriately adjusted in the
class(es) and number of
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securities and price per share of Common Stock subject to such outstanding
Stock Awards. The Board shall make such adjustments, and its determination
shall be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a transaction "without
receipt of consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution
or liquidation of the Company, then all outstanding Stock Awards shall
terminate immediately prior to such event.
(c) ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the
event of (i) a sale, lease or other disposition of all or substantially all
of the assets of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation or (iii) a reverse merger in which
the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute
similar stock awards (including an award to acquire the same consideration
paid to the stockholders in the transaction described in this subsection
11(c) for those outstanding under the Plan). In the event any surviving
corporation or acquiring corporation refuses to assume such Stock Awards or
to substitute similar stock awards for those outstanding under the Plan, then
with respect to Stock Awards held by Participants whose Continuous Service
has not terminated, the vesting of such Stock Awards (and, if applicable, the
time during which such Stock Awards may be exercised) shall be accelerated in
full, and the Stock Awards shall terminate if not exercised (if applicable)
at or prior to such event. With respect to any other Stock Awards outstanding
under the Plan, such Stock Awards shall terminate if not exercised (if
applicable) prior to such event.
(d) SECURITIES ACQUISITION. After the Listing Date, in the
event of an acquisition by any person, entity or group within the meaning of
Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored
or maintained by the Company or an Affiliate) of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act, or
comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of Directors and provided that such acquisition is not a result of,
and does not constitute a transaction described in, subsection 11(c) hereof,
then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall
be accelerated in full.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to
time, may amend the Plan. However, except as provided in Section 11 relating
to adjustments upon changes in Common Stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Section 422 of the Code,
Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
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(b) STOCKHOLDER APPROVAL. The Board may, in its sole
discretion, submit any other amendment to the Plan for stockholder approval,
including, but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that
the Board may amend the Plan in any respect the Board deems necessary or
advisable to provide eligible Employees with the maximum benefits provided or
to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring
the Plan and/or Incentive Stock Options granted under it into compliance
therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award
granted before amendment of the Plan shall not be impaired by any amendment
of the Plan unless (i) the Company requests the consent of the Participant
and (ii) the Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from
time to time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by any
such amendment unless (i) the Company requests the consent of the Participant
and (ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at
any time. Unless sooner terminated, the Plan shall terminate on the day
before the tenth (10th) anniversary of the date the Plan is adopted by the
Board or approved by the stockholders of the Company, whichever is earlier.
No Stock Awards may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the
Plan shall not impair rights and obligations under any Stock Award granted
while the Plan is in effect except with the written consent of the
Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon adoption by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the stockholders of
the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions
concerning the construction, validity and interpretation of this Plan,
without regard to such state's conflict of laws rules.
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OCULEX PHARMACEUTICALS, INC.
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Oculex Pharmaceuticals, Inc. (the "Company") has granted
you an option under its 2000 Equity Incentive Plan (the "Plan") to purchase the
number of shares of the Company's Common Stock indicated in your Grant Notice at
the exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments
that have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as
provided in the Plan, to the extent that the aggregate Fair Market Value
(determined at the time of grant) of the shares of Common Stock with respect to
which your option plus all other incentive stock options you hold are
exercisable for the first time by you during any calendar year (under all plans
of the
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Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option
is exercised and provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve Board
that, prior to the issuance of Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of irrevocable instructions to pay
the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in THE WALL STREET JOURNAL, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
5. MINIMUM NUMBER OF SHARES. You may exercise your option at any one
time for one hundred (100) shares or more except as follows: (i) as to an
installment subject to exercise, as set forth herein, which amounts to fewer
than one hundred (100) shares, in which case, as to the exercise of that
installment, the number of shares in such installment shall be the minimum
number of shares; and (ii) with respect to the final exercise of your option,
the minimum shall not apply.
6. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
7. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and
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you may not exercise your option if the Company determines that such exercise
would not be in material compliance with such laws and regulations.
8. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your
Continuous Service due to your Disability;
(c) eighteen (18) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the day before the tenth (10th) anniversary of the Date of
Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
9. EXERCISE.
(a) You may exercise the vested portion of your option (and
the unvested portion of your option if your Grant Notice so permits) during its
term by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition
to any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to
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which the shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a
representative of the underwriter(s)) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your shares of
Common Stock until the end of such period.
10. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
11. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire
upon exercise of your option are subject to any right of first refusal that may
be described in the Company's bylaws in effect at such time the Company elects
to exercise its right. The Company's right of first refusal shall expire on the
Listing Date.
12. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws
as amended from time to time, the Company shall have the right to repurchase all
or any part of the shares of Common Stock you acquire pursuant to the exercise
of your option.
13. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
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14. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part,
or at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company,
in its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax
withholding obligations of the Company and/or any Affiliate are satisfied.
Accordingly, you may not be able to exercise your option when desired even
though your option is vested, and the Company shall have no obligation to issue
a certificate for such shares of Common Stock or release such shares of Common
Stock from any escrow provided for herein.
15. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
16. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
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Exhibit 10.3
OCULEX PHARMACEUTICALS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS March 23, 2000
APPROVED BY STOCKHOLDERS , 2000
---------------
TERMINATION DATE: NONE
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which
Employees of the Company and certain designated Affiliates may be given an
opportunity to purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the
services of such Employees, to secure and retain the services of new
Employees and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted
under the Plan be considered options issued under an "employee stock purchase
plan," as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the United States Internal Revenue Code of 1986,
as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subparagraph 3(c) of the Plan.
(e) "COMPANY" means Oculex Pharmaceuticals, Inc., a Delaware
corporation.
(f) "DIRECTOR" means a member of the Board.
(g) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in the Offering for eligibility to participate in the
Offering.
(h) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
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(i) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as
that term is defined in Section 423(b) of the Code.
(j) "EXCHANGE ACT" means the United States Securities Exchange Act
of 1934, as amended.
(k) "FAIR MARKET VALUE" means the value of a security, as
determined in good faith by the Board. If the security is listed on any
established stock exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, then, except as otherwise provided in the Offering,
the Fair Market Value of the security shall be the closing sales price
(rounded up where necessary to the nearest whole cent) for such security (or
the closing bid, if no sales were reported) as quoted on such exchange or
market (or the exchange or market with the greatest volume of trading in the
relevant security of the Company) on the trading day prior to the relevant
determination date, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable.
(l) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not
a current Employee or Officer of the Company or its parent or subsidiary,
does not receive compensation (directly or indirectly) from the Company or
its parent or subsidiary for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K, and is not engaged in a
business relationship as to which disclosure would be required under Item
404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee
director" for purposes of Rule 16b-3.
(m) "OFFERING" means the grant of Rights to purchase Shares under
the Plan to Eligible Employees.
(n) "OFFERING DATE" means a date selected by the Board for an
Offering to commence.
(o) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(p) "PARTICIPANT" means an Eligible Employee who holds an
outstanding Right granted pursuant to the Plan or, if applicable, such other
person who holds an outstanding Right granted under the Plan.
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(q) "PLAN" means this 2000 Employee Stock Purchase Plan.
(r) "PURCHASE DATE" means one or more dates established by the
Board during an Offering on which Rights granted under the Plan shall be
exercised and purchases of Shares carried out in accordance with such
Offering.
(s) "RIGHT" means an option to purchase Shares granted pursuant to
the Plan.
(t) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3 as in effect with respect to the Company at the time
discretion is being exercised regarding the Plan.
(u) "SECURITIES ACT" means the United States Securities Act of
1933, as amended.
(v) "SHARE" means a share of the common stock of the Company.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have
the final power to determine all questions of policy and expediency that may
arise in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase Shares
shall be granted and the provisions of each Offering of such Rights (which
need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such
acts as it deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be treated
as an Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a
Committee of the Board composed of two (2) or more members, all of the
members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the
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Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to
adjustments upon changes in securities, the Shares that may be sold pursuant
to Rights granted under the Plan shall not exceed in the aggregate Four
Hundred Thousand (400,000) Shares. If any Right granted under the Plan shall
for any reason terminate without having been exercised, the Shares not
purchased under such Right shall again become available for the Plan.
(b) The aggregate number of Shares that may be sold pursuant to
Rights granted under the Plan as specified in paragraph 4(a) hereof
automatically shall be increased as follows:
(i) For a period of ten (10) years, on the last day of each
fiscal year (the "Calculation Date"), commencing in 2000, the aggregate
number of Shares specified in paragraph 4(a) hereof shall be increased by the
greater of (1) that number of Shares equal to two percent (2%) of the Diluted
Shares Outstanding or (2) that number of Shares that have been sold pursuant
to Rights granted under the Plan in the prior 12-month period; provided,
however, that the Board of Directors may provide for a lesser increase in the
number of Shares in any year.
(ii) The maximum aggregate number of Shares that may be sold
pursuant to Rights granted under the Plan shall not increase by more than Five
Million (5,000,000) Shares during said 10-year period.
(iii) For purposes of paragraph 4(b)(i) hereof, "Diluted Shares
Outstanding" shall mean, as of any date, (1) the number of outstanding Shares on
such Calculation Date, plus (2) the number of Shares issuable upon such
Calculation Date assuming the conversion of all outstanding Preferred Stock and
convertible notes, plus (3) the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.
(c) The Shares subject to the Plan may be unissued Shares or
Shares that have been bought on the open market at prevailing market prices
or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant
of Rights to purchase Shares of the Company under the Plan to Eligible
Employees in an Offering on an Offering Date or Dates selected by the Board.
Each Offering shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate, which shall comply with
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the requirements of Section 423(b)(5) of the Code that all Employees granted
Rights to purchase Shares under the Plan shall have the same rights and
privileges. The terms and conditions of an Offering shall be incorporated by
reference into the Plan and treated as part of the Plan. The provisions of
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
document comprising the Offering or otherwise) the period during which the
Offering shall be effective, which period shall not exceed twenty-seven (27)
months beginning with the Offering Date, and the substance of the provisions
contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.
6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as
the Board may designated as provided in subparagraph 3(b), to Employees of an
Affiliate.
(i) Except as provided in subparagraph 6(b), an Employee
shall not be eligible to be granted Rights under the Plan unless, on the
Offering Date, such Employee has been in the employ of the Company or the
Affiliate, as the case may be, for such continuous period preceding such
grant as the Board may require in the Offering, but in no event shall the
required period of continuous employment be equal to or greater than two (2)
years.
(ii) The Board may provide in an Offering that Employees whose
customary employment is twenty (20) hours or less per week shall not be eligible
to participate.
(iii) The Board may provide in an Offering that Employees whose
customary employment is for not more than five (5) months in any calendar year
shall not be eligible to participate.
(iv) The Board may provide in an Offering that Employees who
are highly compensated Employees within the meaning of Section 423(b)(4)(D) of
the Code shall not be eligible to participate.
(b) The Board may provide that each person who, during the course
of an Offering, first becomes an Eligible Employee will, on a date or dates
specified in the Offering which coincides with the day on which such person
becomes an Eligible Employee or which occurs thereafter, receive a Right
under that Offering, which Right shall thereafter be deemed to be a part of
that Offering. Such Right shall have the same characteristics as any Rights
originally granted under that Offering, as described herein, except that:
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(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of
the exercise price of such Right;
(ii) the period of the Offering with respect to such Right
shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board may provide that if such person first becomes
an Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(c) No Employee shall be eligible for the grant of any Rights
under the Plan if, immediately after any such Rights are granted, such
Employee owns stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or of
any Affiliate. For purposes of this subparagraph 6(c), the rules of Section
424(d) of the Code shall apply in determining the stock ownership of any
Employee, and stock which such Employee may purchase under all outstanding
rights and options shall be treated as stock owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only
if such Rights, together with any other Rights granted under all Employee
Stock Purchase Plans of the Company and any Affiliates, as specified by
Section 423(b)(8) of the Code, do not permit such Eligible Employee's rights
to purchase Shares of the Company or any Affiliate to accrue at a rate which
exceeds twenty five thousand dollars ($25,000) of the fair market value of
such Shares (determined at the time such Rights are granted) for each
calendar year in which such Rights are outstanding at any time.
7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to
the number of Shares purchasable either:
(i) with a percentage designated by the Board not exceeding
fifteen percent (15%) of such Employee's Earnings (as defined by the Board in
each Offering) during the period which begins on the Offering Date (or such
later date as the Board determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board
that, as the Board determines for a particular Offering, (1) shall be
withheld, in whole or in part, from such Employee's Earnings (as defined by
the Board in each Offering) during the period which begins on the Offering
Date (or such later date as the Board determines for a particular Offering)
and ends on the date stated in the Offering, which date shall be no later
than the end of the Offering and/or (2) shall be contributed, in whole or in
part, by such Employee during such period.
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(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the
Board may specify a maximum amount of Shares that may be purchased by any
Participant as well as a maximum aggregate amount of Shares that may be
purchased by all Participants pursuant to such Offering. In addition, in
connection with each Offering that contains more than one Purchase Date, the
Board may specify a maximum aggregate amount of Shares which may be purchased
by all Participants on any given Purchase Date under the Offering. If the
aggregate purchase of Shares upon exercise of Rights granted under the
Offering would exceed any such maximum aggregate amount, the Board shall make
a pro rata allocation of the Shares available in as nearly a uniform manner
as shall be practicable and as it shall deem to be equitable.
(d) The purchase price of Shares acquired pursuant to Rights
granted under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the
fair market value of the Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the
fair market value of the Shares on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan
pursuant to an Offering by delivering a participation agreement to the
Company within the time specified in the Offering, in such form as the
Company provides. Each such agreement shall authorize payroll deductions of
up to the maximum percentage specified by the Board of such Employee's
Earnings during the Offering (as defined in each Offering). The payroll
deductions made for each Participant shall be credited to a bookkeeping
account for such Participant under the Plan and either may be deposited with
the general funds of the Company or may be deposited in a separate account in
the name of, and for the benefit of, such Participant with a financial
institution designated by the Company. To the extent provided in the
Offering, a Participant may reduce (including to zero) or increase such
payroll deductions. To the extent provided in the Offering, a Participant may
begin such payroll deductions after the beginning of the Offering. A
Participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the Participant has not
already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate
his or her payroll deductions under the Plan and withdraw from the Offering
by delivering to the Company a notice of withdrawal in such form as the
Company provides. Such withdrawal may be elected at any time prior to the end
of the Offering except as provided by the Board in the Offering. Upon such
withdrawal from the Offering by a Participant, the Company shall distribute
to such Participant all of his or her accumulated payroll deductions (reduced
to the extent, if any, such
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<PAGE>
deductions have been used to acquire Shares for the Participant) under the
Offering, without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's
employment with the Company or a designated Affiliate for any reason (subject
to any post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of
his or her accumulated payroll deductions (reduced to the extent, if any,
such deductions have been used to acquire Shares for the terminated Employee)
under the Offering, without interest unless otherwise specified in the
Offering. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution,
or by a beneficiary designation as provided in paragraph 15 and, otherwise
during his or her lifetime, shall be exercisable only by the person to whom
such Rights are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant
Offering, each Participant's accumulated payroll deductions and other
additional payments specifically provided for in the Offering (without any
increase for interest) will be applied to the purchase of Shares up to the
maximum amount of Shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional Shares shall be issued upon the exercise of Rights granted under
the Plan unless specifically provided for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the
amount, if any, of accumulated payroll deductions remaining in any
Participant's account after the purchase of Shares that is equal to the
amount required to purchase one or more whole Shares on the final Purchase
Date of the Offering shall be distributed in full to the Participant at the
end of the Offering, without interest. If the accumulated payroll deductions
have been deposited with the Company's general funds, then the distribution
shall be made from the general funds of the Company, without interest. If the
accumulated payroll deductions have been deposited in a separate account with
a financial institution as provided in subparagraph 8(a), then the
distribution shall be made from the separate account, without interest unless
otherwise specified in the Offering.
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(c) No Rights granted under the Plan may be exercised to any
extent unless the Shares to be issued upon such exercise under the Plan
(including Rights granted thereunder) are covered by an effective
registration statement pursuant to the Securities Act and the Plan is in
material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no Rights
granted under the Plan or any Offering shall be exercised on such Purchase
Date, and the Purchase Date shall be delayed until the Plan is subject to
such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the
Purchase Date shall in no event be more than twenty-seven (27) months from
the Offering Date. If, on the Purchase Date of any Offering hereunder, as
delayed to the maximum extent permissible, the Plan is not registered and in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised and all payroll deductions accumulated during the Offering (reduced
to the extent, if any, such deductions have been used to acquire Shares)
shall be distributed to the Participants, without interest unless otherwise
specified in the Offering. If the accumulated payroll deductions have been
deposited with the Company's general funds, then the distribution shall be
made from the general funds of the Company, without interest. If the
accumulated payroll deductions have been deposited in a separate account with
a financial institution as provided in subparagraph 8(a), then the
distribution shall be made from the separate account, without interest unless
otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the
Company shall ensure that the amount of Shares required to satisfy such
Rights are available.
(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell Shares upon exercise
of the Rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of Shares under the Plan, the Company shall be relieved
from any liability for failure to issue and sell Shares upon exercise of such
Rights unless and until such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of Shares pursuant to Rights granted under the
Plan shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, Shares subject to Rights granted
under the Plan unless and until the Participant's Shares acquired upon exercise
of Rights under the Plan are recorded in the books of the Company.
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13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the Shares subject to the Plan, or
subject to any Right, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and maximum number of Shares subject to the Plan pursuant to
subparagraph 4(a), and the outstanding Rights will be appropriately adjusted
in the class(es), number of Shares and purchase limits of such outstanding
Rights. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities
of the Company shall not be treated as a transaction that does not involve
the receipt of consideration by the Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of
all or substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation; or (iii)
a reverse merger in which the Company is the surviving corporation but the
Shares outstanding immediately preceding the merger are converted by virtue
of the merger into other property, whether in the form of securities, cash or
otherwise, then: (1) any surviving or acquiring corporation shall assume
Rights outstanding under the Plan or shall substitute similar rights
(including a right to acquire the same consideration paid to Stockholders in
the transaction described in this subparagraph 13(b)) for those outstanding
under the Plan, or (2) in the event any surviving or acquiring corporation
refuses to assume such Rights or to substitute similar rights for those
outstanding under the Plan, then, as determined by the Board in its sole
discretion such Rights may continue in full force and effect or the
Participants' accumulated payroll deductions (exclusive of any accumulated
interest which cannot be applied toward the purchase of Shares under the
terms of the Offering) may be used to purchase Shares immediately prior to
the transaction described above under the ongoing Offering and the
Participants' Rights under the ongoing Offering thereafter terminated.
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 13 relating to adjustments
upon changes in securities and except as to minor amendments to benefit the
administration of the Plan, to take account of a change in legislation or to
obtain or maintain favorable tax, exchange control or regulatory treatment
for Participants or the Company or any Affiliate, no amendment shall be
effective unless approved by the stockholders of the Company to the extent
stockholder approval is necessary for the Plan to satisfy the requirements of
Section 423 of the Code, Rule 16b-3 under the Exchange Act and any Nasdaq or
other securities exchange listing requirements. Currently under the Code,
stockholder approval within twelve (12) months before or after the adoption
of the amendment is required where the amendment will:
(i) Increase the amount of Shares reserved for Rights under
the Plan;
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(ii) Modify the provisions as to eligibility for
participation in the Plan to the extent such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Employees
with the maximum benefits provided or to be provided under the provisions of
the Code and the regulations promulgated thereunder relating to Employee
Stock Purchase Plans and/or to bring the Plan and/or Rights granted under it
into compliance therewith.
(c) Rights and obligations under any Rights granted before
amendment of the Plan shall not be impaired by any amendment of the Plan,
except with the consent of the person to whom such Rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or Rights granted under the
Plan comply with the requirements of Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary
who is to receive any Shares and/or cash, if any, from the Participant's
account under the Plan in the event of such Participant's death subsequent to
the end of an Offering but prior to delivery to the Participant of such
Shares and cash. In addition, a Participant may file a written designation of
a beneficiary who is to receive any cash from the Participant's account under
the Plan in the event of such Participant's death during an Offering.
(b) The Participant may change such designation of beneficiary at
any time by written notice. In the event of the death of a Participant and in
the absence of a beneficiary validly designated under the Plan who is living
at the time of such Participant's death, the Company shall deliver such
Shares and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its sole discretion, may
deliver such Shares and/or cash to the 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. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan
at any time. No Rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
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(b) Rights and obligations under any Rights granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except as expressly provided in the Plan or with the consent of the person to
whom such Rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or Rights granted under the Plan comply with the requirements of Section
423 of the Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the effective date set by the Board.
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OCULEX PHARMACEUTICALS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
OFFERING
ADOPTED MARCH 23, 2000
1. GRANT OF RIGHTS.
(a) The Board of Directors ("Board") of Oculex Pharmaceuticals, inc., a
Delaware corporation (the "Company"), pursuant to the Company's 2000 Employee
Stock Purchase Plan (the "Plan"), hereby authorizes the grant of Rights to
purchase Shares of the Company to all Eligible Employees (an "Offering").
Defined terms not explicitly defined in this Offering but defined in the Plan
shall have the same definitions as in the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations that may from time to time be
promulgated and adopted pursuant to the Plan), the provisions of the Plan shall
control.
(b) An "Offering Date" is the first day of an Offering. An Offering may
consist of one purchase period or may be divided into shorter purchase periods
("Purchase Periods"). A "Purchase Date" is the last day of a Purchase Period or
the Offering, as the case may be.
(c) Except as otherwise provided, each Offering hereunder shall be
twenty-four (24) months long and shall be divided into four (4) shorter Purchase
Period approximately six (6) months in length. Except as otherwise provided,
Purchase Periods shall begin every June 1 and December 1, and Purchase dates
shall be every May 31 and November 31. Offerings shall be consecutive. A new
Offering shall start the day after the current Offering ends.
(d) The first Offering shall begin on the effective date of the initial
public offering of the Shares and end on May 31, 2002 (the "Initial Offering");
provided, however, that the Initial Offering cannot exceed twenty-seven (27)
months. The Initial Offering will be divided into four (4) shorter Purchase
Periods of approximately six (6) months in duration, with the initial Purchase
Period ending on November 30, 2000, the second Purchase Period ending on May 31,
2001, the third Purchase Period ending on November 30, 2001 and the fourth
Purchase Period ending on May 31, 2002.
(e) Thereafter consecutive 24-month Offerings shall begin on June 1,
2002 and on each subsequent second anniversary of the most recent Offering Date.
Each Offering after the Initial Offering shall end on the day prior to the
second anniversary of its Offering Date unless sooner terminated as provided
below.
(f) If on the first day of a new Purchase Period during an Offering the
fair market value of the Shares is less than it was on the Offering Date for
that Offering, that day shall become the next Offering Date, and the Offering
that would otherwise have continued in effect shall immediately terminate.
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(g) Prior to the commencement of any Offering, the Board may change any
or all terms of such Offering and any subsequent Offerings. The granting of
Rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (i) the Board (or such Committee)
determines that such Offering shall not occur, or (ii) no Shares remain
available for issuance under the Plan in connection with the Offering.
(h) Notwithstanding any other provisions of an Offering, if the terms
of an Offering as previously established by the Board of Directors of the
Company would, as a result of a change to applicable accounting standards,
generate a charge to earnings, such Offering shall terminate effective as of the
day prior to the date such change to accounting standards would otherwise first
apply to the Offering (the "Offering Termination Date"), and such Offering
Termination Date shall be the final Purchase Date of such Offering. A subsequent
Offering shall commence on such date and on such terms as shall be provided by
the Board of Directors of the Company.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates
incorporated in the United States and in Singapore shall be granted Rights to
purchase Shares under each Offering on the Offering Date of such Offering,
provided that each such employee otherwise meets the employment requirements of
subparagraph 6(a) of the Plan and has been continuously employed for at least
ten (10) days on the Offering Date of such Offering (an "Eligible Employee");
however, the 10-day eligibility requirement shall be waived with respect to the
Initial Offering only.
(b) Notwithstanding the foregoing, the following employees shall NOT be
Eligible Employees or be granted Rights under an Offering: (i) part-time or
seasonal employees whose customary employment is twenty (20) hours or less per
week or five (5) months or less per calendar year or (ii) 5% stockholders
(including ownership through unexercised options) described in subparagraph 6(c)
of the Plan.
(c) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during any Offering will, on the next June 1 or December 1
during that Offering, receive a Right under such Offering, which Right shall
thereafter be deemed to be a part of the Offering. Such Right shall have the
same characteristics as any Rights originally granted under the Offering except
that:
(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right; and
(ii) the Offering for such Right shall begin on its Offering
Date and end coincident with the end of the ongoing Offering.
-2-
<PAGE>
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on
each Offering Date each Eligible Employee shall be granted the Right to purchase
the number of Shares purchasable with up to fifteen percent (15%) of such
Eligible Employee's Earnings paid during such Offering after the Eligible
Employee first commences participation; provided, however, that no employee may
purchase Shares on a particular Purchase Date that would result in more than
fifteen percent (15%) of such employee's Earnings in the period from the
Offering Date to such Purchase Date having been applied to purchase Shares under
all ongoing Offerings under the Plan and all other Company plans intended to
qualify as "employee stock purchase plans" under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) For this Offering, "Earnings" means the total compensation paid to
an employee, including all salary, wages (including amounts elected to be
deferred by the employee, that would otherwise have been paid, under any cash or
deferred arrangement established by the Company), overtime pay, commissions,
bonuses, and other remuneration paid directly to the employee, but excluding
profit sharing, the cost of employee benefits paid for by the Company, education
or tuition reimbursements, imputed income arising under any Company group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company under any employee benefit plan, and similar items of
compensation.
(c) Notwithstanding the foregoing, the maximum number of Shares an
Eligible Employee may purchase on any Purchase Date in an Offering shall be such
number of Shares as has a fair market value (determined as of the Offering Date
for such Offering) equal to (x) $25,000 multiplied by the number of calendar
years in which the Right under such Offering has been outstanding at any time,
minus (y) the fair market value of any other Shares (determined as of the
relevant Offering Date with respect to such Shares) which, for purposes of the
limitation of Section 423(b)(8) of the Code, are attributed to any of such
calendar years in which the Right is outstanding. The amount in clause (y) of
the previous sentence shall be determined in accordance with regulations
applicable under Section 423(b)(8) of the Code based on (i) the number of Shares
previously purchased with respect to such calendar years pursuant to such
Offering or any other Offering under the Plan, or pursuant to any other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Code, and (ii) the number of Shares subject to other Rights outstanding
on the Offering Date for such Offering pursuant to the Plan or any other such
Company plan.
(d) The maximum aggregate number of Shares available to be purchased by
all Eligible Employees under an Offering shall be the number of Shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
Shares upon exercise of Rights granted under the Offering would exceed the
maximum aggregate number of Shares available, the Board shall make a pro rata
allocation of the Shares available in a uniform and equitable manner.
-3-
<PAGE>
4. PURCHASE PRICE.
(a) The purchase price of the Shares under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Shares on
the Offering Date or eighty-five percent (85%) of the fair market value of the
Shares on the Purchase Date, in each case rounded up to the nearest whole cent
per Share.
(b) For the Initial Offering, the fair market value of the Shares at
the time when the Offering commences shall be the price per Share at which
Shares are first sold to the public in the Company's initial public offering as
specified in the final prospectus with respect to that offering.
5. PARTICIPATION.
(a) A person who is an Eligible Employee at the start of an Offering
may elect to participate in such Offering either at the beginning of the
Offering or at the start of any Purchase Period during the Offering.
(b) A Participant who is enrolled in an Offering automatically will be
enrolled in the next Offering that commences after the current Offering ends.
(c) An Eligible Employee shall become a Participant in an Offering by
delivering an agreement authorizing payroll deductions. Such deductions must be
in whole percentages, with a minimum percentage of one percent (1%) and a
maximum percentage of fifteen percent (15%) of Earnings. A Participant may not
make additional payments into his or her account. The agreement shall be made on
such enrollment form as the Company provides, and must be delivered to the
Company at least ten (10) days before the Offering Date, or before such later
date specified in subparagraph 2(c), in advance of the date of participation to
be effective, unless a later time for filing the enrollment form is set by the
Board for all Eligible Employees with respect to a given Offering Date. For the
Initial Offering, the time for filing an enrollment form and commencing
participation for individuals who are Eligible Employees on the Offering Date
for the Initial Offering may be after the Offering Date, as determined by the
Company and communicated to such Eligible Employees.
(d) If the agreement authorizing payroll deductions is required to be
delivered to the Company or designated Affiliate a specified number of days
before the Offering Date to be effective, then an employee who becomes eligible
during the required delivery period shall not be considered to be an Eligible
Employee at the beginning of the Offering but may elect to participate during
the Offering as provided in subparagraph 2(c).
6. CHANGING PARTICIPATION LEVEL DURING OFFERING; WITHDRAWAL FROM OFFERING.
(a) A Participant may not increase his or her deductions during the
course of a Purchase Period. A Participant may increase or decrease his or her
deductions prior to the beginning of a new Purchase Period or a new Offering, to
be effective at the beginning of such
-4-
<PAGE>
new Purchase Period or new Offering. A Participant shall make a change in the
his or her participation level by delivering a notice to the Company in such
form as the Company provides up to ten (10) days before the start of such new
Purchase Period or new Offering (or such shorter period of time determined by
the Company and communicated to Participants).
(b) A Participant may reduce (including to zero) his or her deductions
once (and only once) during a Purchase Period, effective as soon as
administratively practicable. A Participant shall make a change in the his or
her participation level by delivering a notice to the Company in such form as
the Company provides up to ten (10) days before the end of such Purchase Period
(or such shorter period of time determined by the Company and communicated to
Participants).
(c) Except as otherwise specifically provided herein, a Participant may
not increase or decrease his or her participation level during the course of an
Offering.
(d) Notwithstanding the foregoing, a Participant may withdraw from an
Offering and receive his or her accumulated payroll deductions from the Offering
(reduced to the extent, if any, such deductions have been used to acquire Shares
for the Participant on any prior Purchase Dates), without interest, or reduce
his or her participation percentage to zero (0), at any time prior to the end of
the Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date (or such shorter period of time determined by the Company and
communicated to Participants) by delivering a withdrawal notice to the Company
in such form as the Company provides.
7. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date,
each Participant's accumulated payroll deductions (without any increase for
interest) shall be applied to the purchase of whole Shares, up to the maximum
number of Shares permitted under the Plan and the Offering.
8. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.
9. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The Rights granted under an Offering are subject to the approval of the
Plan by the Shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code.
-5-
<PAGE>
10. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan.
<PAGE>
Exhibit 10.4
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
Effective Date 01/01/1996
This document is description of the Plan. It is intended that the language be
clear and understandable. The law governing plans is very complicated.
Consequently, the language in the law and the Plan is very technical and
legal. The government requires that the Plan document and this description
contain much of the same language. If this description says something
different from what the Plan says, the Plan must be followed. A copy of the
Plan is available for inspection by contacting the Plan Administrator, whose
telephone number is on the Plan Information Page.
Date Prepared: February 14, 1996
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. PLAN INFORMATION..................................................................1
II. ELIGIBILITY REQUIREMENTS..........................................................2
III PLAN CONTRIBUTIONS................................................................3
Generally................................................................3
Effective Deferral Contributions.........................................3
Profit Sharing Contribution..............................................3
Additional Contributions.................................................3
Matching Contributions...................................................4
Compensation: ...........................................................4
IV PLAN BENEFITS AND METHODS OF PAYMENTS.............................................5
Distributions: ..........................................................5
Hardship Distributions:..................................................5
Rollover Contributions...................................................6
Payment of Your Distribution.............................................6
Amount and Form of Payment of Your Distribution..........................6
V. PLAN ADMINISTRATION...............................................................8
Plan Operation: .........................................................8
Plan Administrator: .....................................................8
Trustee: ................................................................8
Investment of Plain Assets: .............................................8
Plan Insurance: .........................................................8
VI. LOSS OR DENIAL OF BENEFITS........................................................9
Vesting: ................................................................9
Break in Service: .......................................................9
Beneficiary Designation: ................................................9
VII. TERMINATION OF THE PLAN .........................................................10
VIII. YOUR RIGHTS UNDER ERISA..........................................................11
</TABLE>
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
I. PLAN INFORMATION.
<TABLE>
<S> <C>
Plan Name: Oculex Pharmaceuticals, Inc.
401 (k) Profit Sharing Plan
Employer: Oculex Pharmaceuticals, Inc.
Address: 3180 Porter Drive, Building
Palo Alto, CA 94304
Employer Identification Number of Plan Sponsor: 77-0228667
Plan Serial Number: 001
Type of Plan: 401(k) Profit Sharing Plan
Normal Retirement Age: 65
Trustee(s): State Street Bank & Trust Company
Business Address: Two Heritage Drive
Quincy, MA 02171
Administrator and Plan Sponsor: Oculex Pharmaceuticals, Inc.
Business Address: 3180 Porter Drive, Building #1
Palo Alto, CA 94304
Phone Number: (415) 813-1031
Agent for services of legal process: Plan Administrator (see above)
Note: Service of legal process may be made upon a
Plan Trustee or the Plan Administrator.
Ending Date of Plan's Year: December 31
</TABLE>
SUMMARY PLAN DESCRIPTION
PAGE 1
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
II. ELIGIBILITY REQUIREMENTS.
After you start work, and have completed the required period of service for
eligibility, you will enter the Plan on the next entry date
To be eligible to become a participant in the Plan, you must, as of these
dates: January 1, April 1, July 1, October 1.
1. have attained age 21.
2. not be covered by a collective bargaining agreement (i.e., not in a
union).
3. not be a nonresident alien and not earning any U.S income
4. All individuals, in a class of employees normally eligible, who are
employed on January, 1, 1996, will be eligible to participate in the Plan
immediately. All other employees, hired after January 1, 1996, will be
required to meet the above eligibility requirements.
SUMMARY PLAN DESCRIPTION
PAGE 2
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
III. PLAN CONTRIBUTIONS.
Once you have satisfied the eligibility requirements, you become a
Participant automatically.
GENERALLY:
The amount of Contributions in the Plan are determined by the sum of Elective
Deferral Contributions, Profit Sharing Contributions, Matching Contributions,
Rollover Contributions, and additional contributions which may be made by the
employer during the year. These contributions are based on the profits of the
Company.
Your social security benefits are paid by the government and are in addition
to the benefits paid from the Plan. The existence of this Plan and the
contributions made to it will not affect your social security benefits in any
way.
ELECTIVE DEFERRAL CONTRIBUTIONS:
You may elect to reduce your salary and have the amount contributed to the
Trust. The amount may not be more than the lesser of:
1. 15% of your pay, or
2. $ 9500 as adjusted to reflect annual federal cost of living increases, or
3. such lesser amount as determined by the discrimination tests for the Plan.
You may choose to begin Elective Deferral Contributions on 1/1, 4/1, 7/1 or
10/1.
Your election will be effective with the 1st pay period following the period
in which you make the election. Your action will remain in effect until
modified or terminated by you, You can modify your election effective 1/1,
4/1, 7/1 or 10/1. You may terminate your deferrals at any time. Contact your
Plan Administrator for the deadline for making modification requests. Because
it is a Cash or Deferred Arrangement, this Plan must meet special tests which
assure that highly compensated employees do not make significantly more
Elective Deferral Contributions to the Plan than non-highly compensated
employees. If, under the test, the contributions of the highly compensated
employees exceed the amount permitted, the employer must either return some
of the Elective Deferral Contributions, or make additional contributions on
behalf of certain participants. The additional contributions will be treated
as Elective Deferred Contributions. You may not contribute more than $9500
(as adjusted under Federal Law) to all 401(k) type plans to which you belong.
You must apply to your Plan Administrator in writing for a refund of any
Elective Deferred Contribution by 03/01.
PROFIT SHARING CONTRIBUTIONS:
The Employer may decide to make additional contributions which will be
subject to the "Vesting Schedule" shown Section VI below. The Profit Sharing
Contribution will be allocated to your account in the ratio that your
compensation bears to the compensation of all participants. Forfeitures of
this contribution shall be allocated with the Profit Sharing Contribution.
ADDITIONAL CONTRIBUTIONS:
The employer may make special contributions to enable the Elective Deferral
Contributions and Matching Contributions to pass discrimination tests
required under the Internal Revenue Code. These contributions are called
Qualified Non-Elective Contributions in the Plan Document and Adoption
Agreement and will be made in the manner required for thee purpose of passing
the tests.
SUMMARY PLAN DESCRIPTION
PAGE 3
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
MATCHING CONTRIBUTIONS:
The Employer may make Matching Contributions to the Plan to all Participants
who have Elective Deferral Contributions. These contributions are 100% vested
This contributions will be equal to 50% of your Elective Deferral.
This contribution shall not be made in excess of $ 1000.
These contributions must meet special tests which assure that highly
compensated employees do not make significantly more Matching Contributions
to the Plan than non-highly compensated employees. If, under the test
contributions of the highly compensated employees exceed the amount
permitted, the employer must reallocate some of the Matching Contribution,
make additional contributions, distribute some of the vested contributions,
or hold the excess in the Plan and use it as part of the employer's matching
contribution for the next year.
COMPENSATION:
All your contributions are based on the amount you are paid.
Your pay or earnings are the sum of your W-2 earnings and amounts deferred
through a salary deferral agreement under an IRC 401(k) Plan, through a
Cafeteria Plan under IRC 125, a SEP under 402(h), or through an annuity under
IRC 403(b).
The amount of your compensation which will be used for plan purposes will be
that paid to you during the Plan Year beginning each January 1 and ending
each December 31.
SUMMARY PLAN DESCRIPTION
PAGE 4
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
IV. PLAN BENEFITS AND METHODS OF PAYMENTS.
DISTRIBUTIONS:
You may elect to receive a distribution from the 40l(k) Plan if you:
1. Separate from service,
2. Die, or
3. Become disabled.
Also, you may receive a distribution of you salary deferral contributions:
1. If the Plan terminates and there is no successor Plan, or
2. If the employer or most of his working assets are sold to another
unrelated company, or
3. If the employer sells its interest in a subsidiary to another
unrelated company, or
4. If you have a "financial hardship". (Note: Applicable to Salary
Deferral Contributions, as defined below only.)
When you are ready to begin receiving your benefit, contact the Plan
Administrator, Thc Plan cannot compel you to take a distribution, unless your
benefit is less than $3,500 until the year following the year in which you
reach 70 1/2. If you have not separated from service or elected your benefit
by that time, it will automatically be paid to you. You may receive it in
installments or in a lump sum.
HARDSHIP DISTRIBUTIONS:
You may receive a distribution of Elective Deferrals (and earnings thereon
accrued as of December 3l, 1988) in the event of hardship. The following is a
general explanation of the rules for such a distribution.
Contact the Plan Administrator for complete detail and application. This is a
taxable distribution.
Hardship is defined as an immediate and heavy financial need where you lack
other available resources. You will need to receive your spouse's consent to
the distribution.
The following are the only financial needs considered immediate and heavy for
which you may receive a hardship distribution:
- incurred or necessary medical expenses of the Employee, the
Employee's spouse, children, or dependents;
- the purchase (excluding mortgage payments) of a principal
residence for the Employee;
- payment of tuition for the next 12 months of post-secondary
education for the Employee, the Employee's spouse, children or
dependents;
- the prevention of eviction of the Employee from, or a foreclosure
on the mortgage of, the Employee's principal residence.
In order to qualify for a hardship distribution, you must first obtain all
other types of distributions and all nontaxable loans permitted under all
plans maintained by the Employer.
SUMMARY PLAN DESCRIPTION
PAGE 5
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
Your right to make Elective Deferrals will be suspended for twelve months
after the receipt of the hardship distribution.
The amount you may receive may not be in excess of the amount of an immediate
and heavy financial need, or the amount of your Elective Deferrals.
The amount of Elective Deferrals you will be allowed to make for the taxable
year immediately following the taxable year of the hardship distribution, may
not be in excess of the applicable limit under Section 402(g) of the Code
(the $7,000 limit adjusted for cost of living) for that taxable year, less
the amount of your Elective Deferrals made in the taxable year of the
hardship distribution.
The determination of the existence of financial hardship, and the amount
required to be distributed to meet the need created by the hardship, shall be
made in a nondiscriminatory manner by the Plan Administrator according to the
written rules and regulations of the Plan.
To apply for a financial hardship distribution you must:
1. Complete an application for the Plan Administrator,
2. Provide proof to the Administrator of expenditures showing the
amount of the withdrawal needed, and
3. Provide proof to the Administrator, such as bank statements,
showing that there are no other financial resources available
to meet the expense.
ROLLOVER CONTRIBUTIONS:
You may apply to the Plan Administrator asking the Plan to receive a
contribution of a distribution to you from another qualified plan. If the
Plan accepts this money, it is called a Rollover Contribution. Under rules
established by the Plan Administrator, the Plan will not accept such a
contribution if the distribution to you was from a Defined Benefit Plan, or
other Plan to which IRC 417 spousal rights apply. Contact the Plan
Administrator about the rules and process for making this type of
contribution.
PAYMENT OF YOUR DISTRIBUTION:
Once you become eligible for a distribution and elect to receive it, the
Trustee will be instructed to pay it out.
The amount of this distribution will be the vested portion of your plan money.
It cannot be specified exactly how long it will take tar you to receive this
distribution, for two reasons:
1. The Plan Administrator must await the next quarterly valuation
of the trust to establish the value of your account.
2. After you leave, the Plan Administrator must calculate your
exact years of vesting, prepare a final statement of you
account, prepare an IRS form showing how it is taxable, and
have a check prepared.
Of course, your employer is interested in paying benefits when due, but must
do so in an orderly course of business. For this mason, it is anticipated
that rely distribution u/ill lake a reasonable length of time.
SUMMARY PLAN DESCRIPTION
PAGE 6
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
AMOUNT AND FORM OF PAYMENT OF YOUR DISTRIBUTION:
The amount of your benefit in this Plan depends on the amount in your
account, and the extent to which you are vested in that amount.
The benefit farms available are: 1. Lump Sum. 2 Installment Payments
You can defer paying taxes on all or a portion of your distribution by
requesting that the Plan transfer it directly to Individual Retirement
Account or a Qualified Defined Contribution Plan. This is called a direct
rollover.
If you elect a DIRECT ROLLOVER from this plan to your new plan or IRA, no
money will be withheld or payment of federal income taxes. At the time of
your distribution you will want to be sure to speak with the Plan
Administrator to how you can accomplish a DIRECT ROLLOVER.
If you do not elect to make a DIRECT ROLLOVER to a Qualified Defined
Contribution Plan or IRA, the Employer will be required to withhold 20% of
any monies you receive to pay federal income taxes.
You may still receive your money and then decide to roll it over, as long as
you do so within 60 days of the date of payment. But the withholding will
have already occurred at the time of distribution and you will pay taxes on
this amount as well as any other amount you do not rollover. If you decide to
rollover the whole distribution including amount that was withheld, you must
provide other money to replace the amount withheld. The withholding will be
credited against any income tax you owe for the year, and when you file your
income tax return, you may get a refund of the amount withheld.
If you are ever going to receive a distribution, be sure to review carefully
the Notice of Taxation of Distribution that will receive from your Plan
Administrator.
If you keep all or a part of your distribution, then you must show the
payment as income on your tax return for that You or your tax preparer should
calculate the tax when you prepare the return.
If you have applied for and received a Hardship Distribution, the amount must
be reported by, you as income in the it was received. A Hardship Distribution
will always be given to you as a lump sum.
If you are under 59 1/2 when you receive a distribution, you will be liable
for an early distribution tax unless you roll amount into an Individual
Retirement Account.
Plan Administrator cannot give you legal or tax advice. You should rely on
your own personal tax advisor when time comes to decide on how you wish to
take distribution and to determine the tax consequences of receiving a
distribution.
SUMMARY PLAN DESCRIPTION
PAGE 7
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
V. PLAN ADMINISTRATION.
PLAN OPERATION:
Your employer makes contributions to the Plan. These contribution can never
go back to the employer. The Trustee, each year, tells the Plan Administrator
what the trust is worth and the Plan Administrator then must divide the funds
among all of the plan participants accounts. The Plan Administrator may issue
a statement of his account to each participant. The Plan Administrator must
give the value of your account to you if you request it in writing.
PLAN ADMINISTRATOR:
The plan is administered by the Plan Administrator, whose name is typed on
the Plan Information page. Your employer has appointed the Plan Administrator
and can change the Plan Administrator at any time. The Plan Administrator has
the sole and ultimate responsibility to interpret Plan provisions and
determine Plan Benefits, and responsible for such things as keeping plan
records and reporting to government agencies.
TRUSTEES:
Your plan is funded by a Trust. The name of the Trustee is typed on the Plan
Information page. Your employer has appointed the Trustee and can change the
Trustee at any time. The job of the Trustee is to safe keep the fund of money
in the Plan and to invest the money.
INVESTMENT OF PLAN ASSETS:
In your Plan each Participant has an individual Investment Account. This
account will hold the Salary Deferral Contributions, additional
contributions, Profit Sharing Contributions, and Matching Contribution
allocable to the Participant. Rollover Contributions will also be included.
You must direct the Trustee as to how your assets are to be invested. The
employer and Plan Administrator will select a series of mutual funds or
pooled investment accounts for you to invest in. You may direct the
investment of your account assets into any investment permitted by regulation
and the policy of the Plan. Note that the Plan Administrator, the Employer,
and the Trustee will not provide investment advice. You are totally
responsible for investment selection which you make. Your Employer is not
responsible for the financial gains or losses to your account which result
from your directions.
PLAN INSURANCE:
You may have heard that the government provides insurance to pay pension
benefits if a Plan fails. This Plan is not eligible for such insurance
because contributions are made right into your own account. If the Plan
terminates or your employer goes out of business, you will be entitled to
receive all the benefits in your account at the time. This amount could be
more or less than the total amount of contributions made to your account
depending on your investment expenses.
SUMMARY PLAN DESCRIPTION
PAGE 8
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
VI. LOSS OR DENIAL OF BENEFITS.
You should be aware that some actions by you or the employer may result in a
1oss or denial of benefits from your Plan.
Also, because a 401(k) Plan must pass special nondiscrimination tests,
sometimes your contributions will have to be returned to you as excess
contributions which the Plan cannot continue to hold. If the Plan returns
contributions, you will have to pay income taxes on them.
VESTING:
Your plan does not have a vesting schedule. You are immediately and 100%
vested in your benefits once you begin participation.
If you have reached Normal Retirement Age, if you die, if you are totally and
permanently disabled, or if the Plan is terminated then your balance of these
funds becomes 100% vested. This means that you or your beneficiaries get the
entire value of your accounts. You are always 100% vested in your Elective
Deferral contributions to this Plan.
BREAK IN SERVICES:
Once you have become a participant in the Plan, you will remain a participant
until a year (which ends on December 31 ) passes, during which you did not
work 500 hours. This is called a 1 year break in service. If you return
before having 5 consecutive 1 year breaks in service, then you continue to
participate in the Plan as if you had never left the employer.
Other circumstances which may cause either a reduction or denial of benefits:
A. If the employer amends the Plan to reduce future contributions, then your
account will not grow at the same rate.
B If the employer terminates the Plan, then your account will have no further
contributions.
C. If your salary decreases, then your allocation of the contribution will be
less.
D. If the Plan investments do poorly, then your account balance will decrease.
BENEFICIARY DESIGNATION:
If you die before benefits are distributed to you, the Trustee will pay out
the whole amount to the beneficiary you have set forth on the beneficiary
designation form on file with the Employer.
Make sure you keep this form current.
SUMMARY PLAN DESCRIPTION
PAGE 9
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
VII. TERMINATION OF THE PLAN.
While the Plan is intended to be permanent, the employer reserves the right
to amend or terminate the Plan. If the Plan is terminated, you will
immediately become 100% vested in all your benefits in the Plan.
SUMMARY PLAN DESCRIPTION
PAGE 10
<PAGE>
OCULEX PHARMACEUTICALS, INC.
401 (k) PROFIT SHARING PLAN
VIII. YOUR RIGHTS UNDER ERISA.
As a participant in this plan you are entitled to certain rights and
protections under the Employees Retirement Income Security Act of 1974
(ERISA). ERISA provides that all plan participants shall be entitled to
examine, without charge, at the Plan Administrators office and at other
specified location, all plan documents, including insurance contracts,
collective bargaining agreements and copies of all documents filed by the
Plan with the U.S. Department of Labor, such as detailed annual reports and
Plan descriptions.
Obtain copies of all plan documents and other plan information upon written
request to the Plan Administrator. The Administrator may make a reasonable
charge for the copies.
Receive a summary of the Plans annual financial report. The Plan
Administrator is required by law to furnish each participant with a copy of
this summary annual report.
In addition to creating rights for plan participants, ERISA imposes duties
upon the people who are responsible for the operation of the employee benefit
plan. The people who operate your plan, called Fiduciaries of the Plan, have
a duty to do so prudently and in the interest of you and other plan
participants and beneficiaries. No one, including your employer, your union,
or any ether person, may fire you or otherwise discriminate against you in
any way to prevent you from obtaining a pension benefit or exercising your
rights under ERISA.
If your claim for a pension benefit is denied in whole or in part you must
receive a written explanation of the reason for the denial. You have the
right to have the Plan reviewed and reconsider your claim. Under ERISA, there
are steps you can take to enforce the above rights. For instance, if you
request materials from the Plan and do not receive them within 30 days, you
may file suit in a federal court. In such a case, the court may require the
Plan Administrator to provide the materials and pay you up to $100 a day
until you receive the materials, unless the materials were not sent because
of reasons beyond the control of the Administrator.
If you have a claim for benefits which is denied or ignored, in whole or in
part, you may file suit in a state or federal court. If it should happen that
the Plan fiduciaries misuse the Plans money, or if you are discriminated
against for asserting your rights, you may seek assistance from the U.S.
Department of Labor, or you may file suit in Federal Court. The Court will
decide who pays Court Cost and Legal Fees. If you are successful the Court
may order the person you have sued to pay these costs and fees. If you lose,
the Court may order you to pay these costs and fees, for example, if it finds
your claim is frivolous.
The Plan Administrator has the sole and ultimate authority to define and
interpret plan language, terms and documentation.
If you have any questions about your plan, you should contact the Plan
Administrator.
If you have any questions about this statement or about your rights under
ERISA, you should contact the nearest area office of the U.S. Labor
Management Services Administration, Department of Labor.
SUMMARY PLAN DESCRIPTION
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<PAGE>
PROTOTYPE 401(k) PROFIT SHARING PLAN ADOPTION AGREEMENT
The undersigned employer(s) - OCULEX PHARMACEUTICALS, INC. hereinafter referred
to as the "Employer", hereby adopts the WELLS FARGO BANK NA Prototype Standard
401(k) profit Sharing Plan and Trust.
1. EMPLOYER TAX IDENTIFICATION NUMBER 77-0228667
---------------------------------
2. The EFFECTIVE DATE of the Plan shall be JANUARY 1, 1996
----------------------------
3. The EFFECTIVE DATE of this amendment
-------------------------------
4. The ANNIVERSARY DATE of the Plan shall be DECEMBER 31
--------------------------
5. The ENTRY DATE(S) of the Plan:
5.1 JANUARY 1 shall be the first Entry Date.
-------------------------------
5.2 APRIL 1 shall be the second Entry Date.
-------------------------------
5.3 JULY 1 shall be the third Entry Date.
-------------------------------
5.4 OCTOBER 1 shall be the fourth Entry Date.
-------------------------------
(The Entry Date(s) may not postpone entry into the Plan later
than the earlier of (a) the first day of the Plan Year
beginning after the date on which an Employee satisfies the
requirements of Section 6 below, or b) the date 6 months
after the date such requirements were satisfied).
6. ELIGIBILITY REQUIREMENTS - Each Employee will be eligible to
participate in this Plan in accordance with Section 5 of this Adoption
Agreement, except the following:
6.1 ___X___ Employees who have not attained the age of ___21___
(cannot exceed 21).
6.2 _______ Employees who have not completed __________ Year(s)
of Service (cannot exceed 1 year unless the Plan provides a
nonforfeitable right to 100% of the Participant's account
balance derived form Employer contributions after not more
than 2 years of Service in which case up to 2 years is
permissible. If the Year(s) of Service selected is or
includes a fractional year, an Employee will not be required
to complete any specified Hours of Service to receive credit
for such fractional year.)
6.3 ___X___ Employees included in a unit of Employees covered by
a collective bargaining agreement between the Employer and
Employee Representatives, if retirement benefits were the
subject of good faith bargaining. For this purpose, the term
"Employee Representatives" does not include any organization
more than half of whose members are employees who are owners,
officers, or executives of the Employer.
6.4 ___X___ Employees who are nonresident aliens and who earn no
earned income from the Employer which constitutes income from
sources within the United States.
The term "Employee" shall include all Employees of this Employer and
any other employer aggregated with this Employer under Internal Revenue
Code Section 414(b), (c) or (m) and individuals required to be
considered Employees or any such Employer under code Section 414(n) or
under regulations under code Section 414(o).
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7. COMPENSATION shall mean all of each Participant's:
7.1 ___X___ W-2 earnings.
7.2 _______ Compensation (as that term is defined in Section
415(c)(3) of the Code)
Which is actually paid to the Participant during:
7.3 ___X___ The Plan Year.
7.4 _______ the taxable year ending with or within the Plan Year.
7.5 _______ The Limitation year ending with or within the Plan
Year.
Compensation:
7.6 ___X___ Shall include
7.7 _______ Shall not include
Employer contributions made pursuant to a salary reduction agreement
which are not includible in the gross income of the employee under
Sections 125, 402(a)(8), 402(h) or 403(b) of the code.
8. NORMAL RETIREMENT AGE shall mean:
The later of age ___65___ (not to exceed age 65) or the _____________
(not exceed 5th) anniversary of the first day of the first Plan Year
in which the Participant commenced participation in the Plan.
9. VESTING
If the participant terminates prior to Normal Retirement Age he shall
receive a percentage of his Accrued Benefit according to the vesting
schedule checked below:
9.1 ___X___ One hundred Percent schedule.
100% at all times
9.2 _______ Twenty Percent Schedule
20% after the second Covered Year of Service and 20% for each
additional Covered year of Service.
9.3 _______ Variable Schedule
Based on Covered Years of Service after Year:
1________ 4________(at least 50%)
2________(at least 20%) 5________(at least 80%)
3________(at least 40%) 6 100%
9.4 ________ Three Year Vesting Schedule
100% vested after the completion of three (3) Covered Years of
Service.
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<PAGE>
If the vesting schedule under the Plan(s) shifts in or out of
the above vesting schedule for any Plan Year because of the
Plan's top heavy status, such shift is an amendment to the
vesting schedule and the election in Section 1.4 of the Plan
applies.
Notwithstanding the above, the Accrued Benefit shall become fully
vested at Normal Retirement Age.
10. CONTRIBUTIONS
10.1 _______ EMPLOYER CONTRIBUTIONS The Employer may make
contributions to the Plan without regard to current or
accumulated earnings and profits for the taxable year or
years ending with or within the Plan year.
Unless this option is elected, the Plan will be subject to the
requirement that employer contributions be made out of current
or accumulated net profits. Accordingly, all employer
contributions under the Plan, including Employer discretionary
contributions, Elective Deferrals and qualified Non-elective
Contributions, will be limited to the Employer's net profits.
10.2 _______ ELECTIVE DEFERRALS - A Participant may elect to have
his or her Compensation reduced by the following percentage
or amount per pay period, or for a specified pay period or
periods, as designated in writing to the Plan Administrator:
a. ___X___ An amount not in excess of ___15___ percent
of a Participant's Compensation.
b. _______ an amount not in excess of $________ of a
participant's Compensation.
No participant shall be permitted to have Elective Deferrals
made under this plan during any calendar year in excess of
$7,000, multiplied by the Adjustment Factor.
c. A participant may elect to commence Elective
Deferrals as of 1/1, 4/1, 7/1 OR 10/1 (ENTER AT LEAST
ONE DATE OR PERIOD DURING A CALENDAR YEAR). Such
election shall become effective as of the 1ST (ENTER
NUMBER) pay period following the pay period during
which the Participant's election to commence Elective
Deferrals was made, or as soon as administratively
feasible thereafter.
d. A Participant's election to have Elective Deferrals
made pursuant to a salary reduction agreement shall
remain in effect until modified or terminated. A
Participant may modify the amount of Elective
Deferral as 1/1, 4/1, 7/1 OR 10/1 (ENTER AT LEAST ONE
DATE OR PERIOD DURING A CALENDAR YEAR). Such election
shall become effective as of the 1ST (ENTER NUMBER)
pay period following the pay period during which the
participant's election to modify Elective Deferrals
was made, or as soon as administratively feasible
thereafter.
e. _________ A participant may base Elective Deferrals
on cash bonuses that, at the Participant's
election, may be contributed of the plan or received
by the Participant in cash.
f. A Participant shall be afforded a reasonable period
to elect to defer amounts described above. Such
election shall become effective as of the _________
(ENTER NUMBER) pay period following the pay period
during which the Participant's election to make such
Elective Deferrals was made, or as soon as
administratively feasible thereafter.
g. A participant shall designate the amount and
frequency of his or her Elective Deferrals in the
form and manner specified by the Plan Administrator.
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<PAGE>
10.3 _______ EMPLOYER PROFIT SHARING CONTRIBUTIONS. In addition
to Elective Deferrals, Qualified Non-elective Contributions,
Qualified Matching Contributions and Matching Contributions,
the employer may make additional contributions under the Plan
which shall be made solely at the discretion of the employer
but not in excess of 15% of Participant Compensation, up to
the maximum amount specified in Section 5.5 of the Plan.
Employer contributions under this Section 10.3 shall be
allocated in proportion to compensation and shall vest in
accordance with the vesting schedule specified in Section 9
of this Adoption Agreement. Forfeitures of Profit Sharing
Contributions shall be:
a. ___X___ added to and allocate in the same manner as
the Contribution.
b. _______ applied to reduce the Contribution.
11. QUALIFIED NON-ELECTIVE CONTRIBUTIONS
11.1 _______ The employer will make Qualified Non-elective
Contributions to the plan. If the Employer does make
Qualified Non-elective Contributions to the plan, then the
amount of such contributions to the plan of each Plan Year
shall be:
a. _______ percent (not to exceed 15 percent) of the
Compensation of all Participants eligible to share
in the allocation.
b. _______ percent of the net profits, but in no event
more than $______________________for any Plan year.
c. ___X___ An amount as determined by the Employer.
The amount of the special Qualified Non-elective
Contributions allocated under Section 11.2 below
will be the amount needed to meet the Average
Actual Deferral Percentage test stated in
Section 11.4 of the Plan.
11.2 Allocations of Qualified Non-elective Contributions to each
Participant's account shall be made to the accounts of:
a. _______ All participants.
b. ___X___ Only Non-highly compensated Participants.
11.3 Allocations of Qualified Non-elective Contributions to each
Participant's account shall be made (elect one):
a. _______ In the ratio in which each Participant's
Compensation for the Plan year bears to the total
Compensation of all participants for such Plan Year.
b. In the ratio in which each Participant's Compensation
not in excess of $_________ for the Plan year bears
to the total Compensation of all participants not in
excess of $__________ for such Plan Year.
12. QUALIFIED MATCHING CONTRIBUTIONS
12.1 _______ The Employer will make Qualified Matching
Contributions to the plan on behalf of participants who make
Elective Deferrals.
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<PAGE>
12.2 _______ the employer will make Qualified Matching
Contributions to the plan on behalf of:
a. _______ All participants who make Elective
Deferrals.
b. _______ All participants who are Non-highly
Compensated Employees and who make Elective
Deferrals.
12.3 The amount of such Qualified Matching Contributions and on
behalf of each participant as specified in Section 12.2 of
this adoption agreement shall be:
a. _______ percent of the Elective Deferral made for
each Plan Year.
b. _______ the sum of _______ percent of the portion
of the Elective Deferral which does not exceed
_______ percent of the portion of the Participant's
Compensation, plus _______ percent of the portion
of the Elective Deferral which exceeds _______
percent of the Participant's Compensation, but does
not exceed _______ percent of the
Participant's Compensation.
c. _______ The Employer shall not match Elective
Deferrals as provided in a or b above in excess of
$_________ or in excess of _______ percent
of the Participant's Compensation.
12.4 Qualified Matching contributions and Qualified Non-Elective
contributions may be taken into account as Elective Deferrals
for purposes of calculating the Actual Deferral percentages.
In determining Elective Deferrals for the purpose of the ADP
test, the Employer shall include:
a. _______ Qualified Matching Contributions.
b. ___X___ Qualified Non-Elective Contributions.
under this Plan or any other Plan of the Employer as provided
by regulations under the Code.
12.5 The amount of qualified Matching Contributions made under
Section 12.1 of this plan and taken into account as Elective
Deferrals for purposes of calculating the Actual Deferral
percentage, subject to such other requirements as may be
prescribed by the Secretary of the Treasury, shall be:
a. _______ All such Qualified Matching Contributions.
b. _______ Such Qualified Matching Contributions that
are needed to meet the Actual Deferral Percentage
test.
12.6 The amount of Qualified Non-Elective Contributions made under
Section 11 of this plan and taken into account as Elective
Deferrals for purposes of calculating the Actual Deferral
Percentages, subject to such other requirements as may be
prescribed by the Secretary of the Treasury, shall be:
a. _______ All such qualified Non-elective
Contributions.
b. ___X___ Such Qualified Non-elective Contributions
that are needed to meet the Actual Deferral
Percentage test stated in Section 11.4(F) of the
plan.
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<PAGE>
13. MATCHING CONTRIBUTIONS
13.1 _______ The Employer will make Matching Contributions to
the plan on behalf of Participants who make Elective
Deferrals. The Employer will make matching Contributions
to the plan on behalf of:
a. _______ All participants who make Elective
Deferrals.
b. ___X___ All Participants who are Non-highly
Compensated Employees and who make Elective
Deferrals.
13.2 Matching contributions will be:
a. _______ Nonforfeitable when made.
b. ___X___ Subject to the vesting schedule applicable
to employer contributions, other than Elective
Deferrals and Qualified Non-elective Contributions
under the plan.
13.3 The amount of such Matching Contributions made on behalf of
each Participant shall be:
a. ___X___ ___50___ percent of the Elective Deferral
made of Each Plan Year.
b. _______ the sum of _______ percent of the portion
of the Elective Deferral which does not exceed
_______ percent of the Participant's Compensation
plus _______ percent of the portion of the
Elective Deferral which exceeds _______ percent of
the Participant's Compensation, but does not exceed
_______ percent of the Participant's Compensation.
c. ___X___ The Employer shall not match Elective
Deferrals as provided in a or b above in excess of
$1,000 or in excess of __N/A__ percent of the
Participant's Compensation.
The level of contributions chosen by the Employer is subject
to both the Section 401(m)(2) discrimination test and the
section 415 limitations.
14. SPECIAL DISTRIBUTIONS
Elective Deferrals, qualified matching Contributions, Qualified
Non-elective Contributions and income allocable to such amounts shall
be distributable upon separation from service, death, or disability, as
defined in the underlying plan document, and, in addition:
14.1 ___X___ Termination of the plan without the establishment of
another defined contribution plan.
14.2 ___X___ As soon as administratively feasible after the
disposition by the Employer to an unrelated corporation of
substantially all of the assets (within the meaning of Code
Section 409(d)(2)) used in a trade or business of the
Employer if the Employer continues to maintain this Plan
after such disposition, but only with respect to Employees
who continue employment with the corporation acquiring such
assets.
14.3 ___X___ A soon as administratively feasible after the
disposition by the Employer to an unrelated entity of the
Employer's interest in a subsidiary (within the meaning of
Code Section 409(d)(3)) if the Employer continues to
maintain this plan, but only with respect to Employees who
continue employment with such subsidiary.
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<PAGE>
14.4 ___X___ Upon the hardship of the Participant, to the extent
provided for in Section 11.6(C) of the Plan, and subject to
applicable regulations prescribed by the Secretary of the
Treasury.
15. CLAIMS FOR EXCESS ELECTIVE DEFERRALS - Participants who claim Excess
Elective Deferrals for the preceding calendar year must submit their
claims in writing to the plan administrator by MARCH 1 (SPECIFY A DATE
BETWEEN MARCH 1 AND APRIL 15).
Excess Elective Deferrals that are distributed after April 16 are not
only includible in the participant's gross income in the taxable year
when made, but are also includible in the Participant's gross income
again in the year when distributed.
The Plan permits distributions of Excess Contributions and Excess
Aggregate Contributions on or before the last day of the Plan Year
after the Plan Year in which such excess amounts arose. Distribution of
such amounts, or other corrective action, is required under Sections
401(k)(3) and 401(m)(6) of the Code if the plan is to maintain its
tax-qualified status. However, if such excess amounts, plus any income
and minus any loss allocable thereto, are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess amounts
arose, then section 4979 of the Code imposes a ten (10) percent excise
tax on the Employer maintaining the plan with respect to such amounts.
The Employer may choose to limit its acceptance of claims to a date
that is no later than March.
16. AVERAGE CONTRIBUTION PERCENTAGE
16.1 In computing the Average Contribution percentage, the employer
shall take into account, and include as Contribution
Percentage Amounts:
a. _______ Elective Deferrals.
b. ___X___ Qualified Non-elective Contributions under
this plan or any employer, as provided by
regulations.
16.2 The amount of Qualified Non-elective Contributions that are
made under Section 11.4(i) of this plan and taken into account
as Contribution Percentage Amounts for purposes of calculating
the Average Contribution Percentage, subject to such other
requirements as may be prescribed by Secretary of the
Treasury, shall be:
a. _______ All such Qualified Non-elective
Contributions.
b. ___X___ Such qualified Non-elective Contributions
that are needed to meet the Average Contribution
Percentage test stated in Section 11.8 of the plan.
16.3 The amount of Elective Deferrals made under Section 11.4(B) of
this plan and taken into account as Contribution Percentage
Amounts for purposes of calculating the Average Contribution
Percentage, subject to such other requirements as may be
prescribed by the Secretary of the Treasury, shall be:
a. _______ All such Elective Deferrals.
b. ___X___ Such Elective Deferrals that are needed to
meet the Average Contribution Percentage test
stated in Section 11.8 of the Plan.
17. FORFEITURES. Forfeitures of Matching Contributions shall be: (Required
if the Employer elects to make Matching Contributions in this Adoption
Agreement)
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<PAGE>
17.1 ___X___ Applied in the current year of forfeiture to reduce
employer contributions.
17.2 _______ Allocated in the current year of forfeiture, after
all other forfeitures under the plan, to each participant's
Matching Contribution account in the ratio which each
Participant's Compensation for the Plan Year bears to the
total Compensation of all participants for such Plan Year.
Such forfeitures will not be allocated to the account of
any Highly Compensated Employee.
18. INDIVIDUAL INVESTMENT ACCOUNTS.
Individual Investment Accounts for Elective Deferrals, Qualified
Non-elective Contributions, Qualified Matching Contributions and
Matching Contributions:
18.1 _______ Will not be used.
18.2 _______ Will be used as follows:
Each participant will have a separate Individual Investment
Account which will contain the amount allocated to the
Participant Account. Each Participant will have the power to
direct the investment with respect to his Individual
Investment Account subject to such rules as the Administrator
and the Trustee may deem necessary. Gains and losses of the
Account shall accrue to such Account only.
Individual Investment Accounts for Employer Contributions under
Section 10.3 of this Adoption Agreement.
18.3 _______ Will not be used.
18.4 _______ Will be used as follows:
Each participant will have a separate Individual Investment
Account which will contain the amount allocated to the
Participant Account. Each Participant will have the power to
direct the investment with respect to his Individual
Investment Account subject to such rules as the Administrator
and the Trustee may deem necessary. Gains and losses of the
Account shall accrue to such Account only.
19. LIMITATION YEAR shall mean each 12 consecutive month period ending on
DECEMBER 31.
NOTE: A written resolution must be adopted by the Employer if the
Limitation Year is other than the calendar year.
20. LIMITATION OF BENEFITS - If the Employer maintains or has ever,
maintained, in addition to this Plan, one or more plans which are
either qualified defined benefit plans or qualified defined
contribution plans other than paired plan:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreement 001, 002, 003, 004, 006, 007
in which any Participant in this Plan is (or was) a participant or
could possibly become a participant, the Employer must complete this
Section. The Employer must also complete this Section if it maintain a
welfare benefit fund, as defined in Code Section 419(e), or an
individual medical account, as defined in Code Section 415(1)(2) under
which amounts are treated as annual additions with respect to any
Participant in this Plan.
If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
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<PAGE>
20.1 _______ The provisions of Section 5.5(B) of the Plan will
apply as if the other plan were a master or prototype plan.
20.2 _______ The total Annual Additions will be limited to the
maximum permissible amount and excess amounts will be
reduced in a manner that precludes Employer discretion, as
follows:
____________________________________________________________
____________________________________________________________
____________________________________________________________
20.3 _______ If the Participant is or has ever been a Participant
in a defined benefit plan maintained by the Employer, the
benefits under the plans will be limited as follows (this
method must preclude Employer discretion):
____________________________________________________________
____________________________________________________________
____________________________________________________________
21. MINIMUM CONTRIBUTION FOR TOP HEAVY PLAN - If the Employer maintains
one or more defined benefit plans in which a Participant participates
in addition to this Plan and does not maintain any other defined
contribution plans in which a Participant participates, the minimum
benefit requirement applicable to Top Heavy Plans shall be met under
this Plan.
If the minimum benefit requirement is met under this Plan, the
additional minimum benefit:
21.1 _______ Shall be provided.
21.2 _______ Shall not be provided.
22. YEAR OF SERVICE shall mean
22.1 ___X___ 1000 Hours of Service
22.2 _______ _______Hours of Service (less than 1000 Hours of
Service).
In the event the plan would otherwise fail the nondiscrimination tests
of Code Sections 401(a)(26) or 410(b), for purposes of allocating
Employer Profit Sharing Contribution the above Hour of Service
requirement shall be changed for that Year to a 500 hour requirement.
23. PREDECESSOR EMPLOYER - Service with the following Predecessor Employer(s):
______________________________________________________________________________
shall be counted for purposes of:
23.1 _______ eligibility Years of Service
23.2 _______ vesting (Covered Years of Service)
24. ADMINISTRATOR shall mean:
24.1 ___X___ The Employer
24.2 _______ Individuals specified in Section 28.
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<PAGE>
25. OTHER BENEFITS
25.1 _______ Early Retirement Benefit (fully vested): Subject to
the Joint and Survivor Annuity requirements, any Participant
may retire and receive the entire amount in his Participant
Account provided he has attained age ____ and has at least
____ Covered Years of Service.
26. ACTUARIAL EQUIVALENT
For purposes of establishing present value to compute the top heavy
ratio, benefit payments shall be discounted only for mortality and
interest based on the following:
26.1 _______ Pre-Retirement Interest Rate _______%
26.2 _______ Post-Retirement Mortality Table: ___________ with
__________% interest.
27. PARTICIPATING AFFILIATES - Each Affiliate (i.e., each member of a
controlled group of corporations, commonly controlled group of
business, or an affiliated service group within the meaning of Section
414 of the Code) must adopt this Plan as a Participating Affiliate.
(Attach additional signature pages if there is more than one
Participating Affiliate.)
Participating Affiliate Name _____________ Employer I.D. _____________
Address ___________________________________ Taxable Year _____________
By __________________ Title __________________ Date __________________
28. ADMINISTRATOR - If Option 24.2 is elected the following named
individuals shall serve as Plan Administrator.
Signature by the Administrator (if other than the Employer) is in
acknowledgment of acceptance of appointment.
Administrator(s) Name(s): Signature(s):
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
Optional Provision - To be elected if Plan Section 10.6(E) is not
elected.
29. Appointment of Trustee - Signature by the Trustee is in
acknowledgment of acceptance of appointment.
Trustee(s) Name(s): Signature(s):
State Street Bank & Trust Company
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
---------------------------------- ---------------------------------
Optional Provision - To be elected if Plan Section 10.7 is elected.
30. Insurance Trustee - Signature by the Trustee is in acknowledgment of
acceptance of appointment.
Insurance Trustee Name: Signature:
---------------------------------- ---------------------------------
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31. ADOPTION AGREEMENT USAGE
This Adoption Agreement is only to be used with basic Defined
Contribution Plan document 02.
An Employer who has even maintained or who later adopts any plan
(including a welfare benefit fund, as defined in Section 419(e) of the
Code, which provides post-retirement medical benefits allocated to
separate accounts for key employees as defined in Code Section
419A(d)(3), or an individual medical account, as defined in Section
415(1)(2) of the code) in addition to this Plan other than paired
plans:
Plan #01 - Adoption Agreement 001
Plan #02 - Adoption Agreement 001, 002, 003, 004, 006, 007
may not rely on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the Employer who adopts or
maintains multiple plans other than the paid plans identified above
wishes to obtain reliance that its plans are qualified, application for
a determination letter should be made to the appropriate Key District
Director of Internal Revenue.
Failure of the Employer to properly complete this Adoption Agreement
may result in the disqualification of this Plan.
32. SPONSORING ORGANIZATION - The Sponsoring organization or its authorized
representative identified below will inform the adopting employer of
any amendments made to the Plan or of the discontinuance or abandonment
of the Plan.
The organization sponsoring this Plan is Wells Fargo Bank NA
The authorized representative of the sponsoring organization is Wells
Fargo Bank NA:
111 Sutter Street, 16th Floor,
San Francisco, CA 94163, number (415) 396-6290
The Employer represents that the legal and tax aspects of this Plan and
Trust have been duly considered and passed upon by its attorney and/or
tax advisor who has determined that if is suitable and has been
properly completed and adopted.
ADOPTION FOR THE EMPLOYER
Date of Execution ___________ ________________________ Title _________
Signature
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Exhibit 10.5
INDUSTRIAL LEASE
(MULTI-TENANT; NET)
THIS LEASE is made as of the 5th day of January, 2000, by and
between THE IRVINE COMPANY, hereafter called "Landlord," and OCULEX
PHARMACEUTICALS, INC., a California corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Premises: 601 California Avenue, Sunnyvale, CA (the Premises are more
particularly described in Section 2.1).
Address of Building: 601 California Avenue, Sunnyvale, CA 94086
2. Project Description (if applicable): 601/605 California Avenue
3. Use of Premises: General Office, R&D (including testing on animals)
and Assembly.
4. Estimated Commencement Date: February 1, 2000
5. Lease Term: Sixty (60) months, plus such additional days as may be
required to cause this Lease to terminate on the final day of the
calendar month.
6. Basic Rent: Forty Six Thousand Seventy-Eight Dollars ($46,078.00) per
month, based on $1.65 per rentable square foot.
Basic Rent is subject to adjustment as follows:
Commencing twelve (12) months following the Commencement Date, the
Basic Rent shall be Forty Seven Thousand Four Hundred Seventy-Four
Dollars ($47,474.00) per month, based on $1.70 per rentable square
foot.
Commencing twenty-four (24) months following the Commencement Date,
the Basic Rent shall be Forty Eight Thousand Eight Hundred
Seventy-One Dollars ($48,871.00) per month, based on $1.75 per
rentable square foot.
Commencing thirty-six (36) months following the Commencement Date,
the Basic Rent shall be Fifty Thousand Two Hundred Sixty-Seven Dollars
($50,267.00) per month, based on $1.80 per rentable square foot.
Commencing forty-eight (48) months following the Commencement Date,
the Basic Rent shall be Fifty One Thousand Six Hundred Sixty-Three
Dollars ($51,663.00) per month, based on $1.85 per rentable square
foot.
7. Guarantor(s): None
8. Floor Area of Premises: Approximately 27,926 rentable square feet
9. Security Deposit: $56,829.41
10. Broker(s): Colliers International
11. Additional Insureds: Insignia/ESG of California, Inc.
12. Address for Payments and Notices:
LANDLORD TENANT
INSIGNIA/ESG OF CALIFORNIA, INC. OCULEX PHARMACEUTICALS, INC.
1 Ada, Suite 270 601 California Avenue
Irvine, CA 92618 Sunnyvale, CA 94086
1 10/29/96
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with a copy of notices to:
IRVINE INDUSTRIAL COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Industrial Operations
13. Tenant's Liability Insurance Requirement: $2,000,000.00
14. Vehicle Parking Spaces: 95 unreserved parking spaces
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ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant
leases from Landlord the premises shown in EXHIBIT A (the "Premises"),
containing approximately the floor area set forth in Item 8 of the Basic
Lease Provisions and known by the suite number identified in Item 1 of the
Basic Lease Provisions. The Premises are located in the building identified
in Item 1 of the Basic Lease Provisions (which together with the underlying
real property, is called the "Building"), and is a portion of the project
shown in EXHIBIT Y (the "Project").
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that
neither landlord nor any representative of Landlord has made any
representation or warranty with respect to the Premises or the Building or
the suitability or fitness of either for any purpose, including without
limitation any representations or warranties regarding zoning or other land
use matters, and that neither Landlord nor any representative of Landlord has
made any representations or warranties regarding (i) what other tenants or
uses may be permitted or intended in the Building and the Project, or (ii)
any exclusivity of use by Tenant with respect to its permitted use of the
Premises as set forth in Item 3 of the Basic Lease Provisions. Tenant further
acknowledges that neither Landlord nor any representative of Landlord has
agreed to undertake any alterations or additions or construct any
improvements to the Premises except as expressly provided in this Lease. The
taking of possession or use of the Premises by Tenant for any purpose other
than construction shall conclusively establish that the Premises and the
Building were in satisfactory condition and in conformity with the provisions
of this Lease in all respects, except for those matters which Tenant shall
have brought to Landlord's attention on a written punch list. The list shall
be limited to any items required to be accomplished by Landlord under the
Work Letter attached as EXHIBIT X, and shall be delivered to Landlord within
thirty (30) days after the term ("Term") of this Lease commences as provided
in Article III below. If no items are required of Landlord under the Work
Letter, by taking possession of the Premises Tenant accepts the improvements
in their existing condition, and waives any right or claim against Landlord
arising out of the condition of the Premises. Nothing contained in this
Section shall affect the commencement of the Term or the obligation of Tenant
to pay rent. Landlord shall diligently complete all punch list items of which
it is notified as provided above.
In addition to Landlord's obligations under the Work Letter attached
hereto as EXHIBIT X, Landlord warrants the good working order of the existing
HVAC, plumbing, lighting, electrical, sewer and life safety systems serving
the Premises for a period of thirty (30) days following the Commencement
Date. In the event Tenant provides Landlord with written notice of any
necessary repairs to such systems within such thirty (30) day period,
Landlord shall promptly make such repairs as may be necessary to place the
system in question in good working order.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the
Project as any part of Tenant's corporate or trade name. Landlord shall have
the right to change the name, address, number or designation of the Building
or Project without liability to Tenant.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in Item
5 of the Basic Lease Provisions. Subject to the provisions of Section 3.2
below, the Term shall commence ("Commencement Date") on the earlier of (a)
the date upon which Landlord tenders possession of the Premises to Tenant
with the Tenant Improvements (as defined in the Work Letter attached hereto)
substantially completed (which date shall be no earlier then February 1,
2000), or (b) the date Tenant acquires possession or commences use of the
Premises for any purpose other than construction of Tenant Improvements by
Tenant under the Work Letter. Within ten (10) days after possession of the
Premises is tendered to Tenant, the parties shall memorialize on a form
provided by Landlord the actual Commencement Date and the expiration date
("Expiration Date") of this Lease. Tenant's failure to execute that form
shall not affect the validity of Landlord's determination of those dates.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before
the Estimated Commencement Date, this Lease shall not be void or voidable nor
shall Landlord be liable to Tenant for any resulting loss or damage. However,
Tenant shall not be liable for any rent and the Commencement Date shall not
occur until Landlord delivers possession of the Premises and the Premises are
in fact available for Tenant's occupancy with any Tenant Improvements that
have been approved as per Section 3.1(a) above, except that if Landlord's
failure to so deliver possession on the Estimated Commencement Date is
attributable to any action or inaction by Tenant (including without
limitation any Tenant Delay described in the Work Letter attached w this
Lease), then the Commencement Date shall not be advanced to the date on which
possession of the Premises is tendered to Tenant, and Landlord shall be
entitled to full performance by Tenant (including the payment of rent) from
the date Landlord would have been able to deliver the Premises to Tenant but
for Tenant's delay(s).
SECTION 3.3. RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not
in default under any provision of this Lease, either at the lime of exercise
of the extension right granted herein or at the time of
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the commencement of such extension, and provided further that Tenant is
occupying the entire Premises and has not assigned or sublet any of its
interest in this Lease, Tenant may extend the Term of this Lease for one (1)
period of sixty (60) months. Tenant shall exercise its right to extend the
Term by and only by delivering to Landlord, not less than six (6) months or
more than nine (9) months prior to the expiration date of the Term, Tenant's
irrevocable written notice of its commitment to extend (the "Commitment
Notice"). Thc Basic Rent payable under the Lease during any extension of the
Term shall be determined as provided in the following provisions.
If Landlord and Tenant have not by then been able to agree upon the
Basic Rent for the extension of the Term, then within one hundred twenty
(120) and ninety (90) days prior to the expiration date of the Term, Landlord
shall notify Tenant in writing of the Basic Rent that would reflect the
prevailing market rental rate for a 60-month renewal of comparable space in
the Project (together with any increases thereof during the extension period)
as of the commencement of the extension period ("Landlord's Determination").
Should Tenant disagree with the Landlord's Determination, then Tenant shall,
not later than twenty (20) days thereafter, notify Landlord in writing of
Tenant's determination of those rental terms ("Tenant's Determination"). In
no event, however, shall Landlord's Determination or Tenant's Determination
be less than the Basic Rent payable by Tenant during the final month of the
initial Term. Within ten (10) days following delivery of the Tenant's
Determination, the parties shall attempt to agree on an appraiser to
determine the fair market rental. If the parties are unable to agree in that
time, then each party shall designate an appraiser within ten (10) days
thereafter. Should either party fail to so designate an appraiser within that
time, then the appraiser designated by the other party shall determine the
fair market rental. Should each of the parties timely designate an appraiser,
then the two appraisers so designated shall appoint a third appraiser who
shall, acting alone, determine the fair market rental for the Premises. Any
appraiser designated hereunder shall have an MAI certification with not less
than five (5) years experience in the valuation of commercial industrial
buildings in the vicinity of the Project.
Within thirty (30) days following the selection of the appraiser and
such appraiser's receipt of the Landlord's Determination and the Tenant's
Determination, the appraiser shall determine whether the rental rate
determined by Landlord or by Tenant more accurately reflects the fair market
rental rate for the 60-month renewal of the Lease for the Premises, as
reasonably extrapolated to the commencement of the extension period.
Accordingly, either the Landlord's Determination or the Tenant's
Determination shall be selected by the appraiser as the fair market rental
rate for the extension period. In making such determination, the appraiser
shall consider rental comparables for the Project (provided that if there are
an insufficient number of comparables within the project, the appraiser shall
consider rental comparables for similarly improved space within the vicinity
of the Project with appropriate adjustment for location and quality of
project), but the appraiser shall not attribute any factor for market tenant
improvement allowances or brokerage commissions in making its determination
of the fair market rental rate. At any time before the decision of the
appraiser is rendered, either patty may, by written notice to the other
party, accept the rental terms submitted by the other party, in which event
such terms shall be deemed adopted as the agreed fair market rental. The fees
of the appraiser(s) shall be borne entirely by the party whose determination
of the fair market rental rate was not accepted by the appraiser.
Within twenty (20) days after the determination of the fair market
rental, Landlord shall prepare an appropriate amendment to this Lease for the
extension period, and Tenant shall execute and return same to Landlord within
twenty (20) days. Should the fair market rental not be established by the
commencement of the extension period, then Tenant shall continue paying rent
at the rate in effect during the last month of the initial Term, and a lump
sum adjustment shall be made promptly upon the determination of such new
rental.
If Tenant falls to timely comply with any of the provisions of this
paragraph, Tenant's right to extend the Term shall be extinguished and the
Lease shall automatically terminate as of the expiration dale of the Term,
without any extension and without any liability to Landlord. Any attempt to
assign or transfer any right or interest created by this paragraph shall be
void from its inception. Tenant shall have no other right to extend the Term
beyond the single sixty (60) month extension period created by this
paragraph. Unless agreed to in a writing signed by Landlord and Tenant, any
extension of the Term, whether created by an amendment to this Lease or by a
holdover of the Premises by Tenant, or otherwise, shall be deemed a part of,
and not in addition to, any duly exercised extension period permitted by this
paragraph.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date,
Tenant shall pay to Landlord without deduction or offset, Basic Rent for the
Premises in the total amount shown (including subsequent adjustments, if any)
in Item 6 of the Basic Lease Provisions. Any rental adjustment shown in Item
6 shall be deemed to occur on the specified monthly anniversary of the
Commencement Date, whether or not that date occurs at the end of a calendar
month. The rent shall be due and payable in advance commencing on the
Commencement Date (as prorated for any partial month) and continuing
thereafter on the first day oaf each successive calendar month of the Term.
No demand, notice or invoice shall be required for the payment of Basic Rent.
An installment of rent in the amount of one (1) full month's Basic Rent at
the initial rate specified in Item 6 of the Basic Lease Provisions shall he
delivered to Landlord concurrently with Tenant's execution of this Lease and
shall be applied against the Basic Rent trust due hereunder.
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SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional tent,
Tenant's Share of "Operating Expenses", as defined below, incurred by
Landlord in the operation of the Building and Project. The term "Tenant's
Share" means that portion of an Operating Expense determined by multiplying
the cost of such item by a fraction, the numerator of which is the floor area
of the Premises and the denominator of which is the total square footage of
the floor area, as of the date on which the computation is made, to be
charged with such Operating Expense.
(b) Commencing prior to the start of the first full
"Expense Recovery Period" (as defined below) of the Lease, and prior to the
start of each full or partial Expense Recovery Period thereafter, Landlord
shall give Tenant a written estimate of the amount of Tenant's Share of
Operating Expenses for the Expense Recovery Period. Tenant shall pay the
estimated amounts to Landlord in equal monthly installments, in advance, with
Basic Rent. If Landlord has not furnished its written estimate for any
Expense Recovery Period by the time set forth above, Tenant shall continue to
pay cost reimbursements at the rates established for the prior Expense
Recovery Period, if any; provided that when the new estimate is delivered to
Tenant, Tenant shall, at the next monthly payment date, pay any accrued cost
reimbursements based upon the new estimate. For purposes hereof, "Expense
Recovery Period" shall mean every twelve month period during the Term (or
portion thereof for the first and last lease years) commencing July 1 and
ending June 30.
(c) Within one hundred twenty (120) days after the end of
each Expense Recovery Period, Landlord shall furnish to Tenant a statement
showing in reasonable detail the actual or prorated Operating Expenses
incurred by Landlord during the period, and the parties shall within thirty
(30) days thereafter make any payment or allowance necessary to adjust
Tenant's estimated payments, if any, to the actual Tenant's Share as shown by
the annual statement. Any delay or failure by Landlord in delivering any
statement hereunder shall not constitute a waiver of Landlord's right to
require Tenant to pay Tenant's Share of Operating Expenses pursuant hereto.
Any amount due Tenant shall be credited against installments next coming due
under this Section 4.2, and any deficiency shall be paid by Tenant together
with the next installment. If Tenant has not made estimated payments during
the Expense Recovery Period, any amount owing by Tenant pursuant to
subsection (a) above shall be paid to Landlord in accordance with Article
XVI. Should Tenant fail to object in writing to Landlord's determination of
actual Operating Expenses within sixty (60) days following delivery of
Landlord's expense statement, Landlord's determination of actual Operating
Expenses for the applicable Expense Recovery Period shall be conclusive and
binding on the parties and any future claims to the contrary shall be barred.
Provided Tenant is not then in default under this Lease beyond any
applicable notice and cure periods, Tenant shall have the right to have an
independent certified public accountant audit Landlord's Operating Expenses,
subject to the terms and conditions hereof. Thc cost of the audit shall be
borne by Tenant; provided, however, in no even shall such auditor be
compensated by Tenant on a "contingency" basis, or on any other basis tied to
the results of said audit. Tenant shall give written notice to Landlord of
Tenant's intent to audit Operating Expenses, if at all, within sixty (60)
days following delivery of Landlord's expense statement for the Expense
Recovery Period in question. Following at least ten (10) business days notice
to Landlord, such audit shall be conducted at a mutually agreeable time
during normal business hours at the office of Landlord or its management
agent where records are maintained in Santa Clara County, California.
Landlord shall in good faith cooperate with Tenant during any such audit. All
information obtained by Tenant and/or its auditor in connection with any
audit, as well as any compromise, settlement or adjustment reached between
Landlord and Tenant as a result thereof, shall be held in strict confidence
by Tenant and its auditor and, except as may be required pursuant to any
litigation or as may otherwise be required by law, shall not be disclosed to
any third party, directly or indirectly, by Tenant or its auditor or any of
their respective officers, agents or employees. Landlord may require Tenant's
auditor to execute a separate confidentiality agreement affirming the
foregoing as a condition precedent to any audit. If, following Landlord's
review of Tenant's audit, Landlord disputes the same, Landlord shall have the
right, upon written notice to Tenant within a reasonable time following its
receipt of the audit, to contest such audit by demanding binding arbitration
with JAMS Endispute in Santa Clara County, California ("JAMS"). Tenant agrees
to submit to such arbitration upon such written notice from Landlord. Within
ten (10) business days following submission of the dispute by Landlord to
JAMS, JAMS shall designate three (3) arbitrators and each party may, within
five (5) business days thereafter, veto one (1) of the three (3) persons so
designated. If two (2) different designated arbitrators have been vetoed, the
third arbitrator shall hear and decide the matter. Any arbitration pursuant
to this paragraph shall be decided within thirty (30) days of submission to
JAMS. The decision of the arbitrator shall be final and binding on the
parties. The award rendered by the arbitrator shall be final, and judgment
may be entered upon it in accordance with applicable law in any court having
jurisdiction thereof. Except by written consent of the person or entity
sought to be joined, no arbitration under this paragraph shall include, by
consolidation, joinder or in any other manner, any person or entity not a
party to this Lease unless (i) such person or entity is substantially
involved in a common question of fact or law, (ii) the presence of such
person or entity is requited if complete relief is to be accorded in the
arbitration, or (iii) the interest or responsibility of such person or entity
in the matter in not insubstantial. All costs associated with the arbitration
(excluding the coat of the audit) shall be awarded to the prevailing party as
determined by the arbitrator. The foregoing agreement to arbitrate shall be
specifically enforceable under prevailing law. In the event that, based on
Tenant's audit (and, if the results thereof are contested by Landlord as
provided above, the award rendered by the arbitrator), it is determined that
actual Operating Expenses have been overstated by Landlord, then any
overpayment of actual Operating Expenses by Tenant revealed thereby (less any
prior credits or rebates given
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with respect thereto) shall be credited by Landlord against installments next
becoming due under this Section 4.2 (or, if the Lease has expired or
terminated at the time of such determination, such overpayment (less any
prior credits or rebates given with respect thereto) shall be rebated by
Landlord to Tenant within thirty (30) days following such determination).
Conversely, in the event that, based on Tenant's audit (and, if the results
thereof are contested by Landlord as provided above, the award rendered by
the arbitrator), it is determined that actual Operating Expenses have been
understated by Landlord, then any deficiencies in the payment of actual
Operating Expenses by Tenant revealed thereby (less any prior payments made
by Tenant with respect thereto) shall be paid by. Tenant together with the
next installment coming due under this Section 4.2 (or, if the Lease has
expired or terminated at the time of such determination, such deficiency
(less any prior payments made by Tenant with respect thereto) shall be paid
by Tenant upon notice from Landlord).
(d) Even though the Lease has terminated and the Tenant
has vacated the Premises, when the final determination is made of Tenant's
Share of Operating Expenses for file Expense Recovery Period in which the
Lease terminates, Tenant shall upon notice pay the entire increase due over
the estimated expenses paid. Conversely, any overpayment made in the event
expenses decrease shall be rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period,
any one or more of the Operating Expenses arc increased to a rate(s) or
amount(s) in excess of the rate(s) or amount(s) used in calculating the
estimated expenses for the year, then the estimate of Tenant's Share of
Operating Expenses shall be increased for the month in which such rate(s) or
amount(s) becomes effective and for all succeeding months by an amount equal
to Tenant's Share of the increase. Landlord shall give Tenant written notice
of the amount or estimated amount of the increase, the month in which the
increase will become effective. Tenant's Share thereof and the month for
which the payments are due. Tenant shall pay the increase to Landlord as a
part of Tenant's monthly payments of estimated expenses as provided in
paragraph (b) above, commencing with the month in which effective.
(f) The term "Operating Expenses" shall mean and include
all "Project Costs" (as hereafter defined) and "Property Taxes" (as hereafter
defined).
(g) The term "Project Costs" shall include all expenses of
operation and maintenance of the Building and the Project, together with all
appurtenant Common Areas (as defined in Section 6.2), and shall include the
following charges by way of illustration but not limitation: water and sewer
charges; insurance premiums or reasonable premium equivalents should Landlord
elect to self-insure any risk that Landlord is authorized to insure
hereunder;, license, permit, and inspection fees; heat; light; power;
janitorial services to any interior Common Areas; air conditioning; supplies;
materials; equipment; tools; the reasonable cost of any environmental,
insurance, tax or other consultant utilized by Landlord in connection with
the Building and/or Project; establishment of reasonable reserves for
replacements and/or repair of the Building and/or Common Area improvements,
equipment and supplies; costs incurred in connection with compliance of any
laws or changes in laws applicable to the Building or the Project; the cost
of any capital investments (other than tenant improvements for specific
tenants) to the extent of the amortized amount thereof over the useful life
of such capital investments calculated at a market cost of funds, all as
determined by Landlord, for each such year of useful life during the Term;
costs associated with the procurement and maintenance of an air conditioning,
heating and ventilation service agreement, and procurement and maintenance of
an intrabuilding network cable service agreement for any intrabuilding
network cable telecommunications lines within the Project, and any other
installation, maintenance, repair and replacement costs associated with such
lines; labor; reasonably allocated wages and salaries, fringe benefits, and
payroll taxes for administrative and other personnel directly applicable to
the Building and/or Project, including both Landlord's personnel and outside
personnel; any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and
10.2; and a reasonable overhead/management fee for the professional operation
of the Project. Notwithstanding anything to the contrary herein, Tenant's
Share of any such property management fees shall be determined by multiplying
the actual property management fee charged (which from time to time may be
with respect to the Building only, a portion of the Project only, the entire
Project, or the Project together with other properties owned by Landlord
and/or its affiliates) by a fraction, the numerator of which is the floor
area of the Premises (as set forth in Item 8 of the Basic Lease Provisions
contained in the Lease), and the denominator of which is the total square
footage of space charged with such management fee actually leased to tenants
(including Tenant). It is understood that Project Costs shall include
competitive charges for direct services provided by any subsidiary or
division of Landlord.
(h) The term "Property Taxes" as used herein shall include
the following: (i) all real estate taxes or personal property taxes, as such
property taxes may be reassessed from time to time; and (ii) other taxes,
charges and assessments which are levied with respect to this Lease or to the
Building and/or the Project, and any improvements, fixtures and equipment and
other property of Landlord located in the Building and/or the Project, except
that general net income and franchise taxes imposed against Landlord shall be
excluded; and (iii) all assessments and fees for public improvements,
services, and facilities and impacts thereon, including without limitation
arising out of any Community Facilities Districts, "Mello Roos" districts,
similar assessment districts, and any traffic impact mitigation assessments
or fees; (iv) any tax, surcharge or assessment which shall be levied in
addition to or in lieu of real estate or personal property taxes, other than
taxes covered by Article VIII; and (v) costs and expenses incurred in
contesting the amount or validity of any Property Tax by appropriate
proceedings.
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SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery
of this Lease, Tenant shall deposit with Landlord the sum, if any, slated in
Item 9 of the Basic Lease Provisions, to be held by Landlord as security for
the full and faithful performance of Tenant's obligations under this Lease
(the "Security Deposit"). Subject to the last sentence of this Section, the
Security Deposit shall be understood and agreed to be the property of
Landlord upon Landlord's receipt thereof, and may be utilized by Landlord in
its discretion towards the payment of all prepaid expenses by Landlord for
which Tenant would be required to reimburse Landlord under this Lease,
including without limitation brokerage commissions and Tenant Improvement
costs. Upon any default by Tenant, including specifically Tenant's failure to
pay rent or to abide by its obligations under Sections 7.1 and 15.3 below,
whether or not Landlord is informed of or has knowledge of the default, the
Security Deposit shall be deemed to be automatically and immediately applied,
without waiver of any rights Landlord may have under this Lease or at law or
in equity as a result of the default, as a setoff for full or partial
compensation for that default. If any portion of the Security Deposit is
applied after a default by Tenant, Tenant shall within five (5) days after
written demand by Landlord deposit cash with Landlord in an amount sufficient
to restore the Security Deposit to its original amount. Landlord shall not be
required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. If Tenant
fully performs its obligations under this Lease, the Security Deposit shall
be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest in this Lease) after the expiration of the Term, provided
that Landlord may retain the Security Deposit to the extent and until such
time as all amounts due from Tenant in accordance with this Lease have been
determined and paid in full.
SECTION 4.4. LETTER OF CREDIT. In addition to the Security Deposit
and as additional security hereunder, Tenant shall deliver to landlord
concurrently with Tenant's execution of this Lease, a letter of credit in the
amount of Two Hundred Thousand Dollars ($200,000.00), which letter of credit
shall be in form and with the content of EXHIBIT F attached hereto and issued
by a financial institution acceptable to Landlord. The letter of credit shall
provide for automatic yearly renewals throughout the Term of this Lease. Upon
any monetary default by Tenant or any failure by Tenant to abide by its
obligations under Sections 7.1 and 15.3 below, Landlord shall be entitled to
draw upon said letter of credit by the issuance of Landlord's sole written
demand to the issuing financial institution. Any such draw shall be without
waiver of any rights Landlord may have under this Lease or at law or in
equity as a result of the default. If any portion of the letter of credit is
drawn after a default by Tenant, Tenant shall within five (5) days after
written demand by Landlord restore the letter of credit. Provided that: (i)
Tenant is not in default under the Lease at any time during the Term hereof,
(ii) Tenant has not at any time been more than five (5) days late with
respect to any payments of rent due under the Lease more than twice during
the Term, and (iii) Tenant shall demonstrate by the delivery of its financial
statements that Tenant has a net worth of not less than Twenty Five Million
Dollars ($25,000,000.00) (as determined by generally accepted accounting
principles, consistently applied), then, upon written request of Tenant,
Landlord shall authorize a full exoneration and release of the letter of
credit.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the
purposes stated in Item 3 of the Basic Lease Provisions, all in accordance
with applicable laws and restrictions and pursuant to approvals to be
obtained by Tenant from all relevant and required governmental agencies and
authorities. The parties agree that any contrary use shall be deemed to cause
material and irreparable harm to Landlord and shall entitle Landlord to
injunctive relief in addition to any other available remedy. Tenant, at its
expense, shall procure, maintain and make available for Landlord's inspection
throughout the Term, all governmental approvals, licenses and permits
required for the proper and lawful conduct of Tenant's permitted use of the
Premises. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way interfere with the rights of other occupants
of the Building or the Project, or use or allow the Premises to be used for
any unlawful purpose, nor shall Tenant permit any nuisance or commit any
waste in the Premises or the Project. Tenant shall not perform any work or
conduct any business whatsoever in the Project other than inside the
Premises. Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any insurance policy(ies) covering the
Building, the Project and/or their contents, and shall comply with all
applicable insurance underwriters rules and the requirements of the Pacific
Fire Rating Bureau or any other organization performing a similar function.
Tenant shall comply at its expense with all present and future laws,
ordinances, restrictions, regulations, orders, rules and requirements of all
governmental authorities that pertain to Tenant or its use of the Premises,
including without limitation all federal and state occupational health and
safety requirements, whether or not Tenant's compliance will necessitate
expenditures or interfere with its use and enjoyment of the Premises. Tenant
shall comply at its expense with all present and future covenants,
conditions, easements or restrictions now or hereafter affecting or
encumbering the Building and/or Project, and any amendments or modifications
thereto, including without limitation the payment by Tenant of any periodic
or special dues or assessments charged against the Premises or Tenant which
may be allocated to the Premises or Tenant in accordance with the provisions
thereof. Tenant shall promptly upon demand reimburse Landlord for any
additional insurance premium charged by reason of Tenant's failure to comply
with the provisions of this Section, and shall indemnify Landlord from any
liability and/or expense resulting from Tenant's noncompliance.
SECTION 5.2. SIGNS. Except as approved in writing by Landlord, in
its sole discretion, Tenant shall have no right to maintain identification
signs in any location in, on or about the Premises, the Building or the
Project and shall not place or erect any signs, displays or other advertising
materials that are visible from the
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exterior of the Building. The size, design, graphics, material, style, color
and other physical aspects of any permitted sign shall be subject to
Landlord's written approval prior to installation (which approval may be
withheld in Landlord's discretion), any covenants, conditions cc restrictions
encumbering the Premises, Landlord's signage program for the Project, as in
effect from time to time and approved by the City in which the Premises are
located ("Signage Criteria"), and any applicable municipal or other
governmental permits and approvals. Tenant acknowledges having received and
reviewed a copy of the current Signage Criteria for the Project Tenant shall
be responsible for the cost of any permitted sign, including the fabrication,
installation, maintenance and removal thereof. If Tenant fails to maintain
its sign, or if Tenant fails to remove same upon termination of this Lease
and repair any damage caused by such removal, Landlord may do so at Tenant's
expense.
SECTION 5.3. HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous
Materials" includes (i) any "hazardous materials" as defined in Section
25501(n) of the California Health and Safety Code, (ii) any other substance
or matter which results in liability to any person or entity from exposure to
such substance or matter under any statutory or common law theory, and (iii)
any substance or matter which is in excess of permitted levels set forth in
any federal, California or local law or regulation pertaining to any
hazardous or toxic substance, material or waste.
(b) Tenant shall not cause or permit any Hazardous
Materials to be brought upon, stored, used, generated, released or disposed
of on, under, from or about the Premises (including without limitation the
soil and groundwater thereunder) without the prior written consent of
Landlord. Notwithstanding the foregoing, Tenant shall have the right, without
obtaining prior written consent of Landlord, to utilize within the Premises
standard office products that may contain Hazardous Materials (such as
photocopy toner, "White Out", and the like), however, that (i) Tenant shall
maintain such products in their original retail packaging, shall follow all
instructions on such packaging with respect to the storage, use and disposal
of such products, and shall otherwise comply with all applicable laws with
respect to such products, and (ii) all of the other terms and provisions of
this Section 5.3 shall apply with respect to Tenant's storage, use and
disposal of all such products. Landlord may, in its sole discretion, place
such conditions as Landlord deems appropriate with respect to any such
Hazardous Materials, and may further require that Tenant demonstrate that any
such Hazardous Materials are necessary or useful to Tenant's business and
will be generated, stored, used and disposed of in a manner that complies
with all applicable laws and regulations pertaining thereto and with good
business practices. Tenant understands that Landlord may utilize an
environmental consultant to assist in determining conditions of approval in
connection with the storage, generation, release, disposal or use of
Hazardous Materials by Tenant on or about the Premises, and/or to conduct
periodic inspections of the storage, generation, use, release and/or disposal
of such Hazardous Materials by Tenant on and from the Premises, and Tenant
agrees that any costs incurred by Landlord in connection therewith shall be
reimbursed by Tenant to Landlord as additional rent hereunder upon demand.
(c) Prior to the execution of this Lease, Tenant shall
complete, execute and deliver to Landlord an Environmental Questionnaire and
Disclosure Statement (the "Environmental Questionnaire") in the form of
attached hereto. The completed Environmental Questionnaire shall be deemed
incorporated into this Lease for all purposes, and Landlord shall be entitled
to rely fully on the information contained therein. On each anniversary of
the Commencement Date until the expiration or sooner termination of this
Lease, Tenant shall disclose to Landlord in writing the names and amounts of
all Hazardous Materials which were stored, generated, used, released and/or
disposed of on, under or about the Premises for the twelve-month period prior
thereto, and which Tenant desires to store, generate, use, release and/or
dispose of on, under or about the Premises for the succeeding twelve-month
period. In addition, to the extent Tenant is permitted to utilize Hazardous
Materials upon the Premises, Tenant shall promptly provide Landlord with
complete and legible copies of all the following environmental documents
relating thereto: reports filed pursuant to any self-reporting requirements;
permit applications, permits, monitoring repots, workplace exposure and
community exposure warnings or notices and all other reports, disclosures,
plans or documents (even those which may be characterized as confidential)
relating to water discharges, air pollution, waste generation or disposal,
and underground storage tanks for Hazardous Materials; orders, reports,
notices, listings and correspondence (even those which may be considered
confidential) of or concerning the release, investigation of, compliance,
cleanup, remedial and corrective actions, and abatement of Hazardous
Materials; and all complaints, pleadings and other legal documents filed by
or against Tenant related to Tenant's use, handling, storage, release and/or
disposal of Hazardous Materials.
(d) Landlord and its agents shall have the right, but not
the obligation, to inspect, sample and/or monitor the Premises and/or the
soil or groundwater thereunder at any time to determine whether Tenant is
complying with the terms of this Section 5.3, and in connection therewith
Tenant shall provide Landlord with full access to all relevant facilities,
records and personnel. If Tenant is not in compliance with any of the
provisions of this Section 5.3, or in the event of a release of any Hazardous
Material on, under or about the Premises caused or permitted by Tenant, its
agents, employees, contractors, licensees or invitees, Landlord and its
agents shall have the right, but not the obligation, without limitation upon
any of Landlord's other rights and remedies under this Lease, to immediately
enter upon the Premises without notice and to discharge Tenant's obligations
under this Section 5.3 at Tenant's expense, including without limitation the
taking of emergency or long-term remedial action. Landlord and its agents
shall endeavor to minimize interference with Tenant's
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business in connection therewith, but shall not be liable for any such
interference. In addition, Landlord, at Tenant's expense, shall have the
right, but not the obligation, to join and participate in any legal
proceedings or actions initiated in connection with any claims arising out of
the storage, generation, use, releases and/or disposal by Tenant or its
agents, employees, contractors, licensees or invitees of Hazardous Materials
on, under, from or about the Premises.
(e) If the presence of any Hazardous Materials on, under,
from or about the Premises or the Project caused or permitted by Tenant or
its agents, employees, contractors, licensees or invitees results in (i)
injury to any person, (ii) injury to or any contamination of the Premises or
the Project, or (iii) injury to or contamination of any real or personal
property wherever situated, Tenant, at its expense, shall promptly take all
actions necessary to return the Premises and the Project and any other
affected real or personal property owned by Landlord to the condition
existing prior to the introduction of such Hazardous Materials and to remedy
or repair any such injury or contamination, including without limitation, any
cleanup, remediation, removal, disposal, neutralization or other treatment of
any such Hazardous Materials. Notwithstanding the foregoing, Tenant shall
not, without Landlord's prior written consent, lake any remedial action in
response to the presence of any Hazardous Materials on, under or about the
Premises or the Project or any other affected real or personal property owned
by Landlord or enter into any similar agreement, consent, decree or other
compromise with any governmental agency with respect to any Hazardous
Materials claims; provided however, Landlord's prior written consent shall
not be necessary in the event that the presence of Hazardous Materials on,
under or about the Premises or the Project or any other affected real or
personal property owned by Landlord (i) imposes an immediate threat to the
health, safety or welfare of any individual or (ii) is of such a nature that
an immediate remedial response is necessary and it is not possible to obtain
Landlord's consent before taking such action. To the fullest extent permitted
by law, Tenant shall indemnify, hold harmless, protect and defend (with
attorneys acceptable to Landlord) Landlord and any successors to all or any
portion of Landlord's interest in the Premises and the Project and any other
real or personal property owned by Landlord from and against any and all
liabilities, losses, damages, diminution in value, judgments, fines, demands,
claims, recoveries, deficiencies, costs and expenses (including without
limitation attorneys' fees, court costs and other professional expenses),
whether foreseeable or unforeseeable, arising directly or indirectly out of
the use, generation, storage, treatment, release, on- or off-site disposal or
transportation of Hazardous Materials on, into, from, under or about the
Premises, the Building and the Project and any other real or personal
property owned by Landlord caused or permitted by Tenant, its agents,
employees, contractors, licensees or invitees, specifically including without
limitation the cost of any required or necessary repair, restoration, cleanup
or detoxification of the Premises, the Building and the Project and any other
real or personal property owned by Landlord, and the preparation of any
closure or other required plans, whether or not such action is required or
necessary during the Term or after the expiration of this Lease. If Landlord
at any time discovers that Tenant or its agents, employees, contractors,
licensees or invitees may have caused or permitted the release of a Hazardous
Material on, under, from or about the Premises or the Project or any other
real or personal property owned by Landlord, Tenant shall, at Landlord's
request, immediately prepare and submit to Landlord a comprehensive plan,
subject to Landlord's approval, specifying the actions to be taken by Tenant
to return the Premises or the Project or any other real or personal property
owned by Landlord to the condition existing prior to the introduction of such
Hazardous Materials. Upon Landlord's approval of such cleanup plan, Tenant
shall, at its expense, and without limitation of any rights and remedies of
Landlord under this Lease or at law or in equity, immediately implement such
plan and proceed to cleanup such Hazardous Materials in accordance with all
applicable laws and as required by such plan and this Lease. The provisions
of this subsection (e) shall expressly survive the expiration or sooner
termination of this Lease.
(f) Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Project
known by Landlord to exist as of the date of this Lease, as more particularly
described in EXHIBIT C attached hereto. Tenant shall have no liability or
responsibility with respect to the Hazardous Materials facts described in
EXHIBIT C, nor with respect to any Hazardous Materials which Tenant proves
were not caused or permitted by Tenant, its agents, employees, contractors,
licensees or invitees. Notwithstanding the preceding two sentences, Tenant
agrees to notify its agents, employees, contractors, licensees, and invitees
of any exposure or potential exposure to Hazardous Materials at the Premises
that Landlord brings to Tenant's attention.
ARTICLE VI. COMMON AREAS; SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for
and shall pay promptly, directly to the appropriate supplier, all charges for
water, gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used
by Tenant in, on or about the Premises during the Term, together with any
taxes thereon. If any utilities or services are not separately metered or
assessed to Tenant, Landlord shall make a reasonable determination of
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such amount to Landlord, as an item of additional rent,
within ten (10) days after receipt of Landlord's statement or invoice
therefor. Alternatively, Landlord may elect to include such cost in the
definition of Building Costs in which event Tenant shall pay Tenant's
proportionate share of such costs in the manner set forth in Section 4.2.
Landlord shall not be liable for damages or otherwise for any failure or
interruption of any utility or other service furnished to the Premises, and
no such failure or interruption shall
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be deemed an eviction or entitle Tenant to terminate this Lease or withhold
or abate any rent due hereunder. Landlord shall at all reasonable times have
flee access to all electrical and mechanical installations of Landlord.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the
Term, Landlord shall operate all Common Areas within the Building and the
Project. The term "Common Areas" shall mean all areas within the exterior
boundaries of the Building and offer buildings in the Project which are not
held for exclusive use by persons entitled to occupy space, and all other
appurtenant areas and improvements provided by Landlord for the common use of
Landlord and tenants and their respective employees and invitees, including
without limitation parking areas and structures, driveways, sidewalks,
landscaped and planted areas, hallways and interior stairwells not located
within the premises of any tenant, common electrical rooms and roof access
entries, common entrances and lobbies, elevators, and restrooms not located
within the premises of any tenant
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord
and with all others for whose convenience and use the Common Areas may be
provided by Landlord, subject, however, to compliance with all rules and
regulations as are prescribed from time to time by Landlord. Landlord shall
operate and maintain the Common Areas in good operating condition and
otherwise in the manner Landlord may determine to be appropriate. All costs
incurred by Landlord for the maintenance and operation of the Common Areas
shall be included in Project Costs unless any particular cost incurred can be
charged to a specific tenant of the Project. Landlord shall at all rimes
during the Term have exclusive control of the Common Areas, and may restrain
any use or occupancy, except as authorized by Landlord's rules and
regulations. Tenant shall keep the Common Areas clear of any obstruction or
unauthorized use related to Tenant's operations. Nothing in this Lease shall
be deemed to impose liability upon Landlord for any damage to or loss of the
property of, or for any injury to, Tenant, its invitees or employees.
Landlord may temporarily close any portion of the Common Areas for repairs,
remodeling and/or alterations, to prevent a public dedication or the accrual
of prescriptive rights, or for any other reason deemed reasonably sufficient
by Landlord, without liability to Landlord.
SECTION 6.4. PARKING. Tenant shall be entitled to the number of
vehicle parking spaces set forth in Item 14 of the Basic Lease Provisions, on
those portions of the Common Areas designated by Landlord for parking, on an
unreserved and unassigned basis. Tenant shall not use more parking spaces
than such number. All parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pickup trucks.
Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, customers or
invitees to be loaded, unloaded or parked in areas other than those
designated by Landlord for such activities. If Tenant permits or allows any
of the prohibited activities described above, then Landlord shall have the
right, without notice, in addition to such other rights and remedies that
Landlord may have, to remove or tow away the vehicle involved and charge the
costs to Tenant. Parking within the Common Areas shall be limited to striped
parking stalls, and no parking shall be permitted in any driveways, access
ways or in any area which would prohibit or impede the free flow of traffic
within the Common Areas. There shall be no overnight parking of any vehicles
of any kind unless otherwise authorized by Landlord, and vehicles which have
been abandoned or parked in violation of the terms hereof may be towed away
at the owner's expense. Nothing contained in this Lease shall be deemed to
create liability upon Landlord for any damage to motor vehicles of visitors
or employees, for any loss of property from within those motor vehicles, or
for any injury to Tenant, its visitors or employees, unless ultimately
determined to be caused by the sole active negligence or willful misconduct
of Landlord. Landlord shall have the right to establish, and from time to
time amend, and to enforce against all users all reasonable rules and
regulations (including the designation of areas for employee parking) that
Landlord may deem necessary and advisable for the proper and efficient
operation and maintenance of parking within the Common Areas. Landlord shall
have the right to construct, maintain and operate lighting facilities within
the parking areas; to change the area, level, location and arrangement of the
parking areas and improvements therein; to restrict parking by tenants, their
officers, agents and employees to employee parking areas; and to do and
perform such other acts in and to the parking areas and improvements therein
as, in the use of good business judgment, Landlord shall determine to he
advisable. Any person using the parking area shall observe all directional
signs and arrows and any posted speed limits. In no event shall Tenant
interfere with the use and enjoyment of the parking area by other tenants of
the Building or their employees or invitees. Parking areas shall be used only
for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or
the storage of vehicles for 24-hour periods, is prohibited unless otherwise
authorized by Landlord. Tenant shall be liable for any damage to the parking
areas caused by Tenant or Tenant's employees, suppliers, shippers, customers
or invitees, including without limitation damage from excess oil leakage.
Tenant shall have no right to install any fixtures, equipment or personal
property in the parking areas.
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves
the right to make alterations or additions to the Building or the Project, or
to the attendant fixtures, equipment and Common Areas. Landlord may at any
time relocate or remove any of the various buildings, parking areas, and
other Common Areas, and may add buildings and areas to the Project from time
to time. No change shall entitle Tenant to any abatement of rent or other
claim against Landlord, provided that the change does not deprive Tenant of
reasonable access to or use of the Premises. Landlord shall not make any
material changes to the parking areas unless such changes are otherwise
required by law or are necessitated by any taking by any lawful authority by
exercise of the right of eminent domain (or sold to prevent a taking)
(subject, however, to Tenant's rights under Section 12.3 below) or axe due to
any matters beyond the reasonable control of Landlord.
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ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole
expense shall comply with all applicable laws and governmental regulations
governing the Premises and make all repairs necessary to keep the Premises in
the condition as existed on the Commencement Date (or on any later date that
the improvements may have been installed), excepting ordinary wear and tear,
including without limitation the electrical and mechanical systems, all
glass, windows, doors, door closures, hardware, fixtures, electrical,
plumbing, fire extinguisher equipment and other equipment. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if
the same could have been prevented by good maintenance practices by Tenant.
As part of its maintenance obligations hereunder, Tenant shall, at Landlord's
request, provide Landlord with copies of all maintenance schedules, response
and notices prepared by, for or on behalf of Tenant. All repairs shall be at
least equal in quality to the original work, shall be made only by a licensed
contractor approved in writing in advance by Landlord (which approval shall
not be unreasonably withheld) and shall be made only at the time or times
approved by Landlord. Any contractor utilized by Tenant shall be subject to
Landlord's standard requirements for contractors, as modified from time to
time. Landlord may impose reasonable restrictions and requirements with
respect to repairs, as provided in Section 7.3, and the provisions of Section
7.4 shall apply to all repairs. Alternatively, Landlord may, upon no less
than seven (7) days written notice to Tenant, elect to make any such repair
on behalf of Tenant and at Tenant's expense, and Tenant shall promptly
reimburse landlord for all costs incurred upon submission of an invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section
7.1 and Article XI, Landlord shall provide service, maintenance and repair
with respect to the roof, foundations, and footings of the Building, all
landscaping, walkways, parking areas, Common Areas, exterior lighting, the
air conditioning, ventilating or heating equipment servicing the Premises,
and the exterior surfaces of the exterior walls of the Building, except that
Tenant at its expense shall make all repairs which Landlord deems reasonably
necessary as a result of the act or negligence of Tenant, its agents,
employees, invitees, subtenants or contractors. Landlord shall have the right
to employ or designate any reputable person or firm, including any employee
or agent of Landlord or any of Landlord's affiliates or divisions, to perform
any service, repair or maintenance function. Landlord need not make any other
improvements or repairs except as specifically required under this Lease, and
nothing contained in this Section shall limit Landlord's right to
reimbursement from Tenant for maintenance, repair costs and replacement costs
as provided elsewhere in this Lease. Tenant understands that it shall not
make repairs at Landlord's expense or by rental offset. Tenant further
understands that Landlord shall not be required to make any repairs to the
roof. foundations, footings, structural, electrical or mechanical systems
unless and until Tenant has notified Landlord in writing of the need for such
repair and Landlord shall have a reasonable period of time thereafter to
commence and complete said repair, if warranted. All costs of any maintenance
and repairs on the part of Landlord provided hereunder shall be considered
part of Project Costs.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations,
additions or improvements to the Premises without the prior written consent
of Landlord, which consent may be given or withheld in Landlord's sole
discretion. Notwithstanding the foregoing, Landlord shall not unreasonably
withhold its consent to any alterations, additions or improvements to the
Premises which cost less than Two Dollars ($2.00) per square foot of the
improved portions of the Premises (excluding warehouse square footage) and do
not (i) affect the exterior of the Building or outside areas (or be visible
from adjoining sites), or (ii) affect or penetrate any of the structural
portions of the Building, including but not limited to the roof, or (iii)
require any change to the basic floor plan of the Premises, any change to any
structural or mechanical systems of the Premises, or any governmental permit
as a prerequisite to the construction thereof, or (iv) interfere in any
manner with the proper functioning of or Landlord's access to any mechanical,
electrical, plumbing or HVAC systems, facilities or equipment located in or
serving the Building, or (v) diminish the value of the Premises. Landlord may
impose, as a condition to its consent, any requirements that Landlord in its
discretion may deem reasonable or desirable, including but not limited to a
requirement that all work be covered by a lien and completion bond
satisfactory to Landlord and requirements as to the manner, time, and
contractor for performance of the work. Tenant shall obtain all required
permits for the work and shall perform the work in compliance with all
applicable laws, regulations and ordinances, all covenants, conditions and
restrictions affecting the Project, and the Rules and Regulations (hereafter
defined). If any governmental entity requires, as a condition to any proposed
alterations, additions or improvements to the Premises by Tenant, that
improvements be made to the Common Areas, and if Landlord consents to such
improvements to the Common Areas, then Tenant shall, at Tenant's sole
expense, make such required improvements to the Common Areas in such manner,
utilizing such materials, and with such contractors (including, if required
by Landlord, Landlord's contractors) as Landlord may require in its sole
discretion. Under no circumstances shall Tenant make any improvement which
incorporates any Hazardous Materials, including without limitation
asbestos-containing construction materials into the Premises. Any request for
Landlord's consent shall be made in writing and shall contain plans
describing the work in detail reasonably satisfactory to Landlord. Unless
Landlord otherwise agrees in writing, all alterations, additions or
improvements affixed to the Premises (excluding moveable trade fixtures and
furniture) shall become the property of Landlord and shall be surrendered
with the Premises at the end of the Term, except that Landlord may, by notice
to Tenant, require Tenant to remove by the Expiration Date, or sooner
termination date of this Lease, all or any alterations, decorations,
fixtures, additions, improvements and the like installed either by Tenant or
by Landlord at Tenant's request and to repair any damage to the Premises
arising from that removal. Except as otherwise provided in this Lease or in
any Exhibit to this Lease, should Landlord make any alteration or
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improvement to the Premises for Tenant, Landlord shall be entitled to prompt
reimbursement from Tenant for all costs incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free
from any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall
promptly cause any such lien to be released by posting a bond in accordance
with California Civil Code Section 3143 or any successor statute. In the
event that Tenant shall not, within thirty (30) days following the imposition
of any lien, cause the lien to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other available
remedies, the right to cause the lien to be released by any means it deems
proper, including payment of or defuse against the claim giving rise to the
lien. All expenses so incurred by Landlord, including Landlord's attorneys'
fees, and any consequential or offer damages incurred by Landlord arising out
of such lien, shall be reimbursed by Tenant promptly following Landlord's
demand, together with interest from the date of payment by Landlord at the
maximum rate permitted by law until paid. Tenant shall give Landlord no less
than twenty (20) days' prior notice in writing before commencing construction
of any kind on the Premises so that Landlord may post and maintain notices of
nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon written or oral notice (except in emergencies, when no notice
shall be required) have the right to enter the Premises to inspect them, to
supply services in accordance with this Lease, to protect the interests of
Landlord in the Premises, and to submit the Premises to prospective or actual
purchasers or encumbrance holders (or, during the last one hundred and eighty
(180) days of the Term or when an uncured Tenant default exists, to
prospective tenants), all without being deemed to have caused an eviction of
Tenant and without abatement of rent except as provided elsewhere in this
Lease. Landlord shall have the right, if desired, to retain a key which
unlocks all of the doors in the Premises, excluding Tenant's vaults and
safes, and Landlord shall have the right to use any and all means which
Landlord may deem proper to open the doors in an emergency in order to obtain
entry to the Premises, and any entry to the Premises obtained by Landlord
shall not under any circumstances be deemed to be a forcible or unlawful
entry into, or a detainer of, the Premises, or any eviction of Tenant from
the Premises.
SECTION 7.6. [INTENTIONALLY DELETED].
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, at least ten (10) days
before delinquency, all taxes and assessments levied against all personal
property of Tenant located in the Premises, against all improvements to the
Premises made by Landlord or Tenant which are above Landlord's Project
standard in quality and/or quantity for comparable space within the Project
("Above Standard Improvements"), and against any alterations, additions or
like improvements made to the Premises by or on behalf of Tenant. When
possible Tenant shall cause its personal property, Above Standard
Improvements and alterations to be assessed and billed separately from the
real property of which the Premises form a part. If any taxes on Tenant's
personal property, Above Standard Improvements and/or alterations are levied
against Landlord or Landlord's property and if Landlord pays the same., or if
the assessed value of Landlord's property is increased by the inclusion of a
value placed upon the personal property, Above Standard Improvements and/or
alterations of Tenant and if Landlord pays the taxes based upon the increased
assessment, Tenant shall pay to Landlord the taxes so levied against Landlord
or the proportion of the taxes resulting from the increase in the assessment.
In calculating what portion of any tax bill which is assessed against
Landlord separately, or Landlord and Tenant jointly, is attributable to
Tenant's Above Standard Improvements, alterations and personal property,
Landlord's reasonable determination shall be conclusive.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not
unreasonably be withheld in accordance with the provisions of Section 9.1(b).
No assignment (whether voluntary, involuntary or by operation of law) and no
subletting shall be valid or effective without Landlord's prior written
consent and, at Landlord's election, any such assignment or subletting or
attempted assignment or subletting shall constitute a material default of
this Lease. Landlord shall not be deemed to have given its consent to any
assignment or subletting by any other course of action, including its
acceptance of any name for listing in the Building directory. To the extent
not prohibited by provisions of the Bankruptcy Code, 11 U.S.C, Section 101 et
seq. (the "Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf
of itself and its creditors, administrators and assigns waives the
applicability of Section 365(e) of the Bankruptcy Code unless the proposed
assignee of the Trustee for the estate of the bankrupt meets Landlord's
standard for consent as set forth in Section 9.1(b) of this Lease. If this
Lease is assigned to any person or entity pursuant to the provisions of the
Bankruptcy Code, any and all monies or other considerations to be delivered
in
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connection with the assignment shall be delivered to Landlord, shall be and
remain the exclusive property of Landlord and shall not constitute property
of Tenant or of the estate of Tenant within the meaning of the Bankruptcy
Code. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed to have assumed all of the
obligations arising under this Lease on and after the date of the assignment,
and shall upon demand execute and deliver to Landlord an instrument
confirming that assumption.
(b) If Tenant desires to transfer an interest in this Lease, it
shall first notify Landlord of its desire and shall submit in writing to
Landlord: (i) the name and address of the proposed transferee; (ii) the
nature of any proposed subtenant's or assignee's business to be carried on in
the Premises; (iii) the terms and provisions of any proposed sublease or
assignment, including a copy of the proposed assignment or sublease form;
(iv) evidence of insurance of the proposed assignee or subtenant complying
with the requirements of EXHIBIT D hereto; (v) a completed Environmental
Questionnaire from the proposed assignee or subtenant; and (vi) any other
information requested by Landlord and reasonably related to the transfer.
Except as provided in Subsection (c) of this Section, Landlord shall not
unreasonably withhold its consent, provided: (1) the use of the Premises will
be consistent with the provisions of this Lease and with Landlord's
commitment to other tenants of the Building and Project; (2) the proposed
assignee or subtenant has not been required by any prior landlord, lender or
governmental authority to take remedial action in connection with Hazardous
Materials contaminating a property arising out of the proposed aasignee's or
subtenant's actions or use of the property in question and is not subject to
any enforcement order issued by any governmental authority in connection with
the use, disposal or storage of a Hazardous Material; (3) at Landlord's
election, insurance requirements shall be brought into conformity with
Landlord's then current leasing practice; (4) any proposed subtenant or
assignee demonstrates that it is financially responsible by submission to
Landlord of all reasonable information as Landlord may request concerning the
proposed subtenant or assignee, including, but not limited to, a balance
sheet of the proposed subtenant or assignee as of a date within ninety (90)
days of the request for Landlord's consent, statements of income or profit
and loss of the proposed subtenant or assignee for the two-year period
preceding the request for Landlord's consent, and/or a certification signed
by the proposed subtenant or assignee that it has not been evicted or been in
arrears in rent at any other leased premises for the 3-year period preceding
the request for Landlord's consent; (5) any proposed subtenant or assignee
demonstrates to Landlord's reasonable satisfaction a record of successful
experience in business; (6) the proposed assignee or subtenant is not a
prospect with whom Landlord is negotiating to become a tenant at the Building
or Project; and (7) the proposed transfer will not impose additional burdens
or adverse tax effects on Landlord. If Tenant has any exterior sign rights
under this Lease, such rights are personal to Tenant and may not be assigned
or transferred to any assignee of this Lease or subtenant of the Premises
without Landlord's prior written consent, which may be withheld in Landlord's
sole and absolute discretion.
If Landlord consents to the proposed transfer, Tenant may within
ninety (90) days after the date of the consent effect the transfer upon the
terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set
forth in this Section. Landlord shall approve or disapprove any requested
transfer within fifteen (15) days following receipt of Tenant's written
request, the information set forth above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above, in lieu
of consenting to a proposed assignment or subletting, Landlord may elect to
(i) sublease the Premises (or the portion proposed to be subleased), or take
an assignment of Tenant's interest in this Lease, upon the same terms as
offered to the proposed subtenant or assignee (excluding terms relating to
the purchase of personal property, the use of Tenant's name or the
continuation of Tenant's business), or (ii) terminate this Lease as to the
portion of the Premises proposed to be subleased or assigned with a
proportionate abatement in the rent payable under this Lease, effective on
the date that the proposed sublease or assignment would have become
effective. Landlord may thereafter, at its option, assign or re-let any space
so recaptured to any third party, including without limitation the proposed
transferee of Tenant Landlord's rights under this Subsection (c) shall not
apply to any subletting for less than fifty percent (50%) of the Premises or
any subletting having a sublease term (including any extensions) that is less
than fifty percent (50%) of the then-remaining Term.
(d) Tenant agrees that fifty percent (50%) of any amounts paid by
the assignee or subtenant, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the case of a sublease of a portion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion,
plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to
Landlord have been paid to provide occupancy related services to such
assignee or subtenant of a nature commonly provided by landlords of similar
space, shall be the property of Landlord and such amounts shall be payable
directly to Landlord by the assignee or subtenant or, at Landlord's option,
by Tenant. At Landlord's request, a written agreement shall be entered into
by and among Tenant, Landlord and the proposed assignee or subtenant
confirming the requirements of this subsection.
(e) Tenant shall reimburse Landlord for all reasonable out-of-pocket
costs and expenses incurred by Landlord in connection with its review and
evaluation of any proposed assignment or subletting, which reimbursement
shall be made by Tenant to Landlord within fifteen (15) days following
Landlord's written demand therefor.
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SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even
with the consent of Landlord, shall relieve Tenant of its obligation to pay
rent and to perform all its other obligations under this Lease, Moreover,
Tenant shall indemnify and hold Landlord harmless, as provided in Section
10.3, for any act or omission by an assignee or subtenant. Each assignee,
other than Landlord, shall be deemed to assume all obligations of Tenant
under this Lease and shall be liable jointly and severally with Tenant for
the payment of all rent, and for the due performance of all of Tenant's
obligations, under this Lease. No transfer shall be binding on Landlord
unless any document memorializing the transfer is delivered to Landlord and
both the assignee/subtenant and Tenant deliver to Landlord an executed
consent to transfer instrument prepared by Landlord and consistent with the
requirements of this Article. The acceptance by Landlord of any payment due
under this Lease from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any transfer.
Consent by Landlord to one or more transfers shall not operate as a waiver or
estoppel to the future enforcement by Landlord of its rights under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and
conditions shall apply to any subletting by Tenant of all or any part of the
Premises and shall be deemed included in each sublease:
(a) Each and every provision contained in this Lease (other than
with respect to the payment of rent hereunder) is incorporated by reference
into and made a part of such sublease, with "Landlord" hereunder meaning the
sublandlord therein and "Tenant" hereunder meaning the subtenant therein.
(b) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs
in the performance of Tenant's obligations under this Lease, Tenant shall
have the right to receive and collect the sublease rentals. Landlord shall
not, by reason of this assignment or the collection of sublease rentals, be
deemed liable to the subtenant for the performance of any of Tenant's
obligations under the sublease. Tenant hereby irrevocably authorizes and
directs any subtenant, upon receipt of a written notice from Landlord stating
that an uncured default exists in the performance of Tenant's obligations
under this Lease, to pay to Landlord all sums then and thereafter due under
the sublease. Tenant agrees that the subtenant may rely on that notice
without any duty of further inquiry and notwithstanding any notice or claim
by Tenant to the contrary. Tenant shall have no right or claim against the
subtenant or Landlord for any rentals so paid to Landlord.
(c) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or
deposits under the sublease that have not been actually delivered to
Landlord, nor shall Landlord be bound by any sublease modification executed
without Landlord's consent or for any advance rental payment by the subtenant
in excess of one month's rent. The general provisions of this Lease,
including without limitation those pertaining to insurance and
indemnification, shall be deemed incorporated by reference into the sublease
despite the termination of this Lease.
SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all
of Tenant's assets (other than bulk sales in the ordinary course of business)
or, if Tenant is a corporation, an unincorporated association, or a
partnership, the transfer, assignment or hypothecation of any stock or
interest in such corporation, association, or partnership in the aggregate of
fifty percent (50%) or more (except for publicly traded shares of stock
constituting a transfer of fifty percent (50%) or more in the aggregate)
shall be deemed an assignment within the meaning and provisions of this
Article. Notwithstanding the foregoing, Landlord's consent shall not be
required for the assignment of this Lease as a result of a merger by Tenant
with or into another entity, so long as (i) the net worth of the successor
entity after such merger is at least equal to the greater of the net worth of
Tenant as of the execution of this Lease by Landlord or the net worth of
Tenant immediately prior to the date of such merger, evidence of which,
satisfactory to Landlord, shall be presented to Landlord prior to such
merger, (ii) Tenant shall provide to Landlord, prior to such merger, written
notice of such merger and such assignment documentation and other information
as Landlord may request in connection therewith, and (iii) all of the other
terms and requirements of this Article shall apply with respect to such
assignment.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and
expense, shall provide and maintain in effect the insurance described in
EXHIBIT D. Evidence of that insurance must be delivered to Landlord prior to
the Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election,
provide any or all of the following types of insurance, with or without
deductible and in amounts and coverages as may be determined by Landlord in
its discretion: "all risk" property insurance, subject to standard
exclusions, covering the Building or Project, and such other risks as
Landlord or its mortgagees may from time to time deem appropriate, including
leasehold improvements made by Landlord, and commercial general liability
coverage. Landlord shall not be required to carry insurance of any kind on
Tenant's property, including leasehold improvements, trade fixtures,
furnishings, equipment, plate glass, signs and all other items of personal
property, and shall not be obligated to
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repair or replace that property should damage occur. All proceeds of
insurance maintained by Landlord upon the Building and Project shall be the
property of Landlord, whether or not Landlord is obligated to or elects to
make any repairs. At Landlord's option, Landlord may self-insure all or any
portion of the risks for which Landlord elects to provide insurance hereunder.
SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by
law, Tenant shall defend, indemnify, protect, save and hold harmless
Landlord, its agents, and any and all affiliates of Landlord, including,
without limitation, any corporations or other entities controlling,
controlled by or under common control with Landlord, from and against any and
all claims, liabilities, costs or expenses arising either before or after the
Commencement Date from Tenant's use or occupancy of the Premises, the
Building or the Common Areas, or from the conduct of its business, or from
any activity, work, or thing done, permitted or suffered by Tenant or its
agents, employees, invitees or licensees in or about the Premises, the
Building or the Common Areas, or from any default in the performance of any
obligation on Tenant's part to be performed under this Lease, or from any act
or negligence of Tenant or its agents, employees, visitors, patrons, guests,
invitees or licensees. Landlord may, at its option, require Tenant to assume
Landlord's defense in any action covered by this Section through counsel
satisfactory to Landlord. The provisions of this Section shall expressly
survive the expiration or sooner termination of this Lease.
SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable
to Tenant, its employees, agents and invitees, and Tenant hereby waives all
claims against Landlord for loss of or damage to any property, or loss or
interruption of business or income, or any other loss, cost, damage, injury
or liability whatsoever (including without limitation any consequential
damages and lost profit or opportunity costs) resulting from, but not limited
to, Acts of God, acts of civil disobedience or insurrection, acts or
omissions of other tenants within the Project or their agents, employees,
contractors, guests or invitees, fire, explosion, falling plaster, steam,
gas, electricity, water or rain which may leak or flow from or into any part
of the Premises or from the breakage, leakage, obstruction or other defects
of time pipes, sprinklers, wires, appliances, plumbing, air conditioning,
electrical works or other fixtures in the Building, whether the damage or
injury results from conditions arising in the Premises or in other portions
of the Building. It is understood that any such condition may require the
temporary evacuation or closure of all or a portion of the Building. Except
as provided in Sections 11.1 and 12.1 below, there shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business (including without limitation consequential damages
and lost profit or opportunity costs) arising from the making of any repairs,
alterations or improvements to any portion of the Building, including repairs
to the Premises, nor shall any related activity by Landlord constitute an
actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises. Neither
Landlord nor its agents shall be liable for interference with light or other
similar intangible interests. Tenant shall immediately notify Landlord in
case of fire or accident in the Premises, the Building or the Project and of
defects in any improvements or equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party
to the extent only that such loss or damage is required to be insured against
under any "all risk" property insurance policies required by this Article X;
provided however, that (i) the foregoing waiver shall not apply to the extent
of Tenant's obligations to pay deductibles under any such policies and this
Lease, and (ii) if any loss is due to the act, omission or negligence or
willful misconduct of Tenant or its agents, employees, contractors, guests or
invitees, Tenant's liability insurance shall be primary and shall cover all
losses and damages prior to any other insurance hereunder. By this waiver it
is the intent of the parties that neither Landlord nor Tenant shall be liable
to any insurance company (by way of subrogation or otherwise) insuring the
other party for any loss or damage insured against under any "all-risk"
property insurance policies required by this Article, even though such loss
or damage might be occasioned by the negligence of such party, its agents,
employees, contractors, guests or invitees. The provisions of this Section
shall not limit {he indemnification provisions elsewhere contained in this
Lease.
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building of which the Premises are a part is
damaged, Landlord shall repair that damage as soon as reasonably possible, at
its expense, unless: (i) Landlord reasonably determines that the cost of
repair is not covered by Landlord's fire and extended coverage insurance plus
such additional amounts Tenant elects, at its option, to contribute,
excluding however the deductible (for which Tenant shall be responsible for
Tenant's Share); (ii) Landlord reasonably determines that the Premises
cannot, with reasonable diligence, be fully repaired by Landlord (or cannot
be safely repaired because of the presence of hazardous factors, including
without limitation Hazardous Materials, earthquake faults, and other similar
dangers) within two hundred seventy (270) days after the date of the damage;
(iii) an event of default by Tenant has occurred and is continuing at the
time of such damage; or (iv) the damage occurs during the final twelve (12)
months of the Term. Should Landlord elect not to repair the damage for one of
the preceding reasons, Landlord shall so notify Tenant in writing within
sixty (60) days after the damage occurs and this Lease shall terminate as of
the date of that notice.
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(b) Unless Landlord elects to terminate this Lease in
accordance with subsection (a) above, this Lease shall continue in effect for
the remainder of the Term; provided that so long as Tenant is not in default
under this Lease, if the damage is so extensive that Landlord reasonably
determines that the Premises cannot, with reasonable diligence, be repaired
by Landlord (or cannot be safely repaired because of the presence of
hazardous factors, earthquake faults, and other similar dangers) so as to
allow Tenant's substantial use and enjoyment of the Premises within two
hundred seventy (270) days after the date of damage, then Tenant may elect to
terminate this Lease by written notice to Landlord within the sixty (60) day
period stated in subsection (a).
(c) Commencing on the date of any damage to the Building,
and ending on the sooner of the date the damage is repaired or the date this
Lease is terminated, the rental to be paid under this Lease shall be abated
in the same proportion that the floor area of the Premises that is rendered
unusable by the damage from time to time bears to the total floor area of the
Premises, but only to the extent that any business interruption insurance
proceeds are received by Landlord therefor from Tenant's insurance described
in EXHIBIT D.
(d) Notwithstanding the provisions of subsections (a), (b)
and (c) of this Section, and subject to the provisions of Section 10.5 above,
the cost of any repairs shall be borne by Tenant, and Tenant shall not be
entitled to rental abatement or termination rights, if the damage is due to
the fault or neglect of Tenant or its employees, subtenants, invitees or
representatives. In addition, the provisions of this Section shall not be
deemed to require Landlord to repair any improvements or fixtures that Tenant
is obligated to repair or insure pursuant to any other provision of this
Lease.
(e) Tenant shall fully cooperate with Landlord in removing
Tenant's personal property and any debris from the Premises to facilitate all
inspections of the Premises and the making of any repairs. Notwithstanding
anything to the contrary contained in this Lease, if Landlord in good faith
believes there is a risk of injury to persons or damage to property from
entry into the Building or Premises following any damage or destruction
thereto, Landlord may restrict entry into the Building or the Premises by
Tenant, its employees, agents and contractors in a non-discriminatory manner,
without being deemed to have violated Tenant's rights of quiet enjoyment to,
or made an unlawful detainer of, or evicted Tenant from, the Premises. Upon
request, Landlord shall consult with Tenant to determine if there are safe
methods of entry into the Building or the Premises solely in order to allow
Tenant to retrieve files, data in computers, and necessary inventory, subject
however to all indemnities and waivers of liability from Tenant to Landlord
contained in this Lease and any additional indemnifies and waivers of
liability which Landlord may require.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of
this Lease, including without limitation Section 11.1, shall govern any
damage or destruction and shall accordingly supersede any contrary statute or
rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion
of the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Building
or Project, other than the Premises, is taken or sold in lieu of taking, and
if Landlord elects to restore the Building in such a way as to alter the
Premises materially, either party may terminate this Lease, by written notice
to the other party, effective on the date of vesting of title. In the event
neither party has elected to terminate this Lease as provided above, then
Landlord shall promptly, after receipt of a sufficient condemnation award,
proceed to restore the Premises to substantially their condition prior to the
taking, and a proportionate allowance shall be made to Tenant for the rent
corresponding to the time during which, and to the part of the Premises of
which, Tenant is deprived on account of the taking and restoration. In the
event of a taking, Landlord shall be entitled to the entire amount of the
condemnation award without deduction for any estate or interest of Tenant;
provided that nothing in this Section shall be deemed to give Landlord any
interest in, or prevent Tenant from seeking any award against the taking
authority for, the taking of personal property and fixtures belonging to
Tenant or for relocation or business interruption expenses recoverable from
the taking authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises
shall belong entirely to Tenant. A temporary taking shall be deemed to be a
taking of the use or occupancy of the Premises for a period of not to exceed
one hundred eighty (180) days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide
sufficient parking to comply with this Lease, Landlord may substitute
reasonably equivalent parking in a location reasonably close to the Building;
provided that if Landlord falls [to make that substitution within sixty (60)
days following the taking and if the taking materially impairs Tenant's use
and enjoyment of the Premises, Tenant may, at its option, terminate this Lease
by written notice to Landlord. If this Lease is not so terminated by Tenant,
there shall be no abatement of rent and this Lease shall continue in effect.
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ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord. this Lease
shall be either superior or subordinate to all ground or underlying leases,
mortgages and deeds of trust, if any, which may hereafter affect the
Building, and to all renewals, modifications, consolidations, repots and
extensions thereof; provided, that so long as Tenant is not in default under
this Lease, this Lease shall not be terminated or Tenant's quiet enjoyment of
the Premises disturbed in the event of termination of any such ground or
underlying lease, or the foreclosure of any such mortgage or deed of trust,
to which Tenant has subordinated this Lease pursuant to this Section. In the
event of a termination or foreclosure, Tenant shall become a tenant of and
attorn to the successor-in-interest to Landlord upon the same terms and
conditions as are contained in this Lease, and shall execute any instrument
reasonably required by Landlord's successor for that purpose. Tenant shall
also, upon written request of Landlord, execute and deliver all instruments
as may be required from time to time to subordinate the rights of Tenant
under this Lease to any ground or underlying lease or to the lien of any
mortgage or deed of trust (provided that such instruments include the
nondisturbance and attornment provisions set forth above), or, if requested
by Landlord, to subordinate, in whole or in part, any ground or underlying
lease or the lien of any mortgage or deed of trust to this Lease.
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time upon not less than ten (10)
days prior written notice from Landlord, execute, acknowledge and deliver to
Landlord, in any form that Landlord may reasonably require, a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of the modification and
certifying that this Lease, as modified, is in full force and effect) and the
dates to which the rental, additional rent and other charges have been paid
in advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there
are no uncured defaults on the part of Landlord, or specifying each default
if any are claimed, and (iii) setting forth all further information that
Landlord may reasonably require. Tenant's statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the Building
or Project.
(b) Notwithstanding any other rights and remedies of
Landlord, Tenant's failure to deliver any estoppel statement within the
provided time shall be conclusive upon Tenant that (i) this Lease is in full
force and effect, without modification except as may be represented by
Landlord, (ii) there are no uncured defaults in Landlord's performance, and
(iii) not more than one month's rental has been paid in advance.
SECTION 13.3. FINANCIALS.
(a) Tenant shall deliver to Landlord, prior to the
execution of this Lease and thereafter at any time ]upon Landlord's request,
Tenant's current tax returns and most recent annual financial statements,
certified true, accurate and complete by the chief financial officer of
Tenant, including a balance sheet and profit and loss statement for the most
recent prior year (collectively, the "Statements"), which Statements shall
accurately and completely reflect the financial condition of Tenant. Landlord
agrees that it will keep the Statements confidential, except that Landlord
shall have the right to deliver the same to any proposed purchaser of the
Building or Project, and to any encumbrancer of all or any portion of the
Building or Project.
(b) Tenant acknowledges that Landlord is relying on the
Statements in its determination to enter into this Lease, and Tenant
represents to Landlord, which representation shall be deemed made on the date
of this Lease and again on the Commencement Date, that no material change in
the financial condition of Tenant, as reflected in the Statements, has
occurred since the date Tenant delivered the Statements to Landlord. The
Statements are represented and warranted by Tenant to be correct and to
accurately and fully reflect Tenant's true financial condition as of the date
of submission by any Statements to Landlord.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of three (3) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall he in lieu
of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 and 1161(a) as amended. For purposes of these
default and remedies provisions, the term "additional rent" shall be deemed
to include all amounts of any type whatsoever other than Basic Rent to be
paid by Tenant pursuant to the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of
the Lease by Tenant, either voluntarily or by operation of law, whether by
judgment, execution, transfer by intestacy or testacy, or other means,
without the prior written consent of Landlord.
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(c) The discovery by Landlord that any financial statement
provided by Tenant, or by any affiliate, successor or guarantor of Tenant,
was materially false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII.
(e) The failure or inability by Tenant to observe or
perform any of the express or implied covenants or provisions of this Lease
to be observed or performed by Tenant, other than as specified in any other
subsection of this Section, where the failure continues for a period of
thirty (30) days after written notice from Landlord to Tenant or such shorter
period as is specified in any other provision of this Lease; provided,
however, that any such notice shall be in lieu of, and not in addition to,
any notice required under California Code of Civil Procedure Section 1161 and
1161(a) as amended. However, if the nature of the failure is such that more
than thirty (30) days are reasonably required for its cure, then Tenant shall
not be deemed to be in default if Tenant commences the cure within thirty
(30) days, and thereafter diligently pursues the cure to completion.
(f) (i) The making by Tenant of any general assignment for
the benefit of creditors; (ii) the filing by or against Tenant of a petition
to have Tenant adjudged a Chapter 7 debtor unclear the Bankruptcy Code or to
have debts discharged or a petition for reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within thirty (30) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, if possession is not restored to Tenant within thirty (30) days; (iv)
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where the seizure is not discharged within thirty (30) days; or (v)
Tenant's convening of a meeting of its creditors for the purpose of effecting
a moratorium upon or composition of its debts. Landlord shall not be deemed
to have knowledge of any event described in this subsection unless
notification in writing is received by Landlord, nor shall there be any
presumption attributable to Landlord of Tenant's insolvency. In the event
that any provision of this subsection is contrary to applicable law, the
provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, or in the event
of the abandonment of the Premises by Tenant, then in addition to any other
remedies available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to
possession of the Premises by any lawful means, in which case this Lease
shall terminate and Tenant shall immediately surrender possession of the
Premises to landlord. Such termination shall not affect any accrued
obligations of Tenant under this Lease. Upon termination. Landlord shall have
the right to reenter the Premises and remove all persons and property.
Landlord shall also be entitled to recover from Tenant:
(1) The worth at the time of award of
the unpaid rent and additional rent 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 and additional rent which would have been
earned after termination until the time of award exceeds the amount of such
loss that Tenant proves could have been reasonably avoided;
(3) The worth at the time of award of
the amount by which the unpaid rent and additional rent for the balance of
the Term after the time of award exceeds the amount of such loss that Tenant
proves could be reasonably avoided;
(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 from Tenant's default, including,
but not limited to, the cost of recovering possession of the Premises,
refurbishment of the Premises, marketing costs, commissions and other
expenses of reletting, including necessary repair, the unamortized portion of
any tenant improvements and brokerage commissions funded by Landlord in
connection with this Lease, reasonable attorneys' fees, and any other
reasonable costs; and
(5) At Landlord's election, all other
amounts in addition to or in lieu of the foregoing as may be permitted by
law. The term "rent" as used in this Lease shall be deemed to mean the Basic
Rent and all other sums required to be paid by Tenant to Landlord pursuant to
the terms of this Lease. Any sum, other than Basic Rent. shall be computed on
the basis of the average monthly amount accruing during the twenty-four (24)
month period immediately prior to default, except that if it becomes
necessary to compute such rental before the twenty-four (24) month period has
occurred, then the computation shall be on the basis of the average monthly
amount during the shorter period. As used in subparagraphs (1) and (2) above,
the "worth at the time of award" shall be computed by allowing interest at
the rate of ten percent (10%) per annum.
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As used in subparagraph (3) above, the "worth at the time of award" shall be
computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's
right to possession of the Premises, in which event Landlord may continue to
enforce all of its rights and remedies under this Lease, including the right
to collect all rent as it becomes due. Efforts by the Landlord to maintain,
preserve or relet the Premises, or the appointment of a receiver to protect
the Landlord's interests under this Lease, shall not constitute a termination
of the Tenant's right to possession of the Premises. In the event that
Landlord elects to avail itself of the remedy provided by this subsection
(ii), Landlord shall not unreasonably withhold its consent to an assignment
or subletting of the Premises subject to the reasonable standards for
Landlord's consent as are contained in this Lease.
(b) Landlord shall be under no obligation to observe or
perform any covenant of this Lease on its part to be observed or performed
which accrues after the date of any default by Tenant unless and until the
default is cured by Tenant, it being understood and agreed that the
performance by Landlord of its obligations under this Lease are expressly
conditioned upon Tenant's full and timely performance of its obligations
under this Lease. The various rights and remedies reserved to Landlord in
this Lease or otherwise shall be cumulative and, except as otherwise provided
by California law, Landlord may pursue any or all of its rights and remedies
at the same time.
(c) No delay or omission of Landlord to exercise any right
or remedy shall be construed as a waiver of the right or remedy or of any
default by Tenant. The acceptance by Landlord of rent shall not be a (i)
waiver of any preceding breach or default by Tenant of any provision of this
Lease, other than the failure of Tenant to pay the particular rent accepted,
regardless of Landlord's knowledge of the preceding breach or default at the
time of acceptance of rent, or (ii) a waiver of Landlord's right to exercise
any remedy available to Landlord by virtue of the breach or default. The
acceptance of any payment from a debtor in possession, a trustee, a receiver
or any other person acting on behalf of Tenant or Tenant's estate shall not
waive or cure a default under Section 14.1. No payment by Tenant or receipt
by Landlord of a lesser amount than the rent required by this Lease shall be
deemed to be other than a partial payment on account of the earliest due
stipulated rent, nor shall any endorsement or statement on any check or
letter be deemed an accord and satisfaction and Landlord shall accept the
check or payment without prejudice to Landlord's right to recover the balance
of the rent or pursue any other remedy available to it. No act or thing done
by Landlord or Landlord's agents during the Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept a
surrender shall be valid unless in writing and signed by Landlord. No
employee of Landlord or of Landlord's agents shall have any power to accept
the keys to the Premises prior to the termination of this Lease, and the
delivery of the keys to any employee shall not operate as a termination of
the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not received by
Landlord within five (5) days of the date when due shall bear interest at the
maximum rate permitted by law from the date due until fully paid. The payment
of interest shall not cure any default by Tenant under this Lease. In
addition, Tenant acknowledges that the late payment by Tenant to Landlord of
rent will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult and impracticable to
ascertain. Those costs may include, but are not limited to, administrative,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any ground lease, mortgage or mist deed covering the
Premises. Accordingly, if any rent due from Tenant shall not be received by
Landlord or Landlord's designee within five (5) days after the date due, then
Tenant shall pay to Landlord, in addition to the interest provided above, a
late charge in a sum equal to the greater of five percent (5%) of the amount
overdue or Two Hundred Fifty Dollars ($250.00) for each delinquent payment.
Acceptance of a late charge by Landlord shall not constitute a waiver of
Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.
(b) Following each second consecutive installment of rent
that is not paid within five (5) days following notice of nonpayment from
Landlord, Landlord shall have the option (i) to require that beginning with
the first payment of rent next due, rent shall no longer be paid in monthly
installments but shall be payable quarterly three (3) months in advance
and/or (ii) to require that Tenant increase the amount, if any, of the
Security Deposit by one hundred percent (100%). Should Tenant deliver to
Landlord, at any time during the Term, two (2) or more insufficient checks,
the Landlord may require that all monies then and thereafter due from Tenant
be paid to Landlord by cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and
agreements to be performed by Tenant under this Lease shall be performed at
Tenant's sole cost and expense and without any abatement of rent or right of
set-off. If Tenant fails to pay any sum of money, other than rent, or falls
to perform any other act on its part to be performed under this Lease, and
the failure continues beyond any applicable grace period set forth in Section
14.1, then in addition to any other available remedies, Landlord may, at its
election make the payment or perform the other act on Tenant's part.
Landlord's election to make the payment or perform the act on Tenant's part
shall not give rise to any responsibility of Landlord to continue making the
same or similar payments or performing the same or similar acts. Tenant
shall, promptly upon demand by Landlord,
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reimburse Landlord for all sums paid by Landlord and all necessary incidental
costs, together with interest at the maximum rate permitted by law from the
date of the payment by Landlord. Landlord shall have the same rights and
remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to
be in default in the performance of any obligation under this lease unless
and until it has failed to perform the obligation within thirty (30) days
after written notice by Tenant to Landlord specifying in reasonable detail
the nature and extent of the failure; provided, however, that if the nature
of Landlord's obligation is such that more than thirty (30) days are required
for its performance, then Landlord shall not be deemed to be in default if it
commences performance within the thirty (30) day period and thereafter
diligently pursues the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred
by Landlord in connection with any event of default by Tenant under this
Lease or holding over of possession by Tenant after the expiration or earlier
termination of this Lease, including without limitation all costs, expenses
and actual accountants, appraisers, attorneys and other professional fees,
and any collection agency or other collection charges, shall be due and
payable by Tenant to Landlord on demand, and shall bear interest al the rate
of ten percent (10%) per annum. Should either Landlord or Tenant bring any
action in connection with this Lease, the prevailing party shall be entitled
to recover as a part of the action its reasonable attorneys' fees, and all
other costs. The prevailing party for the purpose of this paragraph shall be
determined by the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS
CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES
HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO
AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT
OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE
PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord
do not constitute the personal obligations of the individual partners,
trustees, directors, officers or shareholders of Landlord or its constituent
partners. Should Tenant recover a money judgment against Landlord, such
judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levied thereon against the right, title and
interest of Landlord in the Project and out of the rent or other income from
such property receivable by Landlord or out of consideration received by
Landlord from the sale or other disposition of all or any part of Landlord's
right, title or interest in the Project and no action for any deficiency may
be sought or obtained by Tenant.
SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim,
demand or right of any kind by Tenant which is based upon or arises in
connection with this Lease shall be barred unless Tenant commences an action
thereon within six (6) months after the date that the act, omission, event or
default upon which the claim, demand or right arises, has occurred.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without
further notice upon the expiration of the Term, and any holding over by
Tenant after the expiration shall not constitute a renewal or extension of
this Lease, or give Tenant any rights under this Lease, except when in
writing signed by both parties. If Tenant holds over for any period after the
expiration (or earlier termination) of the Term without the prior written
consent of Landlord, such possession shall constitute a tenancy at sufferance
only; such holding over with the prior written consent of Landlord shall
constitute a month-to-month tenancy commencing on the first (1st) day
following the termination of this Lease. In either of such events, possession
shall be subject to all of the terms of this Lease, [except that the monthly
Basic Rent shall be the greater of (a) one hundred fifty percent (150%) of the
Basic Rent for the month immediately preceding the date of termination or (b)
the then currently scheduled Basic Rent for comparable space in the Building.
If Tenant fails to surrender the Premises upon the expiration of this Lease
despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord
harmless from all loss or liability, including without limitation, any claims
made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's
right of re-entry or any other rights of Landlord under this or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other
surrender of this Lease by Tenant, or a mutual termination of this Lease,
shall terminate any or all existing subleases unless Landlord, at its option,
elects in writing to treat the surrender or termination as an assignment to
it of any or all subleases affecting the Premises.
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SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall
quit and surrender possession of the Premises to Landlord in as good order,
condition and repair as when received or as hereafter may be improved by
Landlord or Tenant reasonable wear and tear and repairs which are Landlord's
obligation excepted, and shall, without expense to Landlord, remove or cause
to be removed from the Premises all personal property and debris, except for
any items that Landlord may by written authorization allow to remain. Tenant
shall repair all damage to the Premises resulting from the removal, which
repair shall include the patching and filling of holes and repair of
structural damage, provided that Landlord may instead elect to repair any
structural damage at Tenant's expense. If Tenant shall fail to comply with
the provisions of this Section, Landlord may effect the removal and/or make
any repairs, and the cost to Landlord shall be additional rent payable by
Tenant upon demand. If Tenant fails to remove Tenant's personal property from
the Premises upon the expiration of the Term, Landlord may remove, store,
dispose of and/or retain such personal property, al Landlord's option, in
accordance with then applicable laws, all at the expense of Tenant. If
requested by Landlord, Tenant shall execute, acknowledge and deliver to
Landlord an instrument in writing releasing and quitclaiming to Landlord all
right, title and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without
deduction or offset, in lawful money of the United States to Landlord at its
address set forth in Item 12 of the Basic Lease Provisions, or at any other
place as Landlord may designate in writing. Unless this Lease expressly
provides otherwise, as for example in the payment of rent pursuant to Section
4.1, all payments shall be due and payable within five (5) days after demand.
All payments requiring proration shall be prorated on the basis of a thirty
(30) day month and a three hundred sixty (360) day year. Any notice,
election, demand, consent, approval or other communication to be given or
other document to be delivered by either party to the other may be delivered
in person or by courier or overnight delivery service to the other party, or
may be deposited in the United States mail, duly registered or certified,
postage prepaid, return receipt requested, and addressed to the other party
at the address set forth in Item 12 of the Basic Lease Provisions, or if to
Tenant, at that address or, from and after the Commencement Date, at the
Premises (whether or not Tenant has departed from, abandoned or vacated the
Premises), or may be delivered by telegram, telex or telecopy, provided that
receipt thereof is telephonically confirmed. Either party may, by written
notice to the other, served in the manner provided in this Article, designate
a different address. If any notice or other document is sent by mail, it
shall be deemed served or delivered twenty-four (24) hours after mailing. If
more than one person or entity is named as Tenant under this Lease, service
of any notice upon any one of them shall be deemed as service upon all of
them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the
Rules and Regulations, attached as EXHIBIT E, and any reasonable and
nondiscriminatory amendments, modifications and/or additions as may be
adopted and published by written notice to tenants by Landlord for the
safety, care, security, good order, or cleanliness of the Premises, Building,
Project and Common Areas. Landlord shall not be liable to Tenant for any
violation of the Rules and Regulations or the breach of any covenant or
condition in any lease by any other tenant or such tenant's agents,
employees, contractors, guests or invitees. One or more waivers by Landlord
of any breach of the Rules and Regulations by Tenant or by any other
tenant(s) shall not be a waiver of any subsequent breach of that rule or any
other. Tenant's failure to keep and observe the Rules and Regulations shall
constitute a default under this Lease. In the case of any conflict between
the Rules and Regulations and this Lease, this Lease shall be controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent
employed or claiming to represent or to have been employed by Tenant in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease. If Tenant fails to take possession of
the Premises or if this Lease otherwise terminates prior to the Expiration
Date as the result of failure of performance by Tenant, Landlord shall be
entitled to recover from Tenant the unamortized portion of any brokerage
commission funded by Landlord in addition to any other damages to which
Landlord may be entitled.
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ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises,
the transferor shall be automatically relieved of all obligations on the part
of Landlord accruing under this Lease from and after the date of the
transfer, provided that any funds held by the transferor in which Tenant has
an interest shall be turned over, subject to that interest, to the transferee
and Tenant is notified of the transfer as required by law. No holder of a
mortgage and/or deed of trust to which this Lease is or may be subordinate,
and no landlord under a so-called sale-leaseback, shall he responsible in
connection with the Security Deposit, unless the mortgagee or holder of the
deed of trust or the landlord actually receives the Security Deposit It is
intended that the covenants and obligations contained in this Lease on the
part of Landlord shall, subject to the foregoing, be binding on Landlord, its
successors and assigns, only during and in respect to their respective
successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well
as the singular, and words used in neuter, masculine or feminine genders
shall include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles
and sections of this Lease are for convenience only, are not a part of this
Lease and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person
or entity is named as Tenant, the obligations imposed upon each shall he
joint and several and the act of or notice from, or notice or refund to, or
the signature of, any one or more of them shall be binding on all of them
with respect to the tenancy of this Lease, including, but not limited to, any
renewal, extension, termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights
and liabilities given to or imposed upon Landlord and Tenant shall extend to
and bind their respective heirs, executors, administrators, successors and
assigns. Nothing contained in this Section is intended, or shall be
construed, to grant to any person other than Landlord and Tenant and their
successors and assigns any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect
to the performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease,
the deletion of which would not adversely affect the receipt of any material
benefit by either party or the deletion of which is consented to by the party
adversely affected, shall be held invalid or unenforceable to any extent, the
remainder of this Lease shall not be affected and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained
in this Lease shall not be a waiver of any subsequent breach of the same or
any other term, covenant or condition. Consent to any act by one of the
parties shall not he deemed to render unnecessary the obtaining of that
party's consent to any subsequent act. No breach by Tenant of this Lease
shall be deemed to have been waived by Landlord unless the waiver is in a
writing signed by Landlord. The rights and remedies of Landlord under this
Lease shall be cumulative and in addition to any and all other rights and
remedies which Landlord may have.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party
shall be delayed or hindered in or prevented from the performance of any work
or in performing any act required under this Lease by reason of any cause
beyond the reasonable control of that party, then the performance of the work
or the doing of the act shall be excused for the period of the delay and the
time for performance shall be extended for a period equivalent to the period
of the delay. The provisions of this Section shall not operate to excuse
Tenant from the prompt payment of rent or from the timely Performance of any
other obligation under this Lease within Tenant's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and
other attachments cover in full each and every agreement of every kind
between the parties concerning the Premises, the Building. and the Project,
and all preliminary negotiations, oral agreements, understandings and/or
practices, except those contained in this Lease, are superseded and of no
further effect. Tenant waives its rights to rely on any representations or
promises made by Landlord or others which are not contained in this Lease. No
verbal agreement or implied covenant shall be held to modify the provisions
of this Lease, any statute, law, or custom to the contrary notwithstanding.
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SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance
of all the covenants, terms and conditions on Tenant's part to be observed
and performed and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without
hindrance or interruption by Landlord or any other person claiming by or
through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination
of this Lease. including without limitation any warranty or indemnity
hereunder, shall so survive and continue to be binding upon and inure to the
benefit of the respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or
more counterparts, each of which shall constitute an original and all of
which shall be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or
partnership in accordance with its terms. Tenant shall, at Landlord's
request, deliver a certified copy of its board of directors' resolution or
partnership agreement or certificate authorizing or evidencing the execution
of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission
of this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution
of this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact
executed and delivered this Lease to Tenant, it being intended that this
Lease shall only become effective upon execution by Landlord and delivery of
a fully executed counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without
the prior written consent of Landlord. Tenant, upon the request of Landlord,
shall execute and acknowledge a "short form" memorandum of this Lease for
recording purposes.
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease
shall be effective unless in writing signed by authorized signatories of
Tenant and Landlord, or by their respective successors in interest. No
actions, policies, oral or informal arrangements, business dealings or other
course of conduct by or between the parties shall be deemed to modify this
Lease in any respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or
similar reproduction of this Lease shall be deemed an original for all
purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and
addenda attached to this Lease are hereby incorporated into and made a part
of this Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute
proprietary information of Landlord. Disclosure of the terms could adversely
affect the ability of Landlord to negotiate other leases and impair
Landlord's relationship with other tenants. Accordingly, Tenant agrees that
it, and its partners, officers, directors, employees and attorneys, shall not
intentionally and voluntarily disclose the terms and conditions of this Lease
to any other tenant or apparent prospective tenant of the Building or
Project, either directly or indirectly, without the prior written consent of
Landlord, provided, however, that Tenant may disclose the terms to
prospective subtenants or assignees under this Lease.
SECTION 22.2. GUARANTY. As a condition to the execution of this
Lease by Landlord, the obligations, covenants and performance of the Tenant
as herein provided shall be guaranteed in writing by the Guarantor(s) listed
in Item 7 of the Basic Lease Provisions, if any, on a form of guaranty
provided by Landlord.
SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Project, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications
do not materially increase the obligations of Tenant or materially and
adversely affect the leasehold interest created by this Lease.
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SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the
part of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a
release or termination unless (a) Tenant has given notice by registered or
certified mail to any beneficiary of a deed of trust or mortgage coveting the
Building whose address has been furnished to Tenant and (b) such beneficiary
is afforded a reasonable opportunity to cure the default by Landlord (which
in no event shall be leas than sixty (60) days), including, if necessary to
effect the cure, time to obtain possession of the Building by power of sale
or judicial foreclosure provided that such foreclosure remedy is diligently
pursued. Tenant agrees that each beneficiary of a deed of trust or mortgage
covering the Building is an express third party beneficiary hereof, Tenant
shall have no right or claim for the collection of any deposit from such
beneficiary or from any purchaser at a foreclosure sale unless such
beneficiary or purchaser shall have actually received and not refunded the
deposit, and Tenant shall comply with any written directions by any
beneficiary to pay rent due hereunder directly to such beneficiary without
determining whether an event of default exists under such beneficiary's deed
of trust.
SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions
of this Lease shall be construed to be conditions as well as covenants as
though the words specifically expressing or imparting covenants and
conditions were used in each separate provision.
SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide guard service or
other security measures for the benefit of the Premises or the Project.
Tenant assumes all responsibility for the protection of Tenant, its agents,
invitees and property from acts of third parties. Nothing herein contained
shall prevent Landlord, at its sole option, from providing security
protection for the Project or any part thereof, in which event the cost
thereof shall be included within the definition of Project Costs.
LANDLORD: TENANT:
THE IRVINE COMPANY OCULEX PHARMACEUTICALS, INC.,
a California corporation
By: /s/ Richard G. Sim By: /s/ Jerry Gin
----------------------------------- -----------------------------------
Richard G. Sim, Executive Vice Name Jerry Gin
President of The Irvine Company ---------------------------------
Title President
--------------------------------
By: /s/ Robert E. Williams, Jr. By: /s/ Vernon Wong
----------------------------------- -----------------------------------
Robert E. Williams, Jr., President Name Vernon Wong
Irvine Industrial Company, ---------------------------------
a division of The Irvine Company Title Corporate Secretary
--------------------------------
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FLOOR PLAN
[GRAPHIC]
EXHIBIT A
<PAGE>
EXHIBIT B
THE IRVINE COMPANY - INVESTMENT PROPERTIES GROUP
HAZARDOUS MATERIAL SURVEY FORM
The purpose of this form is to obtain information regarding the use
of hazardous substances on Investment Properties Group ("IPG") property.
Prospective tenants and contractors should answer the questions in light of
their proposed activities on the premises. Existing tenants and contractors
should answer the questions as they relate to ongoing activities on the
premises and should update any information previously submitted.
If additional space is needed to answer the questions, you may
attach separate sheets of paper to this form. When completed, the form should
be sent to the following address:
INSIGNIA/ESG OF CALIFORNIA, INC.
1 Ada, Suite 270
Irvine, CA 92618
Your cooperation in this matter is appreciated. If you have any
questions, please call your property manager at (714) 753-4744 for assistance.
1. GENERAL INFORMATION
Name of Responding Company:___________________________________________
Check all that apply: Tenant ( ) Contractor ( )
Prospective ( ) Existing ( )
Mailing Address:______________________________________________________
Contact Person & Title:_______________________________________________
Telephone Number: ( ) __________-__________
CURRENT TIC TENANT(S):
Address of Lease Premises:____________________________________________
Length of Lease or Contract Term:_____________________________________
PROSPECTIVE TIC TENANT(S):
Address of Proposed Lease Premises:___________________________________
Address of Current Operations:________________________________________
Describe the proposed operations to take place on the property,
including principal products manufactured or services to be conducted.
Existing tenants and contractors should describe any proposed changes
to ongoing operations. _______________________________________________
______________________________________________________________________
______________________________________________________________________
2. HAZARDOUS MATERIALS. For the purposes of this Survey Form, the term
"hazardous material" means any raw material, product or agent
considered hazardous under any state or federal law. The term does not
include wastes which are intended to be discarded.
2.1 Will any hazardous materials be used or stored on site?
Chemical Products Yes ( ) No ( )
Biological Hazards/
Infectious Wastes Yes ( ) No ( )
Radioactive Materials Yes ( ) No ( )
Petroleum Products Yes ( ) No ( )
1
<PAGE>
List any hazardous materials to be used or stored, the
quantities that will be on-site at any given time, and the
location and method of storage (e.g., bottles in storage
closet on the premises).
<TABLE>
<CAPTION>
Location and Method
Hazardous Materials of Storage Quantity
------------------- ---------- --------
<S> <C> <C>
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
2.3 Is any underground storage of hazardous materials proposed
or currently conducted on the premises? Yes ( ) No ( )
If yes, describe the materials to be stored, and the size and
construction of the tank. Attach copies of any permits
obtained for the underground storage of such substances. ____
_____________________________________________________________
_____________________________________________________________
3. HAZARDOUS WASTE. For the purposes of this Survey Form, the term
"hazardous waste" means any waste (including biological, infectious or
radioactive waste) considered hazardous under any state or federal law,
and which is intended to be discarded.
3.1 List any hazardous waste generated or to be generated on the
premises, and indicate the quantity generated on a monthly
basis.
<TABLE>
<CAPTION>
Location and Method
of Storage Prior to
Hazardous Materials Disposal Quantity
------------------- -------- --------
<S> <C> <C>
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
3.2 Describe the method(s) of disposal (including recycling) for
each waste. Indicate where and how often disposal will take
place.
<TABLE>
<CAPTION>
Location of Disposal
Hazardous Materials Site Quantity
------------------- -------- --------
<S> <C> <C>
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
3.3 Is any treatment or processing of hazardous, infections or
radioactive wastes currently conducted or proposed to be
conducted on the premise? Yes ( ) No ( )
If yes, please describe any existing or proposed treatment
methods.____________________________________________________
____________________________________________________________
____________________________________________________________
3.4 Attach copies of any hazardous waste permits or licenses
issued to your company with respect to its operations on the
premises.
2
<PAGE>
4. SPILLS
4.1 During the past year, have any spills or releases of hazardous
materials occurred on the premises? Yes ( ) No ( )
If so, please describe the spill and attach the results of any
testing conducted to determine the extent of such spills. ____
______________________________________________________________
______________________________________________________________
4.2 Were any agencies notified in connection with such spills?
Yes ( ) No ( )
If so, attach copies of any spill reports or other
correspondence with regulatory agencies.
4.3 Were any clean-up actions undertaken in connection with the
spills? Yes ( ) No ( )
If so, briefly describe the actions taken. Attach copies of
any clearance letters obtained from any regulatory agencies
involved and the results of any final soil or groundwater
sampling done upon completion of the clean-up work.__________
_____________________________________________________________
_____________________________________________________________
5. WASTEWATER TREATMENT/DISCHARGE
5.1 Do you discharge industrial wastewater to:
_______ storm drain? _______ sewer?
_______ surface water? _______ no industrial discharge
5.2 Is your industrial wastewater treated before discharge?
Yes ( ) No ( )
If yes, describe the type of treatment conducted.____________
_____________________________________________________________
5.3 Attach copies of any wastewater discharge permits issued to
your company with respect to its operations on the premises.
6. AIR DISCHARGES
6.1 Do you have any air filtration systems or stacks that
discharge into the air?
Yes ( ) No ( )
6.2 Do you operate any equipment that require air emissions
permits?
Yes ( ) No ( )
6.3 Attach copies of any air discharge permits pertaining to
these operations.
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Does your company handle an aggregate of at least 500 pounds,
55 gallons or 200 cubic feet of hazardous material at any
given time? Yes ( ) No ( )
7.2 Has your company prepared a Hazardous Materials Disclosure -
Chemical Inventory and Business Emergency Plan or similar
disclosure document pursuant to state or county requirements?
Yes ( ) No ( )
If so, attach a copy.
3
<PAGE>
7.3 Are any of the chemicals used in your operations regulated
under Proposition 65?
If so, describe the procedures followed to comply with these
requirements.________________________________________________
_____________________________________________________________
_____________________________________________________________
7.4 Is your company subject to OSHA Hazard Communication Standard
Requirements?
Yes ( ) No ( )
If so, describe the procedures followed to comply with these
requirements.________________________________________________
_____________________________________________________________
_____________________________________________________________
8. ANIMAL TESTING
8.1 Does your company bring or intend to bring live animals onto
the premises for research or development purposes?
Yes ( ) No ( )
If so, describe the activity.________________________________
_____________________________________________________________
_____________________________________________________________
8.2 Does your company bring or intend to bring animal body parts
or bodily fluids onto the premises for research or development
purposes? Yes ( ) No ( )
If so, describe the activity.________________________________
_____________________________________________________________
_____________________________________________________________
9. ENFORCEMENT ACTIONS, COMPLAINTS
9.1 Has your company ever been subject to any agency enforcement
actions, administrative orders, lawsuits, or consent
orders/decrees regarding environmental compliance or health
and safety? Yes ( ) No ( )
If so, describe the actions and any continuing obligations
imposed as a result of these actions.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
9.2 Has your company ever received any request for information,
notice of violation or demand letter, complaint, or inquiry
regarding environmental compliance or health and safety?
Yes ( ) No ( )
9.3 Has an environmental audit ever been conducted which
concerned operations or activities on premises occupied by
you? Yes ( ) No ( )
9.4 If you answered "yes" to any questions in this section,
describe the environmental action or complaint and any
continuing compliance obligation imposed as a result of the
same.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
________________________________
________________________________
By:_____________________________
Name:________________________
Title:_______________________
Date:________________________
4
<PAGE>
EXHIBIT C
LANDLORD'S DISCLOSURES
[INTENTIONALLY LEFT BLANK]
Page 1 of 1
<PAGE>
EXHIBIT D
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at
the Building. Landlord reserves the right to adopt reasonable
nondiscriminatory modifications and additions to those standards, Tenant
agrees to obtain and present evidence to Landlord that it has fully complied
with the insurance requirements.
1. Tenant shall, at its sole cost and expense, commencing on the
date Tenant is given access to the Premises for any purpose and during the
entire Term, procure, pay for and keep in full force and effect: (i)
commercial general liability insurance with respect to the Premises and the
operations of or on behalf of Tenant in, on or about the Premises, including
but not limited to personal injury, owned and nonowned automobile, blanket
contractual, independent contractors, broad form property damage (with an
exception to any pollution exclusion with respect to damage arising out of
heat, smoke or fumes from a hostile fire), fire and water legal liability,
products liability (if a product is sold from the Premises), liquor law
liability (if alcoholic beverages are sold, served or consumed within the
Premises), and severability of interest, which policy(ies) shall be written
on an "occurrence" basis and for not less than the amount set forth in Item
13 of the Basic Lease Provisions, with a combined single limit (with a
$50,000 minimum limit on fire legal liability) per occurrence for bodily
injury, death, and property damage liability, or the current limit of
liability carried by Tenant, whichever is greater, and subject to such
increases in amounts as Landlord may determine from time to time; (ii)
workers' compensation insurance coverage as required by law, together with
employers' liability insurance; (iii) with respect to improvements,
alterations, and the like required or permitted to be made by Tenant under
this Lease, builder's all-risk insurance, in an amount equal to the
replacement cost of the work; (iv) insurance against lure, vandalism,
malicious mischief and such other additional perils as may be included in a
standard "all risk" form in general use in the county in which the Premises
are situated, insuring Tenant's leasehold improvements, trade fixtures,
furnishings, equipment and items of personal property of Tenant located in
the Premises, in an amount equal to not less than ninety percent (90%) of
their actual replacement cost (with replacement cost endorsement); and (v)
business interruption insurance in amounts satisfactory to cover (1) year of
loss as reasonably determined by Tenant (but in no event less than one (1)
year's one Basic Rent and Tenant s Share of Operating Expenses). In no event
shall the limits of any policy be considered as limiting the liability of
Tenant under this Lease.
2. In the event Landlord consents to Tenant's use, generation or
storage of Hazardous Materials on, under or about the Premises pursuant to
Section 5.3 of this Lease, Landlord shall have the continuing right to
require Tenant, at Tenant's sole cost and expense (provided the same is
available for purchase upon commercially reasonable terms), to purchase
insurance specified and approved by Landlord, with coverage not less than
Five Million Dollars ($5,000,000.00), insuring (i) any Hazardous Materials
shall be removed from the Premises, (ii) the Premises shall be restored to a
clean, healthy, safe and sanitary condition, and (iii) any liability of
Tenant, Landlord and Landlord's officers, directors, shareholders, agents,
employees and representatives, arising from such Hazardous Materials.
3. All policies of insurance required to be carried by Tenant
pursuant to this EXHIBIT D containing a deductible exceeding Ten Thousand
Dollars ($10,000.00) per occurrence must be approved in writing by Landlord
prior to the issuance of such policy. Tenant shall be solely responsible for
the payment of all deductibles.
4. All policies of insurance required to be carried by Tenant
pursuant to this EXHIBIT D shall be written by responsible insurance
companies authorized to do business in the State of California and with a
Best's rating of not less than "A" subject to final acceptance and approval
by Landlord. Any insurance required of Tenant may be furnished by Tenant
under any blanket policy carried by it or under a separate policy, so long as
(i) the Premises are specifically covered (by rider, endorsement or
otherwise), (ii) the limits of the policy are applicable on a "per location"
basis to the Premises and provide for restoration of the aggregate limits,
and (iii) the policy otherwise complies with the provisions of this EXHIBIT
D. A true and exact copy of each paid up policy evidencing the insurance
(appropriately authenticated by the insurer) or a certificate of insurance,
certifying that the policy has been issued, provides the coverage required by
this EXHIBIT D and contains the required provisions, shall be delivered to
Landlord prior to the date Tenant is given the right of possession of the
Premises. Proper evidence of the renewal of any insurance coverage shall also
be delivered to Landlord not less than thirty (30) days prior to the
expiration of the coverage. Landlord may at any time, and from time to time,
inspect and/or copy any and all insurance policies required by this Lease.
5. Each policy evidencing insurance required to be carried by
Tenant pursuant to this Exhibit D shall contain the following provisions
and/or clauses satisfactory to Landlord: (i) a provision that the policy and
the coverage provided shall be primary and that any coverage carried by
Landlord shall be noncontributory with respect to any policies carried by
Tenant except as to workers' compensation insurance; (ii) a provision
including Landlord, the Additional Insureds identified in Item 11 of the
Basic Lease Provisions, and any other parties in interest designated by
Landlord as an additional insured, except as to workers' compensation
insurance; (iii) a waiver by the insurer of any right to subrogation against
Landlord, its agents, employees, contractors and representatives which arises
or might arise by reason of any payment under the policy or by reason of any
act or omission of Landlord, its agents, employees, contractors or
representatives; and (iv) a provision that the insurer will not cancel or
change the coverage provided by the policy without first giving Landlord
thirty (30) days prior written notice.
6. In the event that Tenant fails to procure, maintain and/or pay
for, at the times and for the durations specified in this EXHIBIT D, any
insurance required by this EXHIBIT D, or fails to carry insurance required by
any governmental authority, Landlord may at its election procure that
insurance and pay the
Page 1 of 2 12/28/99
<PAGE>
premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days
following Landlord's written demand to Tenant.
Page 2 of 2
<PAGE>
EXHIBIT E
RULES AND REGULATIONS
This Exhibit sets forth thc rules and regulations governing Tenant's
use of the Premises leased to Tenant pursuant to the terms, covenants and
conditions of the Lease to which this Exhibit is attached and therein made
part thereof. In the event of any conflict or inconsistency between this
Exhibit and the Lease, the Lease shall control.
1. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may appear
unsightly from outside the Premises.
2. The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than ingress
and egress of pedestrian travel to and from the Premises, and shall not be
used for loitering or gathering, or to display, store or place any
merchandise, equipment or devices, or for any other purpose. The walkways,
entrance passageways, courts, vestibules and roof are not for the use of the
general public and Landlord shall in all cases retain the right to control
and prevent access thereto by all persons whose presence in the judgment of
the Landlord shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom
Tenant normally deals in the ordinary course of Tenant's business unless such
persons are engaged in illegal activities. No tenant or employee or invitee
of any tenant shall be permitted upon the roof of the Building.
3. No awnings or other projection shall be attached to the outside
walls of the Building. No security bars or gates, curtains, blinds, shades or
screens shall be attached to or hung in, or used in connection with, any
window or door of the Premises without the prior written consent of Landlord.
Neither the interior nor exterior of any windows shall be coated or otherwise
sunscreened without the express written consent of Landlord.
4. Tenant shall not mark, nail, paint, drill into, or in any way
deface any part of the Premises or the Building. Tenant shall not lay
linoleum, tile, carpet or other similar floor covering so that the same shall
be affixed to the floor of the Premises in any manner except as approved by
Landlord in writing. The expense of repairing any damage resulting from a
violation of this rule or removal of any floor covering shall be borne by
Tenant.
5. The toilet rooms, urinals, wash bowls and other plumbing
apparatus shall not be used for any purpose other than that for which they
were constructed and no foreign substance of any kind whatsoever shall be
thrown therein. The expense of any breakage, stoppage or damage resulting
from the violation of this rule shall be borne by the tenant who, or whose
employees or invitees, caused it.
6. Landlord shall direct electricians as to the manner and
location of any future telephone wiring. No boring or cutting for wires will
be allowed without the prior consent of Landlord. The locations of the
telephones, call boxes and other office equipment affixed to the Premises
shall be subject to the prior written approval of Landlord.
7. The Premises shall not he used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the
permitted use of the Premises. No exterior storage shall be allowed at any
time without the prior written approval of Landlord. The Premises shall not
be used for cooking or washing clothes without the prior written consent of
Landlord, or for lodging or sleeping or for any immoral or illegal purposes.
8. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them, whether
by the use of any musical instrument, radio, phonograph, noise, or otherwise.
Tenant shall not use, keep or permit to be used, or kept, any foul or
obnoxious gas or substance in thc Premises or permit or suffer the Premises
to be used or occupied in any manner offensive or objectionable to Landlord
or other occupants of this or neighboring buildings or premises by reason of
any odors, fumes or gases.
9. No animals shall be permitted at any time within the Premises
except as may be necessary in connection with the permitted use of the
Premises.
10. Tenant shall not use the name of the Building or the Project
in connection with or in promoting or advertising the business of Tenant,
except as Tenant's address, without the written consent of Landlord. Landlord
shall have the right to prohibit any advertising by any Tenant which, in
Landlord's reasonable opinion, tends to impair the reputation of the Project
or its desirability for its intended uses, and upon written notice from
Landlord any Tenant shall refrain from or discontinue such advertising.
11. Canvassing, soliciting, peddling, parading, picketing,
demonstrating or otherwise engaging in any conduct that unreasonably impairs
the value or use of the Premises or the Project are prohibited and each
Tenant shall cooperate to prevent the same.
1
<PAGE>
12. No equipment of any type shall be placed on thc Premises which
in Landlord's opinion exceeds the load limits of the floor or otherwise
threatens the soundness of the structure or improvements of the Building.
13. No air conditioning unit or other similar apparatus shall be
installed or used by any Tenant without the prior written consent of Landlord.
14. No aerial antenna shall be erected on the roof or exterior
walls of the Premises, or on the grounds, without in each instance, the prior
written consent of Landlord. Any aerial or antenna so installed without such
written consent shall be subject to removal by Landlord at any time without
prior notice at the expense of the Tenant, and Tenant shall upon Landlord's
demand pay a removal fee to Landlord of not less than $200.00.
15. The entire Premises, including vestibules, entrances, doors,
fixtures, windows and plate glass, shall at all times be maintained in a
safe, neat and clean condition by Tenant. All trash, refuse and waste
materials shall be regularly removed from the Premises by Tenant and placed
in the containers at the locations designated by Landlord for refuse
collection. All cardboard boxes must be "broken down" prior to being placed
in the trash container. All styrofoam chips must be bagged or otherwise
contained prior to placement in the trash container, so as not to constitute
a nuisance. Pallets may not be disposed of in the trash container or
enclosures. The burning of trash, refuse or waste materials is prohibited.
16. Tenant shall use at Tenant's cost such pest extermination
contractor as Landlord may direct and at such intervals as Landlord may
require.
17. All keys for the Premises shall be provided to Tenant by
Landlord and Tenant shall return to Landlord any of such keys so provided
upon the termination of the Lease. Tenant shall not change locks or install
other locks on doors of the Premises, without the prior written consent of
Landlord. In the event of loss of any keys furnished by Landlord for Tenant,
Tenant shall pay to Landlord the costs thereof.
18. No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have
the right to exclude or expel from the Project any person who, in the
absolute discretion of Landlord, is under the influence of liquor or drugs.
Landlord reserves the right to amend or supplement the
foregoing Rules and Regulations and to adopt and promulgate additional rules
and regulations applicable to the Premises. Notice of such rules and
regulations and amendments and supplements thereto, if any, shall be given to
the Tenant.
2
<PAGE>
IRREVOCABLE STANDBY LETTER OF CREDIT
Number: ________________
Date: ________________
Amount: ________________
Expiration: ________________
BENEFICIARY ACCOUNT PARTY
The Irvine Company _____________
550 Newport Center Drive _____________
Newport Beach, CA 92660 _____________
We hereby issue our Irrevocable Letter of Credit No.______ in favor of The
Irvine Company, its successors and assigns, for the account of _______________.
We undertake to honor your draft for any sum or sums not to exceed a total of
____________________ ($__________) in favor of said beneficiary when
accompanied by the following: a letter from an officer of The Irvine Company
that The Irvine Company is authorized to draw upon this Letter of Credit
according to the terms of its lease agreement with the Account Party as
"Tenant".
It is a condition of this letter of credit that it shall remain enforceable
against us for a period of _________ from this date and further, that it
shall be deemed automatically extended for successive one-year periods
without amendment thereafter unless thirty (30) clays prior to the expiration
date set forth above, or within thirty (30) days prior to the end of any
yearly Anniversary Date thereafter, you shall receive our notice in writing
by certified mail, return receipt requested, that we elect not to renew this
letter of credit for any subsequent year.
The draft must be marked "Drawn under _____________ Letter of Credit No._____
dated _________."
There are no other conditions of this letter of credit. Except so far as
otherwise stated, this credit is subject to the Uniform Customs and Practice
for Documentary Credits (1983 Revision, International Chamber of Commerce,
Publication No. 400).
______________________________
______________________________
By:___________________________
By:___________________________
EXHIBIT F
<PAGE>
EXHIBIT X
WORK LETTER
TENANT IMPROVEMENTS
The tenant improvement work by Landlord shall consist of
repainting the Premises utilizing building standard paint, and installing new
building standard carpet in the Premises ("Tenant Improvements"). Landlord's
total contribution for the Tenant Improvements, inclusive of Landlord's
construction management fee, shall not exceed Eighty Three Thousand Seven
Hundred Seventy-Eight Dollars ($83,778.00) ("Landlord's Contribution"). Any
excess cost shall be borne solely by Tenant and shall be paid to Landlord
within ten (10) days following Landlord's billing for such excess cost.
EXHIBIT X
<PAGE>
[FLOOR PLAN]
EXHIBIT Y
<PAGE>
Exhibit 10.6
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, October 29, 1998, is made by and between Ed Nino ("LESSOR") and Oculex
Pharmaceuticals, Inc., a California corporation ("LESSEE"), (collectively,
the "PARTIES," or individually a "PARTY").
1.2 (a) PREMISES: 650 Vaqueros Avenue, #C and D, located in the City
of Sunnyvale, County of Santa Clara, State of California, with zip code
94086, as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING"
is that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): an approximately 5,900 square
foot unit of an approximately 26,010 square foot industrial building.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have
any rights to the roof, exterior walls or utility raceways of the Building or
to any other buildings in the Industrial Center. The Premises, the Building,
the Common Areas, the land upon which they are located, along with all other
buildings and improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
(b) PARKING: Seventeen (17) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and zero (0) reserved vehicle parking spaces
("RESERVED PARKING SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 2 years and 0 months ("Original Term") commencing February
1, 1999 ("Commencement Date") and ending January 31, 2001 ("Expiration
Date"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: December 1, 1998 ("EARLY POSSESSION DATE").
(Also see Paragraphs 3.2 and 3.3.) See Addendum Paragraph 5.
1.5 BASE RENT: $8,260.00 per month ("BASE RENT"), payable on the
first (1st) day of each month commencing February 1999 (Also see Paragraph 4.)
|X| If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 49 attached hereto.
1.6 (a) BASE RENT PAID UPON EXECUTION: $8,260.00 as Base Rent for
the period February 1999.
(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES:
Twenty-two and sixty-eight one hundredths percent (22.68%) ("LESSEE'S SHARE")
as determined by |X| prorata square footage of the Premises as compared to
the total square footage of the Building and |_| other criteria as described
in Addendum _____.
1.7 SECURITY DEPOSIT: $8,850.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.).
1.8 PERMITTED USE: General office, assembly and storage of
pharmaceuticals ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10 (a) REAL ESTATE BROKERS: The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
|X| Grubb & Ellis Company represents Lessor exclusively ("LESSOR'S BROKER");
|X| Colliers Parrish represents Lessee exclusively ("LESSEE'S BROKER"); or |
| represents both Lessor and Lessee ("DUAL AGENCY"). (Also see Paragraph 15.)
1.11 GUARANTOR: The obligations of the Lessee under this Lease are
to be guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS: Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 50 and Exhibits A through A, all of which
constitute a part of this Lease. and Inserts 1 - 20,
2. PREMISES, PARKING AND COMMON AREAS;
2.1 LETTING: Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all
of the terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of square footage set forth in this
Lease, or that may have been used in calculating rental and/or Common Area
Operating Expenses, is an approximation which Lessor and Lessee agree is
reasonable and the rental and Lessee's Share (as defined in Paragraph 1.6(b))
based thereon is not subject to revision whether or not the actual square
footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition
on the Commencement Date. If a non-compliance with said warranty exists as of
the Commencement Date, Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by Lessee
or at Lessee's direction) on or in the Premises and the Building shall comply
with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement
Date, including, without limitation, the Americans With Disabilities Act.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to
the Premises as of the Commencement Date. Said warranties shall not apply to
any Alterations or Utility Installations (defined in Paragraph 7.3(a)) made
or to be made by Lessee. If the Premises do not comply with said warranties,
Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee given within six (6) months following
the Commencement Date and setting forth with specificity the nature and
extent of such non-compliance, take such action, at Lessor's expense, as may
be reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the
Premises under Applicable Laws (as defined in Paragraph 2.4).
1.
<PAGE>
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges that, except
for those matters which are Lessor's responsibility hereunder and as
otherwise provided in this Lease: (a) that it has been advised by the
Broker(s) to satisfy itself with respect to the condition of the Premises
(including but not limited to the electrical and fire sprinkler systems,
security, environmental aspects, seismic and earthquake requirements, and
compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference
to such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any
of Lessor's agents, has made any oral or written representations or
warranties with respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said
number. Said parking spaces shall be used for parking by vehicles no larger
than full-size passenger automobiles or pick-up trucks, herein called
"PERMITTED SIZE VEHICLES." Vehicles other than Permitted Size Vehicles shall
be parked and loaded or unloaded as directed by Lessor in the Rules and
Regulations (as defined in Paragraph 40) issued by Lessor. (Also see
Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or
parked in areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within
the Premises that are provided and designated by the Lessor from time to time
for the general nonexclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the
non-exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights, powers,
and privileges reserved by Lessor under the terms hereof or under the terms
of any rules and regulations or restrictions governing the use of the
Industrial Center. Under no circumstances shall the right herein granted to
use the Common Areas be deemed to include the right to store any property,
temporarily or permanently, in the Common Areas. Any such storage shall be
permitted only by the prior written consent of Lessor or Lessor's designated
agent, which consent may be revoked at any time. In the event that any
unauthorized storage shall occur then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with Paragraph 40. Lessee agrees to abide by
and conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in
Lessor's sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas, walkways and utility
raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Industrial Center, or
any portion thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be
appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area Operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations
of Lessee hereunder, or extend the term hereof, but in such case, Lessee
shall not, except as otherwise provided herein, be obligated to pay rent or
perform any other obligation of Lessee under the terms of this Lease until
Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within thirty (30) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days after the end of said thirty (30) day period, cancel
2.
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this Lease, in which event the parties shall be discharged from all
obligations hereunder; provided further, however, that if such written notice
of Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease hereunder shall terminate and be of no further
force or effect. Alternatively, should Lessor be unable to deliver possession
of the Premises to Lessee within thirty (30) days after the Commencement
Date, plus periods of delay attributable to force majeure or Lessee Delays,
then so long as Lessee is not in default under this Lease, Lessee shall be
entitled to received a credit against the first installments of Base Rent
occurring under this Lease in an amount equal to the holdover penalty of
Lessee's current rent per each day of delay beginning on the thirty-first
(31st) day following the Commencement Date, not to exceed $7,700.00 per
month. Except as may be otherwise provided, and regardless of when the
Original Term actually commences, if possession is not tendered to Lessee
when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to the period during which the
Lessee would have otherwise enjoyed under the terms hereof, but minus any
days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of
the United States, without offset or deduction, on or before the day on which
it is due under the terms of this Lease. Base Rent and all other rent and
charges for any period during the term hereof which is for less than one full
month shall be prorated based upon the actual number of days of the month
involved. Payment of Base Rent and other charges shall be made to Lessor at
its address stated herein or to such other persons or at such other addresses
as Lessor may from time to time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b)) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease, in
accordance with the following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof. For
any Common Area Operating expense (as defined in Para. 4.2 herein) actually
incurred in a given year, for which the useful life exceeds two years, the
CAM charges will be amortized over the projected useful life.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reasonable reserves set aside for maintenance and
repair of Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2)
to be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss
concerning the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that
are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Notwithstanding the foregoing, Common Area Operating
Expenses shall exclude the following: (i) any costs of expenses which are
paid by other tenants or which are incurred by Lessor and reimbursed by other
tenants or by insurance proceeds, (ii) the cost of any Hazardous Substance
investigation and/or remediation with respect to the Common Areas or any
other portion of the Industrial Center, which contamination is not caused by
Lessee, and (iii) any property management or asset management fees which, in
the aggregate, exceed the amount specified in Paragraph 58 of the Addendum.
Any Common Area Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide
those services unless the Industrial Center already has the same, Lessor
already provides the services, or Lessor has agreed elsewhere in this Lease
to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time of Lessee's
Share of annual Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period
of the Lease term, on the same day as the Base Rent is due hereunder. Lessor
shall deliver to Lessee within sixty (60) days after the expiration of each
calendar year a reasonably detailed statement showing Lessee's Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year
exceed Lessee's Share as indicated on said statement. Lessee shall be
credited the amount of such overpayment against Lessee's Share of Common Area
Operating Expenses next becoming due. If Lessee's payments under this
Paragraph 4.2(d) during said preceding year were less than Lessee's Share as
indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all
or any portion of said Security Deposit, Lessee shall within ten (10) days
after written request therefore deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease. Any
time the Base Rent increases during the term of this Lease, Lessee shall,
upon written request from Lessor, deposit additional monies
3.
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with Lessor as an addition to the Security Deposit so that the total amount
of the Security Deposit shall at all times bear the same proportion to the
then current Base Rent as the initial Security Deposit bears to the initial
Base Rent set forth in Paragraph 1.5. Lessor shall not be required to keep
all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest herein), that
portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security
Deposit shall be considered to be held in trust, to bear interest or other
increment for its use, or to be prepayment for any monies to be paid by
Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste
or a nuisance, or that disturbs owners and/or occupants of, or causes damage
to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its
assignees and subtenants, for a modification of said Permitted Use, so long
as the same will not impair the structural integrity of the improvements on
the Premises or in the Building or the mechanical or electrical systems
therein, does not conflict with uses by other lessees, is not significantly
more burdensome to the Premises or the Building and the improvements thereon,
and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects
to withhold such consent, Lessor shall within five (5) business days after
such request give a written notification of same, which notice shall include
an explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to
be on the Premises, is either: (i) potentially injurious to the public
health, safety or welfare, the environment, or the Premises; (ii) regulated
or monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substance shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof. Lessee shall not engage in any activity in
or about the Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written consent of
Lessor and compliance in a timely manner (at Lessee's sole cost and expense)
with all Applicable Requirements (as defined in Paragraph 6.3). "REPORTABLE
USE" shall mean (i) the installation or use of any above or below ground
storage tank, (ii) the generation, possession, storage, use, transportation,
or disposal of a Hazardous Substance that requires a permit from, or with
respect to which a report, notice, registration or business plan is required
to be filed with, any governmental authority, and (iii) the presence in, on
or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or
occupying the Premises or neighboring properties Notwithstanding the
foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary
and customary materials reasonably required to be used by Lessee in the
normal course of the Permitted Use, so long as such use is not a Reportable
Use and does not expose the Premises or neighboring properties to any
meaningful risk of contamination or damage or expose Lessor to any liability
therefor. In addition, Lessor may (but without any obligation to do so)
condition its consent to any Reportable Use of any Hazardous Substance by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in
its reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be
located in, on, under or about the Premises or the Building, other than as
previously consented to by Lessor, Lessee shall immediately give Lessor
written notice thereof, together with a copy of any statement, report,
notice, registration, application, permit, business plan, license, claim,
action, or proceeding given to, or received from, any governmental authority
or private party concerning the presence, spill, release, discharge of, or
exposure to, such Hazardous Substance including but not limited to all such
documents as may be involved in any Reportable Use involving the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including, without limitation,
through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, and the Premises, harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, loss of
permits and attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee or by anyone
under Lessee's control. Lessee's obligations under this Paragraph 6.2(c)
shall include, but not be limited to, the effects of any contamination or
injury to person, property or the environment created or suffered by Lessee,
and the cost of investigation (including consultants' and attorneys' fees and
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
Lessor shall provide Lessee a reciprocal indemnity for the period prior to
lease commencement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with
all "APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene,
(ii) environmental conditions on, in, under or about the Premises, including
soil and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill, or release of any Hazardous Substance), now in effect or which may
hereafter come into effect; provided that Lessee shall have no obligation to
remedy any conditions with respect to the Premises which existed prior to
Lessee's possession thereof or which were caused by Lessor during the term of
the Lease, and provided further that Lessee shall have no obligation to
undertake any governmentally mandated alterations to the Building or any
portion thereof, including, without limitation, any retrofit obligations,
which are not solely the result of Lessee's particular use of the Premises,
all such alterations being Lessor's responsibility (and Lessor agrees to
timely comply, at its own expense, with all such governmental mandates).
Lessee shall, within five (5) days after receipt of Lessor's written request,
provide Lessor with copies of all documents and information, including but
not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times upon reasonable notice, for the purpose of
inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease and all Applicable Requirements (as defined in
Paragraph 6.3), and Lessor shall be entitled to employ experts and/or
consultants in connection therewith to advise Lessor with respect to Lessee's
activities, including but not limited to Lessee's installation, operation,
use, monitoring, maintenance, or removal of any Hazardous Substance on or
from the Premises. The costs and expenses of any such inspections shall be
paid by the party requesting same, unless a Default or Breach of this Lease
by Lessee or a violation of Applicable Requirements
4.
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for which Lessee is responsible hereunder or a contamination, caused or
materially contributed to by Lessee, is found to exist or to be imminent, or
unless the inspection is requested or ordered by a governmental authority as
the result of any such existing or imminent violation or contamination. In
such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as
the case may be, for the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation),
Lessee shall, at Lessee's sole cost and expense and at all times, keep the
Premises and every part thereof in good order, condition and repair
reasonable wear and tear excepted (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of
the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical,
lighting facilities, boilers, fired or unfired pressure vessels, fire hose
connections if within the Premises, fixtures, interior walls, interior
surfaces of exterior walls, ceilings, floors, windows, doors, plate glass,
and skylights, but excluding any items which are the responsibility of Lessor
pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices.
(b) Lessee shall, at Lessee's sole cost and expense,
procure and maintain a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises. However, Lessor reserves the right, upon
notice to Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under
this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in the case of an emergency, in which
case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, in
accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor,
subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order,
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, exterior roof, fire sprinkler and/or standpipe and
hose (if located in the Common Areas) or other automatic fire extinguishing
system including fire alarm and/or smoke detection systems and equipment,
fire hydrants, parking lots, walkways, parkways, driveways, landscaping,
fences, signs and utility systems serving the Common Areas and all parts
thereof, as well as providing the services for which there is a Common Area
Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to
paint the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter
in effect which would otherwise afford Lessee the right to make repairs at
Lessor's expense or to terminate this Lease because of Lessor's failure to
keep the Building, Industrial Center or Common Areas in good order, condition
and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term
"TRADE FIXTURES" shall mean Lessee's machinery and equipment which can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises which are
provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility installations made
by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make nor cause to be made any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior
written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without
Lessor's consent but upon notice to Lessor. so long as they are not visible
from the outside of the Premises, do not involve puncturing, relocating or
removing the roof or any existing walls, or changing or interfering with the
fire sprinkler or fire detection systems and the cost thereof does not exceed
Five Thousand Dollars ($5,000.00) during any given year and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$25,000.00.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to ,make and which require the consent of the Lessor
shall be presented to Lessor in written form with detailed plans. All
consents given by Lessor. whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities; (ii)
the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor prior
to commencement of the work thereon; and (iii) the compliance by Lessee with
all conditions of said permits in a prompt and expeditious manner. Any
Alterations or Utility Installations by Lessee during the term of this Lease
shall be done in a good and workmanlike manner, with good and sufficient
materials, and be in compliance with all Applicable Requirements. Lessee
shall promptly upon completion thereof furnish Lessor with as-built plans and
specifications therefor. Lessor may, (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation
that costs $5,000.00 or more upon Lessee's providing Lessor with a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on, or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the
Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense, defend and protect itself, Lessor and the Premises against the same
and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof against the Lessor or the Premises. If
Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to one and one-half times the
amount of such contested lien claim or demand, indemnifying Lessor against
liability for the same, as required by law for the holding of the Premises
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's attorneys' fees and costs in participating in such
action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter
provided in this Paragraph 7.4, all Alterations and Utility Installations
made to the Premises by Lessee shall be the property of and owned by Lessee,
but considered a part of the Premises. Lessor may, at any time and at its
option, elect in writing to Lessee to be the owner of all or any specified
part of the Lessee-Owned Alterations and Utility Installations. Unless
otherwise instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned
Alterations and Utility Installations shall, at the expiration or earlier
termination of this Lease, become the property of Lessor and remain upon the
Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by
5.
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Lessor. Lessor may require the removal at any time of all or any part of any
Alterations or Utility Installations made without the required consent of
Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, clean and free of debris and in good operating order,
condition and state of repair, ordinary wear and tear excepted. Ordinary wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified herein,
the Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any
damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Lessee-Owned Alterations and
Utility Installations, as well as the removal of any storage tank installed
by or for Lessee, and the removal: replacement, or remediation of any soil,
material or ground water contaminated by Lessee, all as may then be required
by Applicable Requirements and/or good practice. Lessee's Trade Fixtures
shall remain the property of Lessee and shall be removed by Lessee subject to
its obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the
insurance policies maintained by Lessor under this Paragraph 8 shall be a
Common Area Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for
policy periods commencing prior to, or extending beyond, the term of this
Lease shall be prorated to coincide with the corresponding Commencement Date
or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in
force during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
endorsement and contain the "Amendment of the Pollution Exclusion"
endorsement for damage caused by heat, smoke or fumes from a hostile fire.
The policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "INSURED CONTRACT" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance required
by this Lease or as carried by Lessee shall not, however, limit the liability
of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain
liability insurance described in Paragraph 8.2(a) above, in addition to and
not in lieu of, the insurance required to be maintained by Lessee. Lessee
shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and
keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to any Lender(s), insuring against
loss or damage to the Premises. Such insurance shall be for full replacement
cost, as the same shall exist from time to time, or the amount required by
any Lender(s), but in no event more than the commercially reasonable and
available insurable value thereof if, by reason of the unique nature or age
of the improvements involved, such latter amount is less than full
replacement com. Lessee-Owned Alterations and Utility Installations, Trade
Fixtures and Lessee's personal property shall be insured by Lessee pursuant
to Paragraph 8.4. If the coverage is available and commercially appropriate,
Lessor's policy or policies shall insure against all risks of direct physical
loss or damage (except the perils of flood and/or earthquake unless required
by a Lender or included, including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or
replacement of any undamaged sections of the Building required to be
demolished or removed by reason of the enforcement of any building, zoning,
safety or land use laws as the result of a covered loss, but not including
plate glass insurance. Said policy or policies shall also contain an agreed
valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of
the full rental and other charges payable by all lessees of the Building to
Lessor for one year (including all Real Property Taxes, insurance costs, all
Common Area Operating Expenses and any scheduled rental increases). Said
insurance may provide that in the event the Lease is terminated by reason of
an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises,
to provide for one full year's loss of rental revenues from the date of any
such loss. Said insurance shall contain an agreed valuation provision in lieu
of any co-insurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected rental income, Real Property Taxes,
insurance premium costs and other expenses, if any, otherwise payable, for
the next 12-month period. Common Area Operating Expenses shall include any
deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase
in the premiums for the properly insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises. Lessee shall
have no obligation to pay for any increase in the premiums for property
insurance if such increase results from the particular use of another tenant
within the Building.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring
Party, Lessor shall not be required to insure Lessee-Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures and
Lessee-Owned Alterations and Utility Installations in, on, or about the
Premises similar in coverage to that carried by Lessor as the Insuring Party
under Paragraph 8.3(a). Such insurance shall be full replacement cost
coverage with a deductible not to exceed $1,000 per occurrence. The proceeds
from any such insurance shall be used by Lessee for the replacement of
personal property and the restoration of Trade Fixtures and Lessee-Owned
Alterations and Utility Installations. Upon request from Lessor, Lessee shall
provide Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender, as set forth in the most current issue of "Best's Insurance Guide."
Neither Lessee nor Lessor shall do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. Lessee
shall cause to be delivered to Lessor, within seven (7) days after the
earlier of the Early Possession Date or the Commencement Date, certified
copies of, or certificates evidencing the existence and amounts of, the
insurance required under Paragraph 8.2(a) and 8.4. Lessor shall cause to be
delivered to Lessee, within seven (7) days after the earlier of the Early
Possession Date or the Commencement Date, certified copies of, or
certificates evidencing the existence and amounts of, the insurance required
to be carried by Lessor pursuant to this Paragraph 8. No such policy shall be
cancelable or subject to modification except after thirty (30) days' prior
written notice to the non-procuring party. Each party shall at least thirty
(30) days prior to the expiration of such policies, furnish the other with
evidence of renewals or "insurance binders" evidencing renewal thereof. If
Lessee fails to timely deliver evidence of such insurance renewal, Lessor may
order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee to Lessor upon demand.
6.
<PAGE>
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils required to be insured against under Paragraph 8. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto. Lessor and Lessee agree to have their
respective insurance companies issuing property damage insurance waive any
right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence and/or
breach of express warranties, Lessee shall indemnify, protect, defend and
hold harmless the Premises, Lessor and its agents, Lessor's master or ground
lessor, partners and Lenders, from and against any and all claims, loss of
rents and/or damages, costs, liens, judgments, penalties, loss of permits,
attorneys' and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the occupancy of the Premises by Lessee,
the conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach
by Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not
be limited to, the defense or pursuit of any claim or any action or
proceeding involved therein, and whether or not (in the case of claims made
against Lessor) litigated and/or reduced to judgment. In case any action or
proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except in the case of
Lessor's negligence or willful conduct, Lessor's breach of this Lease or
Lessor's breach of any representation or warranty made by Lessor herein,
Lessor shall not be liable for injury or damage to the person or goods,
wares, merchandise or other property of Lessee, Lessee's employees,
contractors, invitees, customers, or any other person in or about the
Premises, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or
not. Except in the case of Lessor's negligence or willful conduct, Lessor's
breach of this Lease or Lessor's breach of any representations or warranty
made by Lessor herein, Lessor shall not be liable for any damages arising
from any act or neglect of any other lessee of Lessor nor from the failure by
Lessor to enforce the provisions of any other lease in the Industrial Center.
Except in the case of Lessor's negligence or willful conduct, Lessor's breach
of this Lease or Lessor's breach of any representations or warranty made by
Lessor herein, Lessor shall under no circumstances be liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
fifty percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1
(d)) of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building) of the
Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to
their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in,
on, or under the Premises.
9.2 PREMISES PARTIAL DAMAGE--INSURED LOSS. If Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's
expense, repair such damage (but not Lessee's Trade Fixtures or Lessee-Owned
Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect. In the event, however,
that there is a shortage of insurance proceeds and such shortage is due to
the fact that, by reason of the unique nature of the improvements in the
Premises, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, Lessor shall
complete them as soon as reasonably possible and this Lease shall remain in
full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within such ten (10) day period, and if
Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net
proceeds of any such insurance shall be made available for the repairs if
made by either Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful
act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense and this Lease shall continue in full force and effect), Lessor may
at Lessor's option, either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in
full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60)
days following the date of such notice. In the event Lessor elects to give
such notice of Lessor's intention to terminate this Lease, Lessee shall have
the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the repair of such
damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following such commitment from Lessee. In
such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
7.
<PAGE>
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if Premises Total Destruction occurs (including any destruction
required by any authorized public authority), this Lease shall terminate
sixty (60) days following the date of such Premises Total Destruction,
whether or not the damage or destruction is an Insured Loss or was caused by
a negligent or willful act of Lessee. In the event, however, that the damage
or destruction was caused by the negligence or willful act of Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as
released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six
(6) months of the term of this Lease there is damage for which the cost to
repair exceeds one month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date
of occurrence of such damage. Provided, however, if Lessee at that time has
an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by (a) exercising such option, and (b)
providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten (10) days after Lessee's receipt of Lessor's written
notice purporting to terminate this Lease, or (ii) the day prior to the date
upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
and provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph
9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible,
the Base Rent, Common Area Operating Expenses and other charges, if any,
payable by Lessee hereunder for the period during which such damage or
condition, its repair, remediation or restoration continues, shall be abated
in proportion to the degree to which Lessee's use of the Premises is
impaired, but not in excess of proceeds from insurance required to be carried
under Paragraph 8.3(b). Except for abatement of Base Rent, Common Area
Operating Expenses and other charges, if any, as aforesaid, all other
obligations of Lessee hereunder shall be performed by Lessee, and Lessee
shall have no claim against Lessor for any damage suffered by reason of any
such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in
a substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at
any time prior to the commencement of such repair or restoration, give
written notice to Lessor and to any Lenders of which Lessee has actual notice
of Lessee's election to terminate this Lease on a date not less than sixty
(60) days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced
within thirty (30) days after receipt of such notice, this Lease shall
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after the receipt of such notice, this Lease shall continue in full force and
effect. "COMMENCE" as used in this Paragraph 9.6 shall mean the actual work
on the Premises.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which
case Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and
effect, but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph
13), Lessor may at Lessor's option either (i) investigate and remediate such
Hazardous Substance Condition, if required, as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) if the estimated cost to investigate and remediate such
condition exceeds twelve (12) times the then monthly Base Rent or $100,000
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the date of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the excess
costs of (a) investigation and remediation of such Hazardous Substance
Condition to the extent required by Applicable Requirements, over (b) an
amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
said commitment by Lessee. In such event this Lease shall continue in full
force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
Notwithstanding the foregoing, Lessor shall have no right to terminate the
Lease if a Hazardous Substance Condition occurs due to the sole actions of
Lessor, in which case, Lessor shall be solely responsible, at its own
expense, for the investigation and remediation thereof.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Paragraph 9, Lessor shall return to Lessee any advance
payment made by Lessee to Lessor and so much of Lessee's Security Deposit as
has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms
of this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes,
as defined in Paragraph 10.2(a), applicable to the Industrial Center, and
except as otherwise provided in Paragraph 10.3, any such amounts shall be
included in the calculation of Common Area Operating Expenses in accordance
with the provisions of Paragraph 4.2.
10.2 REAL PROPERLY TAX DEFINITION. As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city,
state or federal government, or any school, agricultural, sanitary, fire,
street, drainage, or other improvement district thereof, levied against any
legal or equitable interest of Lessor in the Industrial Center or any portion
thereof, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change
in the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof,
and whether or not contemplated by the Parties. In calculating Real Property
Taxes for any calendar year, the Real Property Taxes for any real estate tax
year shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and tax
year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses
shall not include Real Property Taxes specified in the tax assessor's records
and work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessees or by Lessor for the exclusive enjoyment
of such other lessees. Notwithstanding Paragraph 101 hereof, Lessee shall,
however, pay to Lessor at the time Common Area Operating Expenses are payable
under Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately
assessed, Real Property Taxes allocated to the Building shall be an equitable
proportion of the Real Property Taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined
8.
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by Lessor from the respective valuations assigned in the assessor's work
sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to
delinquency all taxes assessed against and levied upon Lessee-Owned
Alterations and Utility Installations, Trade Fixtures, furnishings, equipment
and all personal property of Lessee contained in the Premises or stored
within the Industrial Center. When possible, Lessee shall cause its
Lessee-Owned Alterations and Utility Installations, Trade Fixtures,
furnishings, equipment and all other personal property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
property shall be assessed with Lessor's real property, Lessee shall pay
Lessor the taxes attributable to Lessee's property within ten (10) days after
receipt of a written statement setting forth the taxes applicable to Lessee's
property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity,
telephone, security, gas and cleaning of the Premises, together with any
taxes thereon. If any such utilities or services are not separately metered
to the Premises or separately billed to the Premises, Lessee shall pay to
Lessor a reasonable proportion to be determined by Lessor of all such charges
jointly metered or billed with other premises in the Building, in the manner
and within the time periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject
to the terms of Paragraph 36. Lessor cannot unreasonably withhold Lessee's
right to sublease.
(b) Lessee's remedy for any breach of this Paragraph 12.1
by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption
by such assignee or sublessee of the obligations of Lessee under this Lease,
(ii) release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this
Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings
and assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable under this Lease or the
sublease and without obtaining their consent, and such action shall not
relieve such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to
Lessor's determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 as reasonable
consideration for Lessor's considering and processing the request for
consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall,
by reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to
be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
The following terms and conditions shall apply to any subletting by Lessee of
all or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in
this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of the foregoing provision or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and
request from Lessor and shall pay such rents and other charges to Lessor
without any obligation or right to inquire as to whether such Breach exists
and notwithstanding any notice from or claim from Lessee to the contrary.
Lessee shall have no right or claim against such sublessee, or, until the
Breach has been cured, against Lessor, for any such rents and other charges
so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance
of its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of
such sublease; provided, however, Lessor shall not be liable for any prepaid
rents or security deposit paid by such sublessee to such sublessor or for any
other prior defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor herein.
9.
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(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's
prior written consent.
(e) Lessor shall deliver a copy of any notice of Default
or Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice.
The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney
is consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "DEFAULT" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
this Lease. A "BREACH" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease,
the failure by Lessee to make any payment of Base Rent, Lessee's Share of
Common Area Operating Expenses, or any other monetary payment required to be
made by Lessee hereunder within ten (10) days of when due, the failure by
Lessee to provide Lessor with reasonable evidence of insurance or surety bend
required under this Lease, or the failure of Lessee to fulfill any obligation
under this Lease which endangers or threatens life or property, where such
failure continues for a period of three (3) days following written notice
thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease,
the failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and
37, (vii) the execution of any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor
may reasonably require of Lessee under the terms of this lease, where any
such failure continues for a period of ten (10) days following written notice
by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under
Paragraph 40 hereof that are to be observed, complied with or performed by
Lessee, other than those described in Subparagraphs 13.1(a), (b) or (c),
above, where such Default continues for a period of thirty (30) days after
written notice thereof by or on behalf of Lessor to Lessee; provided,
however, that if the nature of Lessee's Default is such that more than thirty
(30) days are reasonably required for its cure, then it shall not be deemed
to be a Breach of this Lease by Lessee if Lessee commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
Subparagraph 13.1(e) is contrary to any applicable law, such provision shall
be of no force or effect, and shall not affect the validity of the remaining
provisions.
(f) The discovery by Lessor that any financial statement
of Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor,
was materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bends, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its own option, may require all future payments to be made under
this Lease by Lessee to be made only by cashier's check. In the event of a
Breach of this Lease by Lessee (as defined in Paragraph 13.1), with or
without further notice or demand, and without limiting Lessor in the exercise
of any right or remedy which Lessor may have by reason of such Breach, Lessor
may:
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises
to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i)
the worth at the time of the award of the unpaid rent which had been earned
at the time of termination; (ii) 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 rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco or the Federal Reserve Bank District in which
the Premises are located at the time of award plus one percent (1%). Efforts
by Lessor to mitigate damages caused by Lessee's Default or Breach of this
Lease shall not waive Lessor's right to recover damages under this Paragraph
13.2. If termination of this Lease is obtained through the provisional remedy
of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor
may reserve the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by Subparagraph 13.1(b),(c) or (d). In such case, the applicable
grace period under the unlawful detainer statue shall run concurrently after
the one such statutory notice, and the failure of Lessee to cure the Default
10.
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within the greater of the two (2) such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. Lessor
and Lessee agree that the limitations on assignment and subletting in this
Lease are reasonable. Acts of maintenance or preservation, efforts to relet
the Premises, or the appointment of a receiver to protect the Lessor's
interest under this Lease, shall not constitute a termination of the Lessee's
right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by
Lessor for free or abated rent or other charges applicable to the Premises,
or for the giving or paying by Lessor to or for Lessee of any cash or other
bonus, inducement or consideration for Lessee's entering into this Lease, all
of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended. Upon
the occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by
Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor, as additional rent
due under this Lease, except if Lessee subsequently cures said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph 13.3 shall not be deemed a waiver
by Lessor of the provisions of this Paragraph 13.3 unless specifically so
stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment
by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this Paragraph
13.5, a reasonable time shall in no event be less than thirty (30) clays
after receipt by Lessor, and by any Lender(s) whose name and address shall
have been furnished to Lessee in writing for such purpose, of written notice
specifying wherein such obligation of Lessor has not been performed;
provided, however, that if the nature of Lessor's obligation is such that
more than thirty (30) days after such notice are reasonably required for its
performance, then Lessor shall not be in breach of this Lease if performance
is commenced within such thirty (30) day period and thereafter diligently
pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten percent
(10%) of the floor area of the Premises, or more than twenty-five percent
(25%) of the portion of the Common Areas designated for Lessee's parking, is
taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If
Lessee does not terminate this Lease in accordance with the foregoing, this
Lease shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in the same proportion
as the rentable floor area of the Premises taken bears to the total rentable
floor area of the Premises. No reduction of Base Rent shall occur if the
condemnation does not apply to any portion of the Premises. Any award for the
taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution of value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal
and other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10
is/are the procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option
subsequently granted, or (b) if Lessee acquires any rights to the Premises or
other premises in which Lessor has an interest, or (c) if Lessee remains in
possession of the Premises with the consent of Lessor after the expiration of
the term of this Lease after having failed to exercise an Option, or (d) if
said Brokers are the procuring cause of any other lease or sale entered into
between the Parties pertaining to the Premises and/or any adjacent property
in which Lessor has an interest, or (e) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Broker(s) a fee in accordance with the
schedule of said Broker(s) in effect at the time of the execution of this
Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of
Lessor's interest in this Lease, whether such transfer is by agreement or by
operation of law, shall be deemed to have assumed Lessor's obligation under
this Paragraph 15. Each Broker shall be an intended third party beneficiary
of the provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each
represent and warrant to the other that it has had no dealings with any
person, firm, broker or finder other than as named in Paragraph 1.10(a) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and that no broker or other person, firm or
entity other than said named Broker(s) is entitled to any commission or
finder's fee in connection with said transaction. Lessee and Lessor do each
hereby agree to indemnify, protect, defend and hold the other harmless from
and against liability for compensation or charges which may be claimed by any
such unnamed broker, finder or other similar party by reason of any dealings
or actions of the indemnifying Party, including any costs, expenses, and/or
attorneys' fees reasonably incurred with respect thereto.
11.
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16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall
within ten (10) days after written notice from the other Party (the
"REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party
a statement in writing in a form similar to the then most current "TENANCY
STATEMENT" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party. Notwithstanding the foregoing,
Lessee shall have no obligation to modify the Lease in connection with the
delivery of any Tenancy Statement.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance,
refinance, or sell the Premises or the Building, or any part thereof, Lessee
and all Guarantors shall deliver to any potential lender or purchaser
designated by Lessor such financial statements of Lessee and such Guarantors
as may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past three (3) years. All
such financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Premises or in
this Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in
this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the
date due at the prime rate charged by the largest state chartered bank in the
state in which the Premises are located plus four percent (4%) per annum, but
not exceeding the maximum rate allowed by law, in addition to the potential
late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by
this Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid, or
by facsimile transmission during normal business hours, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may
by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail, the notice shall be deemed given
forty-eight (48) hours after the same is addressed as required herein and
mailed with postage prepaid. Notices delivered by United States Express Mail
or overnight courier that guarantees next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the United States Postal
Service or courier. If any notice is transmitted by facsimile transmission or
similar means, the same shall be deemed served or delivered upon telephone or
facsimile confirmation of receipt of the transmission thereof, provided a
copy is also delivered via delivery or mail. If notice is received on a
Saturday or a Sunday or a legal holiday, it shall be deemed received on the
next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing
by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of
the Premises or any part thereof beyond the expiration or earlier termination
of this Lease. In the event that Lessee holds over in violation of this
Paragraph 26 then the Base Rent payable from and after the time of the
expiration or earlier termination of this Lease shall be increased to one
hundred and fifty percent (150%) of the Base Rent applicable during the month
immediately preceding such expiration or earlier termination. Nothing
contained herein shall be construed as a consent by Lessor to any holding
over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be
observed or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
12.
<PAGE>
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby
shall be subject and subordinate to any ground lease, mortgage, deed of
trust, or other hypothecation or security device (collectively, "SECURITY
DEVICE"), now or hereafter placed by Lessor upon the real property of which
the Premises are a part, to any and all advances made on the security
thereof, and to all renewals, modifications, consolidations, replacements and
extensions thereof. Lessee agrees that the Lenders holding any such Security
Device shall have no duty, liability or obligation to perform any of the
obligations of Lessor under this Lease, but that in the event of Lessor's
default with respect to any such obligation, Lessee will give any Lender
whose name and address have been furnished Lessee in writing for such purpose
notice of Lessor's default pursuant to Paragraph 13.5. If any Lender shall
elect to have this Lease and/or any Option granted hereby superior to the
lien of its Security Device and shall give written notice thereof to Lessee,
this Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation
thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered
into by Lessor after the execution of this lease, Lessee's subordination of
this Lease shall be subject to receiving assurance (a "non-disturbance
agreement") from the Lender that Lessee's possession and this Lease,
including any options to extend the term hereof, will not be disturbed so
long as Lessee is not in Breach hereof and attorns to the record owner of the
Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph
30 shall be effective without the execution of any further documents;
provided, however, that upon written request from Lessor or a Lender in
connection with a sale, financing or refinancing of Premises, Lessee and
Lessor shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding, action, or
appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees
may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term
"PREVAILING PARTY" shall include, without limitation, a Party who
substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party of its claim or defense. The attorneys' fee award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled
to attorneys' fees, costs and expenses incurred in preparation and service of
notices of Default and consultations in connection therewith, whether or not
a legal action is subsequently commenced in connection with such Default or
resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the case of
an emergency, and otherwise at reasonable times upon reasonable notice for
the purpose of showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or additions to
the Premises or to the Building, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or Building any
ordinary "For Sale" signs and Lessor may at any time during the last one
hundred eighty (180) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without
first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs as are reasonably required
to advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures
and Alterations). Unless otherwise expressly agreed herein, Lessor reserves
all rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by Lessor
for Breach by Lessee, shall automatically terminate any sublease or lesser
estate in the Premises; provided, however, Lessor shall, in the event of any
such surrender, termination or cancellation, have the option to continue any
one or all of any existing subtenancies. Lessor's failure within ten (10)
days following any such event to make a written election to the contrary by
written notice to the holder of any such lesser interest, shall constitute
Lessor's election to have such event constitute the termination of such
interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as
otherwise provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed. Lessor's actual reasonable costs and
expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response
to, a request by Lessee for any Lessor consent pertaining to this Lease or
the Premises, including but not limited to consents to an assignment a
subletting or the presence or use of a Hazardous Substance, shall be paid by
Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. In addition to the deposit described in Paragraph 12.2(e), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to represent
the cost Lessor will incur in considering and responding to Lessee's request.
Any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such
consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter for
which consent is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this
Lease per Paragraph 1.11, the form of the guaranty to be executed by each
such Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this Lease, including, but not limited to,
the obligation to provide the Tenancy Statement and information required in
Paragraph 16.
13.
<PAGE>
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a
Default of the Lessee under this Lease if any such Guarantor fails or
refuses, upon reasonable request by Lessor to give: (a) evidence of the due
execution of the guaranty called for by this Lease, including the authority
of the Guarantor (and of the party signing on Guarantor's behalf) to obligate
such Guarantor on said guaranty, and resolution of its board of directors
authorizing the making of such guaranty, together with a certificate of
incumbency showing the signatures of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to
time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the
Premises and the performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph
1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised
by any person or entity other than said original Lessee while the original
Lessee is in full and actual possession of the Premises. The Options, if any,
herein granted to Lessee are not assignable, either as a part of an
assignment of this Lease or separately or apart therefrom, and no Option may
be separated from this Lease in any manner, by reservation or otherwise.
Notwithstanding the foregoing, each Option shall be exercisable by an
affiliate of Lessee should the Lease have previously been assigned to such
affiliate.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately
preceding the exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability
to exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding
Lessee's due and timely exercise of the Option, if, after such exercise and
during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary
obligation of Lessee for a period of thirty (30) days after such obligation
becomes due (without any necessity of Lessor to give notice thereof to
Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of separate
Defaults under Paragraph 13.1 during any twelve (12) month period, whether or
not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations")
which Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental
payable to Lessor hereunder does not include the cost of guard service or
other security measures, and that Lessor shall have no obligation whatsoever
to provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights of
way, utility raceways, and dedications that Lessor deems necessary, and to
cause the recordation of parcel maps and restrictions, so long as such
easements, rights of way, utility race-ways, dedications, maps and
restrictions do not reasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as
to any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall survive
the right on the part of said Party to institute suit for recovery of such
sum. If it shall be adjudged that there was no legal obligation on the part
of said Party to pay such sum or any part thereof, said Party shall be
entitled to recover such sum or so much thereof as it was not legally
required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or
general or limited partnership, each individual executing this Lease on
behalf of such entity represents and warrants that he or she is duly
authorized to execute and deliver this Lease on its behalf. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of
such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or
Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor
shall not be deemed an offer to lease. This Lease is not intended to be
binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by
the parties in interest at the time of the modification. The Parties shall
amend this Lease from time to time to reflect any adjustments that are made
to the Base Rent or other rent payable under this Lease. As long as they do
not materially change Lessee's obligations hereunder, Lessee agrees to make
such reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
14.
<PAGE>
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
15.
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE
OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF
THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY
FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
---------------------------- -----------------------
On: On:
------------------------------------- --------------------------------
BY LESSOR: BY LESSEE:
ED NINO OCULEX PHARMACEUTICALS, INC
- ---------------------------------------- -----------------------------------
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
- ---------------------------------------- -----------------------------------
By: /s/ Ed Nino By: /s/ Jerry B. Gin
------------------------------------- --------------------------------
Name Printed: ED NINO Name Printed: JERRY GIN
--------------------------- ----------------------
Title: Title: PRESIDENT
---------------------------------- -----------------------------
By: By:
------------------------------------- --------------------------------
Name Printed: Name Printed:
--------------------------- ----------------------
Title: Title:
---------------------------------- -----------------------------
Address: Address:
-------------------------------- ---------------------------
Telephone: ( ) Telephone: ( )
------------------------ -------------------
Facsimile: ( ) Facsimile: ( )
------------------------ -------------------
BROKER: BROKER:
Executed at: Executed at:
---------------------------- -----------------------
On: On:
------------------------------------- --------------------------------
By: /s/ Scott J. Prosser By:
------------------------------------- --------------------------------
Name Printed: SCOTT J. PROSSER Name Printed:
--------------------------- ----------------------
Title: VICE PRESIDENT Title:
---------------------------------- -----------------------------
Address: 2200 LAURELWOOD ROAD Address:
-------------------------------- ---------------------------
SANTA CLARA, CA 95054
- ---------------------------------------- -----------------------------------
Telephone: (408) 986-1500 Telephone: ( )
------------------------------ -------------------
Facsimile: (408) 986-0138 Facsimile: ( )
------------------------------ -------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South
Flower Street, Suite 600, Los Angeles, CA 90017 (213) 687-8777.
16.
<PAGE>
Grubb & Ellis Company
Commercial Real Estate Services
State of California
SALE/LEASE AMERICANS WITH DISABILITIES ACT
AND HAZARDOUS MATERIALS DISCLOSURE
The United States Congress has enacted the Americans with
Disabilities Act. Among other things, this act is intended to make many
business establishments equally accessible to persons with a variety of
disabilities; modifications to real property may be required. State and local
laws also may mandate changes. The real estate brokers in this transaction
are not qualified to advise you as to what, if any, changes may be required
now, or in the future. Owners and tenants should consult the attorneys and
qualified design professionals of their choice for information regarding
these matters. Real estate brokers cannot determine which attorneys or design
professionals have the appropriate expertise in this area.
Various construction materials may contain items that have been or
may in the future be determined to be hazardous (toxic) or undesirable and
may need to be specifically treated/handled or removed. For example, some
transformers and other electrical components contain PCB's, and asbestos has
been used in components such as fire-proofing, heating and cooling systems,
air duct insulation, spray-on and tile acoustical materials, linoleum, floor
tiles, roofing, dry wall and plaster. Due to prior or current uses of the
Property or in the area, the Property may have hazardous or undesirable
metals, minerals, chemicals, hydrocarbons, or biological or radioactive items
(including electric and magnetic fields) in soils, water, building
components, above or below ground containers or elsewhere in areas that may
or may not be accessible or noticeable. Such items may leak or otherwise be
released. Real estate agents have no expertise in the detection or correction
of hazardous or undesirable items. Expert inspections are necessary. Current
or future laws may require clean up by past, present and/or future owners
and/or operators. It is the responsibility of the Seller/Lessor and
Buyer/Tenant to retain qualified experts to detect and correct such matters
and to consult with legal counsel of their choice to determine what
provisions, if any, they may wish to include in transaction documents
regarding the Property.
To the best of Seller/Lessor's knowledge, Seller/Lessor has attached
to this Disclosure copies of all existing surveys and reports known to
Seller/Lessor regarding asbestos and other hazardous materials and
undesirable substances related to the Property. Sellers/Lessors are required
under California Health and Safety Code Section 25915 et. seq. to disclose
reports and surveys regarding asbestos to certain persons, including their
employees, contractors, co-owners, purchasers and tenants. Buyers/Tenants
have similar disclosure obligations. Sellers/Lessors and Buyers/Tenants have
additional hazardous materials disclosure responsibilities to each other
under California Health and Safety Code Section 25359.7 and other California
laws. Consult your attorney regarding this matter. Grubb & EllIis Company is
not qualified to assist you in this matter or provide you with other legal or
tax advice.
SELLER/LESSOR BUYER/TENANT
By:_____________________________ By:________________________________
Title:__________________________ Title:_____________________________
Date:___________________________ Date:______________________________
17.
<PAGE>
Exhibit 10.7
LEASE AGREEMENT
THIS LEASE, made this 19th day of January, 1996 between PASTORIA LIMITED
PARTNERSHIP a California limited partnership --------------------------------
hereinafter called Landlord and OCULEX PHARMACEUTICALS, INC., a California
corporation ----------------------------------------------------, hereinafter
called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by this reference thereto more
particularly described as follows:
All of that certain 10,856+ square foot building located at 639 Pastoria
Avenue, Sunnyvale, California 94086. Said Premises is more particularly shown
within the area outlined in Red on EXHIBIT A attached hereto. The entire
parcel, of which of the Premises is a part, and exclusive parking appurtenant
thereto, is shown within the area outlined in Green on EXHIBIT A attached.
The Premises shall be improved as shown on EXHIBIT B to be attached hereto,
and, subject to Paragraph 42, is leased an "as-is" basis, in its present
condition, and in the configuration as shown in Red on EXHIBIT B to be
attached hereto.
The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the Premises shall be measured from outside of exterior walls to
outside of exterior walls, and shall include any atriums, covered entrances
or egresses and covered building loading areas.
Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of
the consideration for this Lease to perform and observe each and all of said
terms, covenants and conditions. This lease is made upon the conditions of
such performance and observance.
1. USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of
animal studies, general office, light manufacturing, research and
development, and storage and other uses necessary for Tenant to conduct
Tenant's business, provided that such uses shall be in accordance with all
applicable governmental laws and ordinances. and for no other purpose. Tenant
shall not do or permit to be done in or about the Premises nor bring or keep
or permit to be brought or kept in or about the Premises anything which is
prohibited by or will in any way increase the existing rate of (or otherwise
affect) fire or any insurance covering the Premises or any part thereof, or
any of its contents, or will cause a cancellation of any insurance covering
the Premises or any part thereof, or any of contents. Tenant shall not do or
permit to be done anything in, on or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Premises or neighboring premises or injury or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purposes, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises. No sale by auction shall be permitted on the Premises.
Tenant shall not place any loads upon the floors, walls, or ceiling which
endanger the structure, or place any harmful fluids or other materials in the
drainage system of the building, or overload existing electrical or other
mechanical systems. No waste materials or refuse shall be dumped upon or
permitted to remain upon any part of the Premises or outside of the building
in which the Premises are a part, except in trash containers placed inside
exterior enclosures designated by Landlord for that purpose or inside of the
building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside
the Premises. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door partition or wall which may appear
unsightly from outside the Premises. No loudspeakers or other device, system
or apparatus which can be heard outside the Premises shall be used in or at
the Premises without the prior written consent of Landlord. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises. Tenant
shall indemnify, defend and hold Landlord harmless against any loss, expense
damage, reasonable attorney's fees, or liability arising out of failure of
Tenant to comply with any applicable law related to Tenant's use, the
Premises, and/or the Lease. Tenant shall comply with any covenant, condition,
or restriction ("CC&R's") affecting the Premises. The provisions of this
paragraph are for the benefit of Landlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Premises.
There are no CC&R's affecting the Premises at the time of Lease
execution. In the event CC&R's are subsequently implemented, Landlord shall
provide a copy of said CC&R's to Tenant.
2. TERM*
A. The term of this Lease shall be for a period of SEVEN (7) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraph
2B and 3, shall commence on the 1st day of May, 1996 and end on the 30th day
of April, 2003.
B. Possession of the Premises shall be deemed tendered and the term of
the Lease shall commence when the first of the following occurs:
(A) One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having
jurisdiction over the area in which the Premises are situated does not issue
certificates of occupancy, then the same number of days after certification
by Landlord's architect or contractor that Landlord's construction work has
been completed; or
(B) Upon the occupancy of the Premises by any of Tenant's
operating personnel for the purpose of conducting Tenant's business; or
(C) WHEN THE TENANT IMPROVEMENTS HAVE BEEN SUBSTANTIALLY
COMPLETED FOR TENANT'S USE AND OCCUPANCY, IN ACCORDANCE AND COMPLIANCE WITH
EXHIBIT B OF THIS LEASE AGREEMENT; OR
(D) As otherwise agreed in writing.
*It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent scheduled for the projected commencement date as shown in
Paragraph 39.
3. POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term,
as hereinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to
the date of Landlord's delivery of possession, as specified in Paragraph 2B ,
above. The above is, however, subject to the provision that the period of
delay of delivery of the Premises shall not exceed 90 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall be excluded in calculating such
period) in which instance Tenant, at its option, may by written notice to
Landlord, terminate this Lease.
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4. RENT
A. BASIC RENT. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand,
and Landlord agrees to accept as Basic Rent for the leased Premises the total
sum of ONE MILLION FIVE HUNDRED FOUR THOUSAND SIX HUNDRED FORTY ONE AND
60/100 -------------------------------------------------------------- Dollars
($1,504,641.60 ---------------------------------------------------------) in
lawful money of the United States of America, payable as follows: See
- ------------------------------------------------------ Paragraph 39 for Basic
Rent Schedule
B. TIME FOR PAYMENT. Full monthly rent is due in advance on the first
day of each calendar month. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date
of commencement of the term hereof Tenant shall pay to Landlord as rent for
the period from such date of commencement to the first day of the next
succeeding calendar month that proportion of the monthly rent hereunder which
the number of days between such date of commencement and the first day of the
next succeeding calendar month bears to thirty (30). In the event that the
term of this Lease for any reason ends on a date other than the last day of a
calendar month, on the first day of the last calendar month of the term
hereof Tenant shall pay to Landlord as rent for the period from said first
day of said last calendar month to and including the last day of the term
hereof bears to thirty (30).
C. LATE CHARGE. Notwithstanding any other provision of this Lease, If
Tenant is in default in the payment of rental as set forth in this Paragraph
4 when due, or any part thereof, Tenant agrees to pay Landlord, in additional
to the delinquent rental due, a late charge for each rental payment in
default ten (10) days. Said late charge shall equal ten percent (10%) of each
rental payment so in default.
D. ADDITIONAL RENT. Beginning with the commencement date of the term
of this Lease, Tenant shall pay to Landlord or to Landlord's designated agent
in addition to the Basic Rent and as Additional Rent in the following:
(A) All Taxes relating to the Premises as set forth in Paragraph 9,
and
(B) All insurance premiums relating to the Premises, as set forth
in Paragraph 12, and
(C) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue
thereto in the event of Tenant's failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by reason of
default of Tenant or failure on Tenant's part to comply with the terms of
this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord
shall have all the rights and remedies with respect thereto as Landlord has
for nonpayment of rent. The Additional Rent due hereunder shall be paid to
Landlord or Landlord's agent (i) within five days for taxes and insurance and
within thirty (3) days for all other Additional Rent items after presentation
of invoice from Landlord or Landlord's agent setting forth such Additional
Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord
monthly, in advance, Tenant's prorata share of an amount estimated by
Landlord to be Landlord's approximate average monthly expenditure for such
Additional Rent items, which estimated amount shall be reconciled within 120
days of or more frequently if Landlord elects to do so at Landlord's sole and
absolute discretion with Tenant paying to Landlord at the end of each
calendar year as compared to Landlord's actual expenditure for said
Additional Rent Items, with Tenant paying to Landlord, upon demand, any
amount of actual expenses expended by Landlord in excess of said estimated
amount, or Landlord refunding to Tenant (providing Tenant is not in default
in the performance of any of the terms, covenants and conditions of this
Lease) any amount of estimated payments made by Tenant in excess of
Landlord's actual expenditures for said Additional Rent Items.
The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease,
and if the term hereof shall expire or shall otherwise terminate on a day
other than the last day of a calendar year, the actual Additional Rent
incurred for the calendar year in which the term hereof expires or otherwise
terminates shall be determined and settled on the basis of the statement of
actual Additional Rent for such calendar year and shall be prorated in the
proportion which the number of days in such calendar year preceding such
expiration or termination bears to 365.
E. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at PASTORIAL LIMITED PARTNERSHIPS, C/O
PEERY /ARRILLAGA, 2560 MISSION COLLEGE BLVD., SUITE 101, SANTA CLARA, CA
95954 or to such other person to such other place as Landlord may from time
to time designate in writing.
F. SECURITY DEPOSIT. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of THIRTY NINE THOUSAND
EIGHTY ONE AND 60/100-----------------------------------Dollars
($39,081.60-----------------------------------------). Said sum shall be held
by Landlord as a Security Deposit for the faithful performance by Tenant of
all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the term hereof. If Tenant defaults with respect
to any provision of this Lease, including, but not limited to, the provisions
relating to the payment of rent and any of the monetary sums due herewith,
Landlord may (but shall not be required to) use, apply or retain all or any
part of this Security Deposit for the payment of any other amount which
Landlord may spend by reason of Tenant's default or to compensate Landlord
for any other loss damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with
Landlord in the amount sufficient to restore the Security Deposit to its
original amount. Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep this Security Deposit separate
from its general funds, and Tenant shall not be entitled to Interest on such
Deposit. If tenant fully and faithfully performs every provision of this
Lease to be performed by it, the Security Deposit or any balance thereof
shall be returned to Tenant (or at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease term and after
Tenant has vacated the Premises. In the event of termination of Landlord's
interest in this Lease, Landlord shall transfer said Deposit to Landlord's
successor in interest whereupon Tenant agrees to release Landlord from
liability for the return of such Deposit or the accounting therefor.
5. ACCEPTANCE AND SURRENDER OF PREMISES Subject to Paragraph 42, by entry
hereunder, Tenant accepts the Premises as being in good and sanitary order,
condition and repair and accepts the building and improvements included in
the Premises in their present condition and without representation or
warranty by Landlord as to the condition of such building or as to the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be
by written agreement executed by Landlord and Tenant. Tenant agrees on the
last day of the Lease term, or on the sooner termination of this Lease, to
surrender the Premises promptly and peaceably to Landlord in good condition
and repair (damage by Acts of God, fire, normal wear and tear excepted), with
all interior walls painted, or cleaned so that they appear freshly painted,
and repaired and replaced, if damaged; all floors cleaned and waxed; all
carpets cleaned and shampooed; all broken, marred or nonconforming acoustical
ceiling tiles replaced; all windows washed; the air conditioning and heating
systems serviced by a reputable and licensed service firm and in good
operating condition and repair; the plumbing and electrical systems and
lighting in good order and repair; including replacement of any burned out or
broken light bulbs or ballasts; the lawn and shrubs in good condition
including the replacement of any dead or damaged plantings; the sidewalk,
driveways and parking areas in good order, condition and repair; together
with all alterations, additions and improvements which may have been made in,
to , or on the Premises (except moveable trade fixtures installed at the
expense of tenant subject to Paragraph 6), except that Tenant shall ascertain
from Landlord within thirty (30) days before the end of the term of this
Lease whether Landlord desires to have the Premises or any part or parts
thereof restored to their condition and configuration as when the Premises
were delivered to Tenant and if Landlord shall so desire, then Tenant shall
restore said Premises or such part or parts thereof before the end of this
Lease at Tenant's sole cost and expense. Notwithstanding the above, the
improvements provided by Landlord as shown on EXHIBIT B are not subject to
removal at Least Termination.. Tenant, on or before the end of the term or
sooner termination of this Lease, shall remove all of Tenant's personal
property and trade fixtures from the Premises, and all property not so
removed on or before the end of the term or sooner termination of this Lease
shall be deemed abandoned by Tenant and title to same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of
this Lease, remove all moveable furniture and equipment so abandoned by
Tenant, at Tenant's sole cost, and repair any damage caused by such removal
at Tenant's sole cost. If the Premises be not surrendered at the end of the
term or sooner termination of this Lease, Tenant shall indemnify Landlord
against loss or liability resulting from the delay by
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<PAGE>
Tenant in so surrendering the Premises including, without limitation, any
claims made by any succeeding tenant founded on such delay. Nothing contained
herein shall be construed as an extension of the term hereof or as a consent
of Landlord to any holding over by Tenant. The voluntary or other surrender
of this Lease or the Premises by Tenant or a mutual cancellation of this
Lease shall not work as a merger and, at the option of Landlord, shall either
terminate all or any existing subleases or subtenancies or operate as an
assignment to Landlord of all or any such subleases or subtenancies.
6. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant (such consent
not be unreasonably withheld), but at the cost of Tenant, and any addition
to, or alteration of, the Premises, except moveable furniture and trade
fixtures, shall at once become a part of the Premises and belong to Landlord.
Provided Tenant requests such a pre-determination from Landlord, Landlord
agrees to notify Tenant, at the time Landlord grants its approval for
Tenant's alterations, of Landlord's desire to "have or not to have" Tenant
remove said approved alterations by the Lease Termination Date pursuant to
the provisions of Paragraph 5. Landlord reserves the right to approve all
contractors and mechanics proposed by Tenant to make such alterations and
additions. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical, air
conditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Tenant, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures. Tenant
agrees that it will not proceed to make such alteration or additions, without
having obtained consent from Landlord to do so, and until five (5) days from
the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for
payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
Tenant shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to Landlord, for
such work. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises for work claimed to have been done for, or materials
claimed to have been furnished to Tenant, will be discharged by Tenant, by
bond or otherwise, within ten (10) days after the filing thereof, at the cost
and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.
7. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a
high standard of maintenance and repair, or replacement, and in good and
sanitary condition. Tenant's maintenance and repair responsibilities herein
referred to include, but are not limited to, janitorization, all windows
(interior and exterior), window frames, plate glass and glazing (destroyed by
accident or act of third parties), truck doors, plumbing systems (such as
water and drain lines, sinks, toilets, faucets, drains, showers and water
fountains), electrical systems (such as panels, conduits, outlets, lighting
fixtures, lamps, bulbs, tubes and ballasts), heating and air conditioning
systems (such as compressors, fans, air handlers, ducts, mixing boxes,
thermostats, time clocks, boilers, heaters, supply and return grills),
structural elements and exterior surfaces of the building, store fronts,
roofs, downspouts, all interior improvements within the premises including
but not limited to wall coverings, window coverings, carpet, floor coverings,
partitioning, ceilings, doors (both interior and exterior), including closing
mechanisms, latches, locks, skylights (if any), automatic fire extinguishing
systems, and elevators and all other interior improvements of any nature
whatsoever, and all exterior improvements including but not limited to
landscaping, sidewalks, driveways, parking lots including striping and
sealing, sprinkler systems, lighting, ponds, fountains, waterways, and
drains. Tenant agrees to provide carpet shields under all rolling chairs or
to otherwise be responsible for wear and tear of the carpet caused by such
rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, Subsection 1 of Section 1932 and Section 1941 and
1942 of the California Civil Code and under any similar law, statute or
ordinance now or hereafter in effect. In the event any of the above
maintenance responsibilities apply to any other tenant(s) of Landlord where
there is common usage with other tenant(s), such maintenance responsibilities
and charges shall be allocated to the leased Premises by square footage or
other equitable basis as calculated and determined by Landlord. See paragraph
46.
8. UTILITIES. Tenant shall pay promptly, as the same become due, all
charges for water, gas, electricity, telephone, telex and other electronic
communication service, sewer service, waste pick-up and any other utilities,
materials or services furnished directly to or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed. In the event the above charges apply to any other
tenant(s) of Landlord where there is common usage with other tenant(s), such
charges shall be allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord.
Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure
of utility services to the Premises when such interruption or failure is
caused by accident, breakage, repair, strikes, lockouts, or other labor
disturbances or labor disputes of any nature, or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord.
9. TAXES.
A. As additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord, or if Landlord so directs, directly to
the Tax Collector, all Real Property Taxes relating to the Premises. In the
event the Premises leased hereunder consist of only a portion of the entire
tax parcel, Tenant shall pay to Landlord Tenant's proportionate share of such
real estate taxes allocated to the leased Premises by square footage or other
reasonable basis as calculated and determined by Landlord. If the tax billing
pertains 100% to the leased Premises, and Landlord chooses to have Tenant pay
said real estate taxes directly to the Tax Collector, then in such event it
shall be the responsibility of Tenant to obtain the tax and assessment bills
and pay, prior to delinquency, the applicable real property taxes and
assessments pertaining to the leased Premises, and failure to receive a bill
for taxes and/or assessments shall not provide a basis for cancellation of or
nonresponsibility for payment of penalties for nonpayment or late payment by
Tenant. The term "Real Property Taxes", as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any general or special
assessments for public improvements and any increases resulting from
reassessments caused by any change in ownership of the Premises) now or
hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of, all or any portion of the Premises (as now
constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; any improvements located
within the Premises (regardless of ownership); the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of
and located in the Premises; or parking areas, public utilities, or energy
within the Premises; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Premises; and
(iii) all costs and fees (including reasonable attorneys' fees) incurred by
Landlord in reasonably contesting any Real Property Tax and in negotiating
with public authorities as to any Real Property Tax. If at any time during
the term of this Lease the taxation or assessment of the Premises prevailing
as of the commencement date of this Lease shall be altered so that in lieu of
or in addition to any Real Property Tax described above there shall be
levied, assessed or imposed (whether by reason of a change in the method of
taxation or assessment, creation of a new tax or charge, or any other cause)
an alternate or additional tax or charge (i) on the value, use or occupancy
of the Premises or Landlord's interest therein or (ii) on or measured by the
gross receipts, income or rentals from the Premises, on Landlord's business
of leasing the Premises, or computed in any manner with respect to the
operation of the Premises, then any such tax or charge, however designated,
shall be included within the meaning of the term "Real Property Taxes" for
purposes of this Lease. If any Real Property Tax is based upon property or
rents unrelated to the Premises, then only that part of such "Real Property
Taxes" that is fairly allocable to the Premises shall be included within the
meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the
term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.
B. Taxes on Tenant's Property. Tenant shall be liable for and shall
pay ten days before delinquency, taxes levied against any personal property
or trade fixtures placed by Tenant in or about the Premises. If any such
taxes on Tenant's personal property
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or trade fixtures are levied against Landlord or Landlord's property or if
the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and
Landlord, after written notice to Tenant, pays the taxes based on such
increased assessment, which Landlord shall have the right to do regardless of
the validity thereof, but only under proper protest if requested by Tenant,
Tenant shall upon demand, as the case may be, repay to Landlord the taxes so
levied against Landlord, or the proportion of such taxes resulting from such
increase in the assessment; provided that in any such event Tenant shall have
the right, in the name of Landlord and with Landlord's full cooperation, to
bring suit in any court of competent jurisdiction to recover the amount of
such taxes so paid under protest, and any amount so recovered shall belong to
Tenant. See paragraph 47.
10. LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep in
force during the term of this Lease a policy of commercial general insurance
with combined single limit coverage of not less than Two Million Dollars
($2,000,000) for bodily injury and property damage occurring in, on or about
the Premises, including parking and landscaped areas. Such insurance shall be
primary and noncontributory as respects any insurance carried by Landlord.
The policy or policies effecting such insurance shall name Landlord as
additional insureds, and shall insure any liability of Landlord, contingent
or otherwise, as respects acts or omissions of Tenant, its agents, employees
or invitees or otherwise by any conduct or transactions of any of said
persons in or about or concerning the Premises, including any failure of
Tenant to observe or perform any of its obligations hereunder; shall be
issued by an insurance company admitted to transact business in the State of
California; and shall provide that the insurance effected thereby shall not
be cancelled, except upon thirty (30) days' prior written notice to Landlord.
A certificate of insurance of said policy shall be delivered to Landlord. If,
during the term of this Lease, in the considered opinion of Landlord's
Lender, insurance advisor, or counsel, the amount of insurance described in
this Paragraph 10 is not adequate, Tenant agrees to increase said coverage to
such reasonable amount as Landlord's Lender, insurance advisor, or counsel
shall deem adequate.
11. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value
thereof. The proceeds from any of such policies shall be used for the repair
or replacement of such items so insured.
Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.
12. PROPERTY INSURANCE. Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay to Landlord (or Landlord's agent if so directed by Landlord)
Tenant's proportionate share (allocated to the leased Premises by square
footage or other equitable basis as calculated and determined by Landlord) of
the deductibles on insurance claims and the cost of, policy or policies of
insurance covering loss or damage to the Premises (excluding routine
maintenance and repairs and incidental damage or destruction caused by
accidents or vandalism for which Tenant is responsible under Paragraph 7) in
the amount of the full replacement value thereof, providing protection
against those perils included within the classification of "all risks"
insurance and flood and/or earthquake insurance, if available, plus a policy
of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such
insurance cost is increased due to Tenant's use of the Premises, Tenant
agrees to pay to Landlord the full cost of such increase. Tenant shall have
no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Premises.
Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability
for loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the
cause of such fire or casualty; provided, however, that if the insurance
policy of either releasing party prohibits such waiver, then this waiver
shall not take effect until consent to such waiver is obtained. If such
waiver is to prohibited, the insured party affected shall promptly notify the
other party thereof.
13. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises by or
from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or
other portion of the Premises but excluding, however, the willful misconduct
of negligence of Landlord, its agents, servants, employees, invitees, or
contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord, its
agents, servants, employees, invitees, or contractors, Tenant shall hold
Landlord harmless from and defend Landlord against any and all expenses,
including reasonable attorneys' fees. In connection therewith, arising out of
any injury to or death of any person or damage to or destruction of property
occurring in, on or about the Premises, or any part thereof, from any cause
whatsoever.
14. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted; and
with any direction or occupancy certificate issued pursuant to law by any
public officer; provided, however, that no such failure shall be deemed a
breach of the provisions if Tenant, immediately upon notification, commences
to remedy or rectify said failure. The judgement of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord to be a party thereto or not, that Tenant has violated any such law,
statute, ordinance or governmental rule, regulation, direction or provision,
shall be conclusive of that fact as between Landlord and Tenant. Tenant
shall, at its sole cost and expense, comply with any and all requirements
pertaining to said Premises, of any insurance organization or company,
necessary for the maintenance of reasonable fire and public liability
insurance covering requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises. See Paragraph 48.
15. LIENS. Tenant shall keep the Premises free from any liens arising out of
any work performed, materials furnished or obligation incurred by Tenant. In
the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord
shall have, in addition to all other remedies provided herein and by law, the
right, but no 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 for such purpose, and all expenses incurred
by it in connection therewith, shall be payable to Landlord by Tenant on
demand with interest at the prime rate of interest as quoted by the Bank of
America.
16. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer or
hypothecate the leasehold estate under this Lease, or any interest therein,
and shall not sublet the Premises, or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person or entity to occupy
or use the Premises, or ant portion thereof, without, in each case, the prior
written consent of Landlord which consent will not be unreasonably withheld.
As a condition for granting this consent to any assignment, transfer, or
subletting, Landlord may require that Tenant agrees to pay to Landlord, as
additional rent, 50% of all rents or additional consideration received by
Tenant from its assignees, transferees, or subtenants in excess of the rent
payable by Tenant to Landlord hereunder, Tenant shall, by thirty (30) days
written notice, advise Landlord of its intent to assign or transfer Tenant's
interest in the Lease or sublet the Premises or any portion thereof for any
part of the term hereof. Within thirty (30) days after receipt of said
written notice, Landlord may, in its sole discretion, elect to terminate this
Lease as to the portion of the Premises described in Tenant's notice on the
date specified in Tenant's notice by giving written notice of such election
to terminate. If no such notice to terminate is given to Tenant within said
thirty (30) day period, Tenant may proceed to locate an acceptable sublessee,
assignee, or other transferee for presentment to Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 16. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing
with respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square
feet retained by Tenant, and this Lease as so amended shall continue in full
force and effect. In the event Tenant is allowed
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to assign, transfer or sublet the whole or any part of the Premises, with the
prior written consent of Landlord, no assignee, transferee or subtenant shall
assign or transfer this Lease, either in whole or in part, or sublet the
whole or any part of the Premises, without also having obtained the prior
written consent of Landlord which consent shall not be unreasonably withheld.
A consent of Landlord to one assignment, transfer, hypothecation, subletting,
occupation or use by any other person shall not release Tenant from any of
Tenant's obligations hereunder or be deemed to be a consent to any subsequent
similar or dissimilar assignment, transfer, hypothecation, subletting,
occupation or use by any other person. Any such assignment, transfer,
hypothecation, subletting, occupation or use without such consent shall be
void and shall constitute a breach of this Lease by Tenant and shall, at the
option of Landlord exercised by written notice to Tenant, terminate this
Lease. The leasehold estate under this Lease shall not, nor shall any
interest therein, be assignable for any purpose by operation of law without
consent of Landlord which consent shall not be unreasonably withheld. As a
condition to its consent, Landlord may require Tenant to pay all expenses in
connection with the assignment, and Landlord may require Tenant's assignee or
transferee for other assignees or transferee(s) to assume in writing all of
the obligations under this Lease and for Tenant to remain liable to Landlord
under the Lease. See Paragraph 49.
17. SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender")
to Landlord, Tenant shall, at the request of Landlord or Lender, execute in
writing an agreement subordinating its rights under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's
deed of trust shall be or remain subject and subordinate to the rights of
Tenant under this Lease. Notwithstanding any such subordination, Tenant's
possession under this Lease shall not be disturbed if Tenant is not in
default and so long as Tenant shall pay all rent and observe and perform all
of the provisions set forth in this Lease. See Paragraph 50.
18. ENTRY BY LANDLORD. Landlord reserves, and shall at reasonable times
after at least 24 hours notice (except in emergencies) have, the right to
enter the Premises to inspect them; to perform any services to be provided by
Landlord hereunder; to make repairs or provide any services to a contiguous
tenant(s); to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or
repair the Premises or other parts of the building, all without abatement of
rent, and may erect scaffolding and other necessary structures in or through
the Premises where reasonably required by the character of the work to be
performed; provided, however, that the business of Tenant shall be interfered
with to the least extent that is reasonably practical. Any entry to the
Premises by Landlord for the purposes provided for herein shall not under any
circumstances be construed or deemed to be forcible or unlawful entry into or
a detainer of the Premises or an eviction, actual or constructive, of Tenant
from the Premises or any portion thereof. See Paragraph 51.
19. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar
action undertaken by Tenant, or the insolvency of Tenant, shall, at
Landlord's option, constitute a breach of this Lease by Tenant. If the
trustee or receiver appointed to serve during a bankruptcy, liquidation,
reorganization, insolvency or similar action elects to reject Tenant's
unexpired Lease, the trustee or receiver shall notify Landlord in writing of
its election within thirty (30) days after an order for relief in a
liquidation action or within thirty (30) days after commencement of any
action.
Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to
the reasonable satisfaction of Landlord that the trustee or receiver shall
cure) any and all previous defaults under the unexpired Lease and shall
compensate Landlord for all actual pecuniary loss and shall provide adequate
assurance of future performance under said Lease to the reasonable
satisfaction of Landlord. Adequate assurance of future performance, as used
herein, includes, but shall not be limited to: (i) assurance of source and
payment of rent, and other consideration due under this Lease; (ii) assurance
that the assumption or assignment of this Lease will not breach substantially
any provision, such as radius, location, use or exclusivity provision, in any
agreement relating to the above described Premises.
Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency
action or an assignment of Tenant for the benefit of creditors or other
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency
or reorganization proceedings.
The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice
from Landlord within which to cure any default in the payment of rental or
adjustment thereto. Tenant shall have a period of thirty (30) days from the
date of written notice from Landlord within which to cure any other default
under this Lease; provided, however, that if the nature of Tenant's failure
is such that more than thirty (30) days is reasonably required to cure the
same, Tenant shall not be in default so long as Tenant commences performance
within such thirty (30) day period and thereafter prosecutes the same to
completion. - TO THE EXTENT PERMITTED BY LAW. Upon an uncured default of this
Lease by Tenant, Landlord shall have the following rights and remedies in
addition to any other rights or remedies available to Landlord at law or in
equity:
(a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of the worth at the
time of award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of rental loss for the same
period that Tenant proves could be reasonably avoided, as computed pursuant
to subsection (b) of said Section 1951.2. Any proof by Tenant under
subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of
the amount of rental loss that could be reasonably avoided shall be made in
the following manner: Landlord and Tenant shall each select a licensed real
estate broker in the business of renting property of the same type and use as
the Premises and in the same geographic vicinity. Such two real estate
brokers shall select a third licensed real estate broker, and the three
licensed real estate brokers so selected shall determine the amount of the
rental loss that could be reasonably avoided from the balance of the term of
this Lease after the time of award. The decision of the majority of said
licensed real estate brokers shall be final and binding upon the parties
hereto.
(b) The rights and remedies provided by California Civil Code
Section which allows Landlord to continue the Lease in effect and to enforce
all of its rights and remedies under this Lease, including the right to
recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession; acts of maintenance or preservation, efforts to
relet the Premises, or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's right to possession.
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
(d) The right and power to enter the Premises and remove therefrom
all persons and property, to store such property in a public warehouse or
elsewhere at the cost of and for the account of Tenant, and to sell such
property and apply such proceeds therefrom pursuant to applicable California
law. Landlord may from time to time sublet the Premises or any part thereof
for such term or terms (which may extend beyond the term of this Lease) and
at such rent and such other terms as Landlord in its reasonable sole
discretion may deem advisable, with the right to make alterations and repairs
to the Premises. Upon each subletting, (i) Tenant shall be immediately liable
to pay Landlord, in addition to indebtedness other than rent due hereunder,
the reasonable cost of such subletting, including, but not limited to,
reasonable attorneys' fees and any real estate commissions actually paid, and
the cost of such reasonable alterations and repairs incurred by Landlord and
the amount, if any, by which the rent hereunder for the period of such
subletting (to the extent such period does not exceed the term hereof)
exceeds the amount to be paid as rent for the Premises for such period or
(ii) at the option of Landlord, rents received form such subletting shall be
applied first to payment of indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any costs of such subletting
and of such alterations and repairs; third to payment of rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or if
such rentals received from such subletting under option (ii) during any moth
be less than that to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. No taking possession of the Premises by Landlord
shall be construed as an election on its part to terminate this Lease unless
a written notice
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of such intention be given to Tenant. Notwithstanding any such subletting
without termination, Landlord may at any time hereafter elect to terminate
this Lease for such previous breach.
(e) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord pursuant to subparagraph d. above.
20. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it
pays rent, provides an on-site security guard during normal business hours
from Monday through Friday, and otherwise performs its obligations hereunder)
and if Tenant shall abandon, vacate or surrender said Premises, or be
dispossessed by the process of law, or otherwise, any personal property
belonging to Tenant and left on the Premises shall be deemed to be abandoned,
at the option of landlord, except such property as may be mortgaged to
Landlord.
21. DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
damage and destruction caused from vandalism and accidents for which Tenant
is responsible under Paragraph 7, Landlord may, at its option:
(a) Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged to
the extent of 33-1/3% of the replacement cost).
If Landlord does not give Tenant notice in writing within thirty
(300 days from the destruction of the Premises of its election to either
rebuild or restore them, or to terminate this Lease, Landlord shall be deemed
to have elected to rebuild or restore them, in which event Landlord agrees,
at its expense, promptly to rebuild or restore the Premises to their
condition prior to the damage or destruction. Tenant shall be entitled to a
reduction in rent while such repair is being made in the proportion that the
area of the Premises rendered untenantable by such damage bears to the total
area of the Premises. If Landlord initially estimates that the rebuilding or
restoration will exceed 180 days or if Landlord does not complete the
rebuilding or restoration with one hundred eighty (180) days following the
date of destruction (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, acts of
contractors or subcontractors, or delay of the contractors or subcontractors
due to such causes or other contingencies beyond the control of Landlord),
then Tenant shall have the right to terminate this Lease by giving fifteen
(15) days prior written notice to Landlord. Notwithstanding anything herein
to the contrary, Landlord's obligation to rebuild or restore shall be limited
to the building and interior improvements constructed by Landlord as they
existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and
expense provided this Lease is not cancelled according to the provisions
above.
Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly
waives the provisions of Section 1932, Subdivision 2, in Section 1933,
Subdivision 4 of the California Civil Code.
In the event that the building in which the Premises are situated is
damaged or destroyed to the extent of not less than 33-1/3% of the
replacement cost thereof, Landlord may elect to terminate this Lease, whether
the Premises be injured or not. SEE PARAGRAPH 52.
22. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Lease shall terminate as to any portion of
the Premises so taken or conveyed on the date when title vests in the
condemnor, and 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 o claim
against Landlord or otherwise for the value of any unexpired term of this
Lease. Notwithstanding the foregoing paragraph, any compensation specifically
awarded Tenant for loss of business, Tenant's personal property, moving cost
or loss of goodwill, shall be and remain the property of Tenant.
If any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advise din writing by any
entity or body having the right or power of condemnation of its intention to
condemn the premises or any portion thereof, then Landlord shall have the
right to terminate this Lease by giving Tenant written notice thereof within
sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises,
if the portion of the Premises taken or conveyed is so substantial that the
Tenant can no longer reasonably conduct its business. Tenant shall have the
privilege of terminating this Lease within sixty (60) days from the date of
such taking or conveyance, upon written notice to Landlord of its intention
so to do, and upon giving of such notice this Lease shall terminate on the
last day of the calendar month next following the month in which such notice
is given, upon payment by Tenant of the rent from the date of such taking or
conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance
in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter
the rent to be paid by Tenant shall be in the ration that the area of the
portion of the Premises not so taken or conveyed bears to the total area of
the Premises prior to such taking.
23. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of
the Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any
further liability upon any of the terms, covenants or conditions (express or
implied) herein contained in favor of Tenant, and in such event, insofar as
such transfer is concerned, Tenant agrees to look solely to the
responsibility of the successor in interest of such transferor in and to the
Premises and this Lease. This Lease shall not be affected by any such sale or
conveyance, and Tenant agrees to attorn to the successor in interest of such
transferor.
24. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of
Landlord in the land and buildings in which the leased Premises are located
(whether such interest of Landlord is a fee title interest or a leasehold
interest) is encumbered by deed of trust, and such interest is acquired by
the lender or any third party through judicial foreclosure or by exercise of
a power of sale at private trustee's foreclosure sale, Tenant hereby agrees
to attorn to the purchaser at any such foreclosure sale and to recognize such
purchaser as the Landlord under this Lease. In the event the lien of the deed
of trust securing the loan from a Lender to Landlord is prior and paramount
to the Lease, this Lease shall nonetheless continue in full force and effect
for the remainder of the unexpired term hereof, at the same rental herein
reserved and upon all the other terms, conditions and covenants herein
contained.
25. HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease
or give Tenant any rights in or to the leased Premises except as expressly
provided in this Lease. Any holding over after the expiration or other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same terms and
conditions herein specified insofar as applicable except that the monthly
Basic Rent shall be increased to an amount equal to one hundred fifty (150%)
percent of the monthly Basic Rent required during the last month of the Lease
Term.
26. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less than ten
(10) days prior written notice to Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in
full force and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant" failure to
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deliver such statement within such time shall be conclusive upon Tenant that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; that there are no uncured defaults in Landlord's
performance, and that not more than one month's rent has been paid in advance.
27. CONSTRUCTION CHANGES. It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein
are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes shall affect this Lease or entitle Tenant to any reduction of
rent hereunder or result in any liability of Landlord to Tenant. Landlord
does not guarantee the accuracy of any drawings supplied to Tenant and
verification of the accuracy of such drawings rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM. All terns, covenants and conditions of
this Lease to be performed or observed by Tenant shall be performed or
observed by Tenant at Tenant's sole cost and expense and without any
reduction of rent. If Tenant shall fail to pay any sum of money, or other
rent, required to be paid by it hereunder or shall fail to perform any other
term or covenant hereunder on its part to be performed, and such failure
shall continue for five (5) days after written notice thereof by Landlord,
Landlord, without waiving or releasing Tenant from any obligation of Tenant
hereunder, may, but shall not be obliged to, make any such payment or perform
any such other item or covenant on Tenant's part to be performed. All sums so
paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the rate of the prime rate of interest per
annum as quoted by the Bank of America from the date of such payment on
performance by Landlord, shall be paid (and Tenant covenants to make such
payment) to Landlord within five (5) days after receipt of an invoice
therefor, and Landlord shall have (in addition to any other right or remedy
of Landlord) the same rights and remedies in the event of nonpayment by
Tenant as in the case of failure by Tenant in the payment of rent hereunder.
29. ATTORNEY'S FEES.
A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease,
or because of the breach of any provision of this Lease, or for any relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party
shall be deemed to have accrued on the date of the commencement of such
action and shall be enforceable whether or not the action is prosecuted to
judgment.
B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
including a reasonable attorney's fee.
30. WAIVER. The waiver by either party of the other party's failure to
perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a
waiver of such term, covenant or condition or of any subsequent failure of
the party failing to perform or observe the same or any other such term,
covenant or condition therein contained, and no custom or practice which may
develop between the parties hereto during the term hereof shall be deemed a
waiver of, or in any way affect, the right of either party to insist upon
performance and observance by the other party in strict accordance with the
terms hereof.
31. NOTICES. All notices, demands, requests, advices or designations which
may be or are required to be given by either party to the other hereunder
shall be in writing. All notices, demands, requests, advices or designations
by Landlord to Tenant shall be sufficiently given, made or delivered if
personally served on Tenant by leaving the same at the Premises of (OR?) if
sent by United States certified or registered mail, postage prepaid,
addressed to Tenant at the Premises. All notices, demands, requests, advices
or designations by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to Landlord at its
offices at PASTORIA LIMITED PARTNERSHIP, C/O PEERY/ARRILAGA, 2560 MISSION
COLLEGE BLVD., SUITE 101, SANTA CLARA, CA 95054. Each notice, request,
demand, advice or designation referred to in this paragraph shall be deemed
received on the date of the personal service or mailing thereof in the manner
herein provided, as the case may be.
32. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a
lease, and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant.
33. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time,
but in no event earlier than (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have heretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligations
is such that more than thirty (30) days are required for performance, then
Landlord shall not be in default if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
34. CORPORATE AUTHORITY. If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said corporation (or partnership) in
accordance with the by-laws of said corporation (or partnership in accordance
with the partnership agreement) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms. If Tenant is a
corporation, Tenant shall, within thirty (30) days after execution of this
Lease, deliver to Landlord a certified copy of the resolution of the Board of
Directors of said corporation authorizing or ratifying the execution of this
Lease.
35. [DELETED]
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36. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord:
(a) The sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(b) No partner of Landlord shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership;
(c) No service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the
partnership);
(d) No partner of Landlord shall be required to answer or otherwise
plead to any service of process;
(e) No judgment will be taken against any partner of Landlord;
(f) Any judgment taken against any partner of Landlord may be
vacated and set aside at any time without hearing;
(g) No writ of execution will ever be levied against the assets of
any partner of Landlord;
(h) These covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements
shall be applicable to any covenant or agreement either expressly contained
in this Lease or imposed by statute or at common law.
37. SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
of the Premises or any exterior windows of the Premises without the written
consent of Landlord first had and obtained which consent shall not be
unreasonably withheld and Landlord shall have the right to remove any such
sign, placard, picture, advertisement, name or notice without notice to and
at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on or about the Premises, upon expiration or other
sooner termination of this Lease, Tenant at Tenant's sole cost and expense
shall bot remove such sign and repair all damage in such a manner as to
restore all aspects of the appearance of the Premises to the condition prior
to the placement of said sign.
All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved
of by Landlord.
Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly
from outside the Premises.
38. MISCELLANEOUS AND GENERAL PROVISIONS
A. USE OF BUILDING NAME. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.
B. CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be
and remain in full force and effect.
C. DEFINITION OF TERMS.. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any term use din place thereof includes the
plural as well as the singular and the successors and assigns of Landlord.
The term "Tenant" or any pronoun used in place thereof includes the plural as
well as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted assigns.
The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings
of this Lease are for convenience of reference only and shall have no effect
upon the construction or interpretation of any provision hereof.
D. TIME OF ESSENCE. Time is of the essence of this Lease and each and
all of its provisions.
E. QUITCLAIM. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10)
days after written demand from Landlord to Tenant, any quitclaim deed or
other document required by any reputable title company, licensed to operate
in the State of California, to remove the cloud or encumbrance created by
this Lease from the real property of which Tenant's Premises are a part.
F. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This instrument
along with any exhibits and attachments hereto constitutes the entire
agreement between Landlord and Tenant relative to the Premises and this
agreement and the exhibits and attachments may be altered, amended or revoked
only by an instrument in writing signed by both Landlord and Tenant. Landlord
and Tenant agree hereby that all prior or contemporaneous oral agreements
between and among themselves and their agents or representatives relative to
the leasing of the Premises are merged in or revoked by this agreement.
G. RECORDING. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.
H. AMENDMENTS FOR FINANCING. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so
long as Tenant's rights hereunder are not substantially affected.
I. ADDITIONAL PARAGRAPHS. Paragraphs 39 through 54 are added hereto
and are included as a part of this lease.
J. CLAUSES, PLATS AND RIDERS. Clauses, plats and riders, if any,
signed by Landlord and Tenant and endorsed on or affixed to this Lease are a
part hereof.
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K. DIMINUTION OF LIGHT, AIR OR VIEW. Tenant covenants and agrees that
no diminution or shutting off of light, air or view by any structure which
may be hereafter erected (whether or not by Landlord) shall in any way affect
his (THIS?) Lease, entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Lease as of the day and year last written below.
LANDLORD: TENANT:
PASTORIA LIMITED PARTNERSHIP OCULEX PHARMACEUTICALS, INC.,
a California corporation
By: By:
------------------------------------- --------------------------------
John Arrillaga,
Trustee of the Arrillaga Family
Dated: Title:
---------------------------------- -----------------------------
Type of Print Name:
----------------
Dated:
-----------------------------
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Paragraphs 39 through 54 to Lease Agreement Dated January 19, 1996. By and
Between Pastoria Limited Partnership, as Landlord, and OCULEX
Pharmaceuticals, Inc., a California coq)oration, as Tenant for 10.856-+
Square Feet of Space Located at 639 Pastoria Avenue, Sunnyvale, California.
39. BASIC RENT: in accordance with Paragraph 4A herein, the total aggregate
sum of ONE MILLION FIVE HUNDRED FOUR TI1OUSAND SIX HUNDRED FORTY ONE AND
60/100 DOLLARS ($1,504.641.60). shall be payable as follows:
On May I. 1996, the sum of SIXTEEN THOUSAND TWO HUNDRED EIGHTY FOUR AND
NO/lilt} DOLLARS ($16,284.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including April I, 1997.
On May 1, 1997, the sum of S1XTEEN THOUSAND EIGHT HUNDRED TWENTY SIX AND
80/100 DOLLARS ($16,826.80) shall be due, and a like sum due on the first day
of each month thereafter, through and including April 1, 1998.
On May 1, 1998, the sum of SEVENTEEN THOUSAND THREE HUNDRED SIXTY NINE
AND 60/100 DOLLARS ($17,369.60) shall be due, and a like sum due on the first
day of each month thereafter, through and including April 1, 1999.
On May 1, 1999, the sum of SEVENTEEN THOUSAND NINE HUNDRED TWELVE AND
40/100 DOLLARS ($17,912.40) shall be due, and a like sum due on the first day
of each month thereafter, through and including April i, 2000.
On May 1, 2000, the sum of EIGHTEEN THOUSAND FOUR HUNDRED FIFTY FIVE AND
20/100 DOLLARS ($18.455.20) shall be due, mid a like sum due on the first day
of each month thereafter, through and including April I, 2001.
On May 1, 2001. the sum of EIGHTEEN THOUSAND NINE HUNDRED NINETY EIGHT
AND NO/100 DOLLARS ($18,998.00) shall be due, and a like sum due on the first
day of each month thereafter, through mid including April I, 2002.
On May 1. 2002. the sum of NINETEEN THOUSAND FIVE HUNDRED FORTY AND
80/100 DOLLARS ($19,540.80) shall be due, and a like sum due on the first day
of each month thereafter, through and including April I, 20(13; or until the
entire aggregate sum of ONE MILLION FIVE HUNDRED FOUR THOUSAND SIX HUNDRED
FORTY ONE AND 60/100 DOLLARS ($1,540,641.60) has been paid.
40. EARLY ENTRY: Subject to the provisions of Paragraph 42, ("Tenant
Interior Improvements") Tenant and its agents and contractors shall be
permitted to enter the Premises prior to the Commencement Date for the
purpose of installing at Tenant's sole cost and expense, Tenant's trade
fixtures and equipment, telephone equipment, security systems and cabling for
computers. Such entry shall be subject to all of the terms and conditions of
this Lease, except that Tenant shall not be required to pay any Rent on
account thereof. Any entry or installation work by Tenant and its agents in
the Premises pursuant to this Paragraph 40 shall (i) be undertaken at
Tenant's SOLE RISK, (ii) not interfere with or delay Landlord's work in the
Premises (if any), and (iii) not be deemed occupancy or possession of the
Premises for purposes of the Lease. Tenant shall indemnify, defend, and hold
Landlord harmless form any and all loss, damage, liability, expense
(including reasonable attorney's fees), claim or demand of whatsoever
character, direct or consequential, including, but without limiting thereby
the generality of the foregoing, injury to or death of persons and damage to
or loss of property arising out of the exercise by Tenant of any early entry
right granted hereunder. In the event Tenant's work in said Premises delays
the completion of the interior improvements to be provided by Landlord, if
rely, or in the event Tenant has not completed construction of it's interior
improvements by the scheduled Commencement Date, it is agreed between the
parties that this Lease will commence on the scheduled Commencement Date of'
April I, 1996 regardless of the construction status of said interior
improvements completed or to be completed by Tenant or Landlord. It is the
intent of the parties hereto that the commencement of Tenant's obligation to
pay Rent under the Lease not be delayed by any of such causes or by any other
act of Tenant (except as expressly provided herein) and, in the event it is
so delayed, Tenant's obligation to pay Rent under the Lease shall commence as
of the date it would otherwise have commenced absent delay caused by Tenant.
41. "AS-IS" BASIS: Subject only to Paragraph 42 and to Landlord making the
improvements shown on Exhibit B to be attached hereto, it is hereby agreed
that the Premises leased hereunder is leased strictly on an "as-is" basis and
in its present condition, mid in the configuration as shown on Exhibit B to
be attached hereto, and by reference made a part hereof. Except as noted
herein, it is specifically agreed between the parties that after Landlord
makes tile interior improvements as shown on Exhibit B. Landlord shall not be
required to make. nor be responsible for any cost, in connection with may
repair, restoration, and/or improvement to the Premises in order for this
Lease to commence, or thereafter, throughout the Term of this Lease. Landlord
makes no warranty or representation of any kind or nature whatsoever as to
the condition or repair of the Premises, nor as to the use or occupancy which
may be made thereof.
42. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and
expense, construct certain interior improvements {the "Tenant Improvements")
in the Premises, as shown on EXHIBIT B to be attached to thc Lease and
Landlord agrees to deliver the Premises leased hereunder to Tenant, at
Landlord's expense, in the configuration shown in Red on EXHIBIT B to be
attached hereto. Notwithstanding anything to the contrary above, it is
specifically understood and agreed that Landlord shall be required to furnish
only a standard air conditioning/beating system, normal electrical outlets,
standard fire sprinkler systems, standard bathroom, standard lobby, 2' x 4'
suspended acoustical tile drop ceiling throughout the entire space leased,
carpeting and/or vinyl-coated floor tile, and standard office partitions and
doors, as shown on EXHIBIT B to be attached hereto; provided however, that
any special HVAC and/or plumbing and/or electrical requirements over and
above that normally supplied by Landlord shall be 100 percent the
responsibility of and be paid for 100 percent by Tenant.
Notwithstanding anything to the contrary, it is agreed that in the event
Tenant makes changes, additions, or modifications to the plans and
specifications to be constructed by Landlord as set forth herein, or
improvements are installed for Tenant, at Tenant's request, in excess of
those to be provided Tenant by Landlord as set forth on EXHIBIT B, any
increased cost(s) resulting from said changes, additions, and/or
modifications and/or improvements in excess of those to be provided Tenant
shall be contracted for with Landlord and paid for one hundred percent (100%)
by Tenant.
The interior shall be constructed substantially in accordance with EXHIBIT B
of the Lease, it being agreed, however, that if the interior improvements
constructed by Landlord relating thereto, do not conform exactly to the plans
and specifications as set forth in the Lease, and the general appearance,
structural integrity, mid Tenant's uses mid occupancy of the Premises mid
interior improvements relating thereto are not materially or unreasonably
affected by such deviation, it is agreed that the commencement date of the
Lease, and Tenant's obligation to pay rental, shall not be affected, mid
Tenant hereby agrees, in such event, to accept the Premises mid interior
improvements as constructed by Landlord. Notwithstanding the above, the
construction of the clean mom (if constructed and paid for by Landlord) shall
not materially differ from the plans and specifications provided to Landlord
by Tenant.
Tenant shall have thirty (30) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work with respect to
Tenant's interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord),
and Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements installed by Landlord. After such inspection has been completed,
Landlord shall prepare, mid both parties shall sign, a list of all "punch
list" items which the parties reasonably agree are to be corrected by
Landlord (but which shall exclude any damage or defects caused by Tenant, its
employees, agents or parties Tenant has contracted with to work on the
Premises). Landlord shall have thirty (30) days thereafter (or longer if
necessary, provided Landlord is diligently pursuing the
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completion of the same) to complete, at Landlord's expense, the repairs on
the "punch list" without the Commencement Date of the Lease and Tenant's
obligation to pay Rental thereunder being affected. This Paragraph shall be
of no force and effect if Tenant shall fail to give any such notice to
Landlord within thirty (30) days after the Commencement Date of this Lease.
43. EARLY OCCUPANCY: In the event the Premises leased hereunder become
available for Tenant's use and occupancy prior to the scheduled Commencement
Date hereof, Tenant shall have the right to occupy the Premises as of the
date Landlord so completes said Premises for Tenant's use and occupancy. This
Lease shall commence and Tenant shall pay to Landlord, effective as of tile
date Premises are delivered to Tenant, all Additional Rent expenses which are
Tenant's responsibility hereunder (however, Tenant shall not be responsible
for paying Basic Rent during the early occupancy period), and Tenant shall be
obligated to perform, and be bound by, each and every term, covenant, and
condition of this Lease. In the event Tenant occupies the Premises prior to
April I. 1996, the Term of this Lease will be extended to include the early
occupancy period (i.e. If Tenant occupies said space on March I, 1996. the
Lease Ten}] will be extended for one (I) month flora a seven (7) year Term to
a seven (7) year one (I) month Term).
44. CONSENT: Whenever the consent of one party to the other is required
here]ruder, such consent shall ]lot be unreasonably withheld.
45. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
to the existence or use of "Hazardous Materials" (as defined herein) on, in,
under or about the Premises and real property located beneath said Premises
{hereinafter collectively referred to as the "Property"):
As used herein, the term "Hazardous Materials" shall mean any hazardous or
toxic substance, material or waste which is or becomes subject to or
regulated by any local governmental authority, the State of California, or
the United States Government. The term "Hazardous Materials" includes,
without limitation any material or hazardous subs]mine which is (i) listed
under Article 9 or defined as "hazardous" or "extremely hazardous" pursuant
to Article II of Title 22 of the California Administrative Code, Division 4,
Chapter 30, (ii) listed or defined as a "hazardous waste" pursuant to the
Federal Resource Conservation and Recovery Act, Section 42 U.S.C. Section
6901 et. seq., (iii) listed or defined as a "hazardous substance" pursuant to
tile Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601), (iv) petroleum or any
derivative of petroleum, or (v) asbestos.
Subject to the terms of this Paragraph 45, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the term
of the Lease) or other parties on the Property, (during the term of this
Lease) did not store, dispose, or transport in, use, or cause to be on the
Property in violation of applicable law.
Landlord hereby acknowledges that Hazardous Material contamination
(hereinafter referred to as "Preexisting Contamination") has been found on
the Premises pursuant to Leaven & Frock's report entitled Combined Annual
Status Report January 1, 1995 through December 31, 1995 and Quarterly
Extraction and Treatment System Monitoring Report and Quarterly Report of
Hydrogeologic Investigations October I, 1995 through December 31, 1995 dated
January 31, 1996, a copy of which has previously been provided to Tenant
(hereinafter referred to as the "Levine & Fricke Report"). Notwithstanding
the above and provided Tenant has not caused or contributed to said
Preexisting Contamination, Tenant shall not be responsible for the clean-up
of the Preexisting Contamination on the Premises.
"Preexisting Conditions" shall mean the presence of any Hazardous Materials
in, on, or under the Premises as of the date of this Lease (excluding any
such Hazardous Materials which are present on the Premises as of the date of
this Lease or thereafter as a result of any activities of Tenant, its
employees, agents, representatives, subtenants, assignees, or contractors).
Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, vendors, invitees, visitors or
its future subtenants and/or assignees (if any), or other parties on the
Property, does store, dispose, or transport in, use or cause to be on the
Property, and (ii) any claims, inch]ding third party claims, resulting from
such Hazardous Materials contamination. Tenant shall indemnify Landlord and
hold Landlord harmless from any liabilities, demands, costs, expenses and
damages, including, without limitation, reasonable attorney fees incurred as
a result of any claims resulting from such Hazardous Materials contamination.
Tenant also agrees not to use or dispose of ally Hazardous Materials on the
Property without first obtaining Landlord's written consent. Tenant agrees to
complete compliance with governmental regulations regarding the use or
removal or remediation of Hazardous Materials used, stored, disposed of,
transported or caused to be on the Property as stated above, and prior to the
termination of said Lease Tenant agrees to follow tile proper closure
procedures and will obtain a clearance from the local fire department and/or
the appropriate governing agency. If Tenant uses Hazardous Materials, Tenant
also agrees to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord deems reasonably necessary, it is agreed that
the `Tenant's responsibilities related to Hazardous Materials will survive
the termination date of the Lease and that Landlord may obtain specific
performance of Tenant's responsibilities under this Paragraph 45.
46. MAINTENANCE OF THE PREMISES: In addition to, mid notwithstanding anything
to the contrary in Paragraph 7, Landlord shall maintain the structural shell,
foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
expense provided Tenant has not caused such damage, in which event Tenant
shall be responsible for 100 percent of any such costs for repair or damage
so caused by the Tenant. Notwithstanding the foregoing, a crack in the
foundation, or exterior walls that does not endanger the structural integrity
of the building, or which is not life-threatening, shall not be considered
material, nor shall Landlord be responsible for repair of same.
47. TENANT'S RIGHT TO CONTEST REAL ESTATE TAX ASSESSMENTS: in addition to
and notwithstanding anything to the contrary contained in Paragraph 9, it is
agreed that Tenant shall have the right to contest the real estate taxes
and/or assessments levied against the Premises leased hereunder with the
specific understanding and agreement that any such contest shall in no way
and in no event relieve Tenant from Tenant's responsibility to pay all real
estate taxes and assessments as they appear on the tax bill as they become
due. In the event any such contest by Tenant is successful, the proportionate
portion of the refund relating to real estate taxes and assessments actually
paid by Tenant shall be refunded to Tenant. It is further understood and
agreed that Landlord shall in no event be responsible for any liability or
for any cost or expense incurred by Tenant by reason of Tenant's contest of
such taxes and/or assessments.
48. COMPLIANCE CONTINUED: Any non-conformance of the improvements installed
and paid for by Landlord as set forth on Exhibit B, required to be corrected
by the governing agency, shall be corrected at the cost and expense or
Landlord if such non-conformance exists as of the Commencement Date of the
Lease and further provided that such governing agency's requirement to
correct the non-conformance is not initiated as a result of.' (i) any future
improvements made by or for Tenant; or (ii) any permit request made to a
governing agency by or for Tenant. Any non-conformance of the Premises
occurring after the Commencement Date of this Lease Agreement shall be the
responsibility of Tenant to correct at Tenant's cost and expense.
49. ASSIGNMENT AND SUBLETTING {CONTINUED): In addition to and
notwithstanding anything to the contrary in Paragraph 16 of this Lease,
Landlord hereby agrees to consent to Tenant's assigning or subletting said
Lease to: (i) any parent or ,subsidiary corporation, or corporation with
which Tenant merges or consolidates provided that the net worth of said
parent or subsidiary
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corporation, or said corporation has a net worth equal to or greater than the
net worth of Tenant at the time of such assignment, merger, or consolidation;
or (ii) any third party or entity to whom Tenant sells all or substantially
all of its assets; provided, that the net worth of thc resulting or acquiring
corporation has a net worth after the merger, consolidation or acquisition
equal to or greater than the net worth of Tenant at the time of such merger,
consolidation or acquisition. No such assignment or subletting will release
the Tenant from its liability and responsibility under this Lease to the
extent Tenant continues in existence following such transaction.
Notwithstanding the above, Tenant shall be required to (a) give Landlord
written notice prior to such assignment or subletting to any party as
described in (i) and (ii) above, and (b) execute Landlord's consent document
prepared by Landlord reflecting the assignment or subletting.
50. SUBORDINATION AND MORTGAGES: Paragraph17 is modified to provide that
this Lease shall not be subordinate to a mortgage or deed of trust unless the
Lender holding such mortgage or deed of trust enters into a written
subordination, non-disturbance and attornment agreement in which the Lender
agrees that notwithstanding any subordination of this Lease to such Lender's
mortgage or deed of trust, (i) such Lender shall recognize all of Tenant's
rights under this Lease, and (ii) in the event of a foreclosure, this Lease
shall not be terminated so long as Tenant is not in default of its
obligations under this Lease, but shall continue in effect and Tenant and
such Lender (or any party acquiring the Premises through such foreclosure)
shall each be bound to perform the respective obligations of Tenant and
Landlord with respect to thc Premises arising after such foreclosure.
51. LANDLORD'S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph
18, (i) except in the event of an emergency, Landlord shall give Tenant
twenty-four (24) hours notice prior to entering Premises, agrees to comply
with any reasonable safety and/or security regulations imposed by Tenant with
respect to such entry, and shall only enter the Premises when accompanied by
Tenant or its agent (so long as Tenant makes itself reasonably available for
this purpose), and (ii) Landlord may install "for lease" signs relating to
tile Premises (rely during the last 180 days of the Lease term. Landlord
agrees to use its reasonable, good faith efforts such that any entry by
Landlord, and Landlord's agents, employees, contractors and invitees shall be
performed in a manner with as minimal interference as possible with Tenant's
business at thc Premises. Subject to the foregoing, Tenant agrees to
cooperate with Landlord and Landlord's agents, employees and contractors so
that responsibilities of Landlord under the Lease can be fulfilled in a
reasonable manner during normal business hours so that no extraordinary costs
are incurred by Landlord.
52. DESTRUCTION (CONTINUED): Notwithstanding the above, Tenant shall have
the right to terminate this Lease if any damage to the Premises occurs
(luring the last twelve (12) months of the Lease Term and said be cannot be
repaired within forty five (45) days. In tile event Tenant elects to
terminate this Lease, Tenant shall notify Landlord in writing of such
election to terminate this Lease within five (5) days of Tenant's receipt of
notice from Landlord identifying that the projected time required to make the
necessary repairs of said damage is more than forty five (45) days, in which
event this Lease would terminate thirty (30) days after Landlord receives
written notice from Tenant of Tenant's election to terminate. Tenant shall
remain responsible for tile full performance of all terms, covenants and
conditions herein contained through tile effective date of Termination.
53. WAIVERS: Provided Tenant is not in default of said Lease, Landlord shall
within ten (10) business days of receipt of Tenant's written request to
Landlord to provide a waiver agreement for Tenant's leased and/or financed
equipment (which request shall include a detailed itemization of said leased
and/or financed equipment to be referenced under said waiver), Landlord
shall, after its review and approval of said list, submit Landlord's standard
form waiver agreement ("Waiver Agreement") to Tenant and the respective third
party for their execution; upon receipt of the filly executed Waiver
Agreement, Landlord shall execute and return Landlord's Waiver Agreement to
Tenant within ten (10) business days thereafter.
54. ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby
assigns to Tenant all of Landlord's Contractor's warranties and shall
cooperate with Tenant in enforcing any such warranties except that Landlord
shall not be required to pay any legal fees or incur any expenses in this
regard.
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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.
LANDLORD: TENANT:
PASTORIA LIMITED PARTNERSHIP OCULEX PHARMACEUTICALS, INC.,
a California corporation
By: By:
--------------------------------------- ------------------------------
John Arrillaga,
Trustee of the Arrillaga Family
Dated: Title:
------------------------------------ ---------------------------
Type of Print Name:
--------------
Dated:
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Exhibit 10.9
OCULEX PHARMACEUTICALS, INC.
KEY EMPLOYEE AGREEMENT
FOR
DONALD J. EATON
Oculex Pharmaceuticals, Inc., a California corporation (the "Company")
agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 The Company will employ you and you shall serve in an executive
capacity as Chief Executive Officer and perform the duties customarily
associated with such capacity from time to time and at such place or places as
the Company shall reasonably designate or as shall be reasonably appropriate and
necessary in connection with such employment.
1.2 Subject to Section 4 below, you will, to the best of your ability,
devote your full time and best efforts to the performance of your duties
hereunder and the business and affairs of the Company. You agree to serve as a
director and/or officer of the Company if elected by the shareholders and the
Board, as the case may be, and to perform such executive duties as may be
assigned to you by the Company's Board of Directors from time to time. The
Company shall use its best efforts to elect you to the Company's Board of
Directors for so long as you hold the position of Chief Executive Officer. You
will be assigned such facilities and support staff as are customarily associated
with the position of Chief Executive Officer. You will report to the Company's
Board of Directors and all of the employees of the Company will report to you.
1.3 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business, except to the extent that such
rules and regulations may be inconsistent with your executive position.
2. TERM OF EMPLOYMENT; TERMINATION.
2.1 The effective date of this Agreement is March 8, 2000.
2.2 Unless otherwise mutually agreed in writing, this Agreement and
your employment by the Company pursuant to this Agreement shall be terminated on
the earliest of:
(a) your death, or any illness, disability or other incapacity
in such a manner that you are physically rendered unable regularly to perform
your duties
1.
<PAGE>
hereunder for a period in excess of one hundred twenty (120) consecutive days
or more than one hundred eighty (180) days in any consecutive twelve (12)
month period;
(b) thirty (30) days after you, for any reason, give written
notice to the Company of your termination;
(c) thirty (30) days after the Company, with or without cause,
gives written notice to you of your termination; and
(d) five (5) years from the date hereof.
2.3 The determination regarding whether you are physically unable
regularly to perform your duties under (a) above shall be made by the Board
of Directors. Your inability to be physically present on the Company's
premises shall not constitute a presumption that you are unable to perform
such duties.
2.4 Any notice required to be given pursuant to this Section 2
shall be given in accordance with the provisions of Section 10 hereof. The
exercise of either party's right to terminate this Agreement pursuant to
subsections (b) or (c) above shall not abrogate the rights and remedies of
the terminating party regarding the breach, if any, giving rise to such
termination.
2.5 You may be terminated for cause if, in the reasonable
determination of the Company's Board of Directors, you are convicted of any
felony or of any crime involving moral turpitude, or participate in any fraud
against the Company, or willfully breach your duties to the Company, or
wrongfully disclose any trade secrets or other confidential information of
the Company, or materially breach Section 4 of this Agreement or any material
provision of the Employee Proprietary Information Agreement, between you and
the Company (the "Proprietary Information Agreement").
3. COMPENSATION:
3.1 The Company shall pay to you for the services to be rendered
hereunder a basic salary at an annual rate of one hundred eighty-five
thousand dollars ($185,000) prior to the effective date of the Company's
first firm commitment underwritten public offering of its common stock
registered under the Securities Act of 1933, as amended (the "Initial
Offering"), and one hundred ninety-five thousand dollars ($195,000) effective
as of the Initial Offering, subject to increase in accordance with the
policies of the Company, as determined by its Board of Directors, in force
from time to time, payable in installments in accordance with Company policy.
You shall also be entitled to all rights and benefits for which you shall be
eligible under bonus, pension, group insurance, long-term disability, life
insurance, profit-sharing or other Company benefits which may be in force
from time to time and provided to you or for the Company's employees
generally. Without limiting the foregoing, you will be eligible for an annual
bonus as determined in the sole discretion of the Company's Board of
Directors of up to thirty percent (30%) of your base salary.
2.
<PAGE>
3.2 You shall be entitled to three (3) weeks annual paid vacation.
You shall be entitled to illness days during the term of this Agreement
consistent with the Company's standard practice for its employees generally.
3.3 In the event you are terminated without cause pursuant to
Section 2.2(c) hereof, (i) the Company shall continue to pay your salary as
provided in 3.1 above then in effect for a period of nine (9) months
following any such termination.
4. OTHER ACTIVITIES DURING EMPLOYMENT.
4.1 Except with the prior written consent of the Company's Board of
Directors, you will not during the term of this Agreement undertake or engage
in any other employment, occupation or business enterprise, other than ones
in which you are a passive investor. The Company and you agree that you may
devote up to ten percent (10%) of your time to family business matters, so
long as such activities are not adverse to the best interests of the Company.
You may engage in civic and not-for-profit activities so long as such
activities do not materially interfere with the performance of your duties
hereunder.
4.2 Except as permitted by Section 4.3, you will not acquire,
assume or participate in, directly or indirectly, any position, investment or
interest known by you to be adverse or antagonistic to the Company, its
business or prospects, financial or otherwise.
4.3 During the term of your employment by the Company except on
behalf of the Company, you will not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection
with any other person, corporation, firm, partnership or other entity
whatsoever which were known by you to directly compete with the Company,
throughout the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, you may own, as a passive investor, securities of
any competitor corporation, so long as your direct holdings in any one such
corporation shall not in the aggregate constitute more than 1% of the voting
stock of such corporation.
5. FORMER EMPLOYMENT.
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior employment or
consulting agreement or relationship. You represent and warrant that you do
not possess confidential information arising out of prior employment which,
in your best judgment, would be utilized in connection with your employment
by the Company, except in accordance with agreements between your former
employer and the Company.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any former employer might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any
3.
<PAGE>
of your former employers (except in accordance with agreements between the
Company and any such former employer); but during your employment by the
Company you will use in the performance of your duties all information which
is generally known and used by persons with training and experience
comparable to your own and all information which is common knowledge in the
industry or otherwise legally in the public domain.
6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to be bound by
the provisions of the Proprietary Information Agreement.
7. REMEDIES. Your duties under the Proprietary Information Agreement
shall survive termination of your employment with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you
of the provisions of the Proprietary Information Agreement would be
inadequate and you therefore agree that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.
8. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Company or by you.
9. SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.
10. NOTICES. Any notice which the Company is required or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at the address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the
Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to
time designate in writing. The date of personal delivery or the date of
mailing any such notice shall be deemed to be the date of delivery thereof.
11. WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
12. COMPLETE AGREEMENT; AMENDMENTS. The foregoing, together with the
Proprietary Information Agreement, is the entire agreement of the parties
with respect to the subject matter hereof and thereof and may not be amended,
supplemented, canceled or discharged except by written instrument executed by
both parties hereto.
4.
<PAGE>
13. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
14. ATTORNEY FEES. If either party hereto brings any action to enforce
its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred
in connection with such action.
OCULEX PHARMACEUTICALS, INC.
A CALIFORNIA CORPORATION
By: /s/ Jerry B. Gin
-----------------------------
Dr. Jerry B. Gin
Date: March 8, 2000
Accepted and agreed this
8th day of March, 2000.
/s/ Donald J. Eaton
- --------------------------------
Donald J. Eaton
5.
<PAGE>
Exhibit 10.10
OCULEX PHARMACEUTICALS, INC.
KEY EMPLOYEE AGREEMENT
FOR
DOUGLAS HAWKINS
Oculex Pharmaceuticals, Inc., a California corporation (the "Company")
agrees with you as follows:
1. POSITION AND RESPONSIBILITIES.
1.1 The Company will employ you and you shall serve in an executive
capacity as Senior Vice President, Chief Financial Officer and perform the
duties customarily associated with such capacity from time to time and at
such place or places as the Company shall reasonably designate or as shall be
reasonably appropriate and necessary in connection with such employment.
1.2 Subject to Section 4 below, you will, to the best of your
ability, devote your full time and best efforts to the performance of your
duties hereunder and the business and affairs of the Company. You agree to
serve as an officer of the Company if elected by the Board, and to perform
such executive duties as may be assigned to you by the Company's Chief
Executive Officer from time to time. You will be assigned such facilities and
support staff as are customarily associated with the position of Senior Vice
President, Chief Financial Officer. You will report to the Company's Chief
Executive Officer.
1.3 You will duly, punctually and faithfully perform and observe
any and all rules and regulations which the Company may now or shall
hereafter establish governing the conduct of its business, except to the
extent that such rules and regulations may be inconsistent with your
executive position.
2. TERM OF EMPLOYMENT; TERMINATION.
2.1 The effective date of this Agreement is March 8, 2000.
2.2 Unless otherwise mutually agreed in writing, this Agreement and
your employment by the Company pursuant to this Agreement shall be terminated
on the earliest of:
(a) your death, or any illness, disability or other incapacity
in such a manner that you are physically rendered unable regularly to perform
your duties hereunder for a period in excess of one hundred twenty (120)
consecutive days or more than one hundred eighty (180) days in any
consecutive twelve (12) month period;
(b) thirty (30) days after you, for any reason, give written
notice to the Company of your termination;
1.
<PAGE>
(c) thirty (30) days after the Company, with or without cause,
gives written notice to you of your termination; and
(d) five (5) years from the date hereof.
2.3 The determination regarding whether you are physically unable
regularly to perform your duties under (a) above shall be made by the Board
of Directors. Your inability to be physically present on the Company's
premises shall not constitute a presumption that you are unable to perform
such duties.
2.4 Any notice required to be given pursuant to this Section 2
shall be given in accordance with the provisions of Section 10 hereof. The
exercise of either party's right to terminate this Agreement pursuant to
subsections (b) or (c) above shall not abrogate the rights and remedies of
the terminating party regarding the breach, if any, giving rise to such
termination.
2.5 You may be terminated for cause if, in the reasonable
determination of the Company's Board of Directors, you are convicted of any
felony or of any crime involving moral turpitude, or participate in any fraud
against the Company, or willfully breach your duties to the Company, or
wrongfully disclose any trade secrets or other confidential information of
the Company, or materially breach Section 4 of this Agreement or any material
provision of the Employee Proprietary Information Agreement, between you and
the Company (the "Proprietary Information Agreement").
3. COMPENSATION:
3.1 The Company shall pay to you for the services to be rendered
hereunder a basic salary at an annual rate of one hundred sixty thousand
dollars ($160,000) subject to increase in accordance with the policies of the
Company, as determined by its Board of Directors, in force from time to time,
payable in installments in accordance with Company policy. You shall also be
entitled to all rights and benefits for which you shall be eligible under
bonus, pension, group insurance, long-term disability, life insurance,
profit-sharing or other Company benefits which may be in force from time to
time and provided to you or for the Company's employees generally. Without
limiting the foregoing, you will be eligible for an annual bonus as
determined in the sole discretion of the Board of Directors of up to twenty
percent (20%) of your base salary. The Company will also pay your existing
COBRA coverage from your former employer for the first three months of your
employment.
3.2 You shall be entitled to three (3) weeks paid annual vacation
each year, with two (2) weeks accrued vacation effective as of the date
hereof. You shall be entitled to illness days during the term of this
Agreement consistent with the Company's standard practice for its employees
generally.
3.3 In the event you are terminated without cause pursuant to
Section 2.2(c) hereof, the Company shall continue to pay your salary as
provided in 3.1 above for a period of six (6) months following any such
termination.
2.
<PAGE>
4. OTHER ACTIVITIES DURING EMPLOYMENT.
4.1 Except with the prior written consent of the Company's Board of
Directors, you will not during the term of this Agreement undertake or engage
in any other employment, occupation or business enterprise, other than ones
in which you are a passive investor. You may engage in civic and
not-for-profit activities so long as such activities do not materially
interfere with the performance of your duties hereunder.
4.2 Except as permitted by Section 4.3, you will not acquire,
assume or participate in, directly or indirectly, any position, investment or
interest known by you to be adverse or antagonistic to the Company, its
business or prospects, financial or otherwise.
4.3 During the term of your employment by the Company except on
behalf of the Company, you will not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection
with any other person, corporation, firm, partnership or other entity
whatsoever which were known by you to directly compete with the Company,
throughout the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, you may own, as a passive investor, securities of
any competitor corporation, so long as your direct holdings in any one such
corporation shall not in the aggregate constitute more than 1% of the voting
stock of such corporation.
5. FORMER EMPLOYMENT.
5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior employment or
consulting agreement or relationship. You represent and warrant that you do
not possess confidential information arising out of prior employment which,
in your best judgment, would be utilized in connection with your employment
by the Company, except in accordance with agreements between your former
employer and the Company.
5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any former employer might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers (except in accordance
with agreements between the Company and any such former employer); but during
your employment by the Company you will use in the performance of your duties
all information which is generally known and used by persons with training
and experience comparable to your own and all information which is common
knowledge in the industry or otherwise legally in the public domain.
6. PROPRIETARY INFORMATION AND INVENTIONS. You agree to be bound by
the provisions of the Proprietary Information Agreement.
3.
<PAGE>
7. REMEDIES. Your duties under the Proprietary Information Agreement
shall survive termination of your employment with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you
of the provisions of the Proprietary Information Agreement would be
inadequate and you therefore agree that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.
8. ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Company or by you.
9. SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.
10. NOTICES. Any notice which the Company is required or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at the address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the
Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to
time designate in writing. The date of personal delivery or the date of
mailing any such notice shall be deemed to be the date of delivery thereof.
11. WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.
12. COMPLETE AGREEMENT; AMENDMENTS. The foregoing, together with the
Proprietary Information Agreement, is the entire agreement of the parties
with respect to the subject matter hereof and thereof and may not be amended,
supplemented, canceled or discharged except by written instrument executed by
both parties hereto.
13. HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
4.
<PAGE>
14. ATTORNEY FEES. If either party hereto brings any action to enforce
its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred
in connection with such action.
OCULEX PHARMACEUTICALS, INC.
A CALIFORNIA CORPORATION
By: /s/ Jerry B. Gin
-----------------------------
Dr. Jerry B. Gin
Date: March 8, 2000
Accepted and agreed this
8th day of March, 2000.
/s/ Douglas Hawkins
- -----------------------------
Douglas Hawkins
5.
<PAGE>
Exhibit 10.12
[LETTERHEAD]
RESEARCH AGREEMENT
Effective when fully executed by the parties, Oculex Pharmaceuticals
Inc., having a business address at 639 North Pastoria Avenue, Sunnyvale, CA
94086-2917 (hereinafter called "Oculex"), and Allergan Sales, Inc., having a
place of business at 2525 Dupont Drive, Irvine, California 92612,
(hereinafter called "Allergan") agree as follows:
1. BACKGROUND
1.01 Oculex has technology concerning proprietary biocompatable,
biodegradable polymer-based drug delivery systems (hereinafter referred to as
the DDS-Registered Trademark-) for delivery and sustained release of drugs in
the interior of the eye. Oculex is willing to formulate certain compounds
provided by Allergan with a DDS-Registered Trademark- in order to permit
Allergan to evaluate the effectiveness of such DDS-Registered Trademark- for
the treatment of ocular conditions. Once Oculex demonstrates the feasibility
of formulating the Allergan compounds in the DDS's, Allergan shall evaluate
such DDS-Registered Trademark- formulations in appropriate animal models. The
compounds shall be selected from those in which Allergan holds a proprietary
interest, and shall include a) up to 2 compounds having [*] (referred to
herein as "[*]"; b) up to two additional [*] compounds; and c) up to one
additional compounds having [*] activity. These compounds shall hereinafter
collectively be known as the "Compounds".
1.02 Oculex DDS-Registered Trademark- technology is fully patented.
The basic patent was granted in 1989, and seven additional patents, granted
in 1993 through 1999, extend and expand coverage of its DDS-Registered
Trademark- technology. These patents broadly cover the use of drug-ladened
particles made of biodegradable and/or biocompatible polymers for the
controlled release of any drug placed inside the eye. Additionally, the new
patents protect locations within the eye where Oculex's DDS-Registered
Trademark- drugs can be place, as well as the formulations for these new
drugs. A list of the patents covering Oculex' s DDS-Registered Trademark-
technology and for which an option is granted under this Agreement, is set
forth on Exhibit "A", attached hereto and incorporated herein.
1.03 Allergan wishes to obtain an option to acquire an exclusive
world-wide license to use, sell, export, and offer for sale each of the
Compounds which are formulated using Oculex's DDS-Registered Trademark-
technology. With respect of each Compound/DDS formulation, this option shall
be exercisable for a period of six months after the date of delivery.
1.04 Oculex is prepared to grant Allergan the above mentioned option
wherein Allergan shall be granted the rights to acquire exclusive licenses
under the Oculex patents (and/or patent applications, if any) to use, sell,
export and offer for sale products containing [*] which are formulated
using Oculex's DDS-Registered Trademark- technology.
Page 1 of 10
[*] Confidential treatment requested with respect to certain portions of
this exhibit
<PAGE>
2. SCOPE OF WORK
2.01 Oculex will use reasonable efforts to formulate Compounds
provided by Allergan during the Agreement Term with respective
DDS's-Registered Trademark- in order to produce implants that can be used by
Allergan to test and evaluate in animal models (hereinafter the "Services").
These DDS-Registered Trademark- implants shall be formulated to have drug
delivery characteristics which will provide sustained release of drug for a
minimum of 30 days; other drug delivery characteristics (such as the desired
amounts of drug in each final Compound/DDS formulation) shall be agreed upon
between the parties. A more detailed description of the "Services", and the
general timetable for delivery of [*] formulations, is set forth in
Exhibit B, attached hereto and incorporated herein.
2.02 Upon delivery of the required lot of each Compound/DDS
combination, Allergan shall evaluate the effectiveness of such Compound/DDS
formulations in IN VITRO or IN VIVO models of Allergan's design.
3. AGREEMENT TERM
3.01 This Agreement shall be effective on the date it is fully
executed by the parties (Effective Date) until midnight on the one-year
anniversary of the Effective Date (hereinafter the "Agreement Term"), unless
otherwise terminated in accordance with the terms hereof. The Agreement Term
may be extended by mutual agreement in a written amendment to this Agreement.
4. OPTION
4.01 Oculex hereby grants Allergan an option (hereinafter the
"Option") to acquire an exclusive world-wide license to use, sell, export and
offer for sale products comprising any one or more Compound/DDS combination
formulated by Oculex for Allergan hereunder. This Option also provides the
right of Allergan to purchase from Oculex all Compound/DDS products, and
Oculex agrees that it shall manufacture and supply, at prices to be agreed
upon, all such products required by Allergan on a world-wide basis. This
Option granting Allergan the world-wide exclusive license contemplates that
an agreement containing a variety of terms and conditions (including, but not
limited to, royalty rates, milestone payments, development costs, etc.) will
be negotiated between the parties. In addition, a supply agreement will be
negotiated between the parties (which agreement shall include, among other
things, Allergan's right to manufacture Compound/DDS products, or select a
third party manufacturer, in the event Oculex is not able to adequately
provide supply of said products). These agreements shall be negotiated on
commercially reasonable terms and in good faith between the parties;
provided, however, if the parties cannot agree to terms within six months
following the exercise of the Option by Allergan, then the Option shall
become null and void and the respective parties shall be released and
discharged from all obligations hereunder.
4.02 With regard to each Compound/DDS formulation, the Option may be
separately exercised, at Allergan's sole discretion, by providing Oculex with
written notice of Allergan's decision to exercise the Option within a period
of six (6) months following delivery of that Compound/DDS formulation to
Allergan.
Page 2 of 10
[*] Confidential treatment requested with respect to certain portions of
this exhibit
<PAGE>
5. COST AND PAYMENT
5.01 In full consideration of the grant of the Option and providing
the Services described hereunder, Allergan shall pay Oculex up to [*] in
accordance with the schedule described in Exhibit B, attached hereto. The
amount of payment for Services, if any, beyond the six month period shall be
mutually agreed to by the parties. In addition, as soon as reasonably
possible, Allergan agrees to [*] Oculex [*] that are [*], which [*] will be
[*] Allergan upon completion of this Agreement, or upon termination as herein
provided.
5.02 Checks will be made payable to: "Oculex Pharmaceuticals, Inc.",
and sent TO:
Oculex Pharmaceuticals, Inc.
639 North Pastoria Avenue
Sunnyvale, CA 94086-2917
Attention: Jerry Gin Ph.D.
6. CONFIDENTIAL INFORMATION
6.01 During the term of this Agreement, each party may provide the
other with certain information, data, or compounds, whether in physical,
written, digital, oral, or pictorial form (hereinafter "Information"), to aid
in the performance of the Services. Each party receiving such Information
from the other party hereby agrees, for itself and its employees, agents,
officers and directors, not to disclose such Information except to those of
its employees, agents, officers and directors who need to know such
Information in order to permit Oculex to perform the Services, and not to use
such Information except as permitted to fulfill the obligations of this
Agreement. A party receiving the Information of the other shall only disclose
Information to its employees, agents, officers and directors who are bound to
keep such information confidential by terms similar in scope to this Article
6. Each Party shall endeavor to prevent unauthorized disclosure of said
Information to third parties though the exercise of the same degree of care
it employs to protect its own confidential information of a similar nature,
but in no event less than a reasonable degree of care.
6.02 Neither party shall consider Information to be subject to the
above obligations if the disclosing party can show such Information: (1) is
now, or subsequently becomes, generally known to the public through no breach
of this Agreement; (2) was lawfully in the receiving party's possession prior
to the disclosing party's disclosure thereof; (3) is or becomes disclosed to
the receiving party by an independent third party who is not under an
obligation preventing such disclosure; or (4) was independently developed by
or for the receiving party without benefit of Information received from the
other party, as demonstrated by written records.
6.03 A receiving party shall hold all confidential Information in
confidence for a period of five (5) years after the Effective Date of this
disclosure.
7. PATENTS AND INVENTIONS
7.01 "New Invention or Discovery" shall mean any invention or
discovery (whether patentable or not) conceived during and as a part of the
performance of the Services conducted
Page 3 of 10
[*] Confidential treatment requested with respect to certain portions of
this exhibit
<PAGE>
pursuant to this Agreement which involve the Compounds or their combination
with the DDS-Registered Trademark- technology. Here and throughout this
Agreement, the terms "conceived" and "reduced to practice" shall be construed
in accordance with the use of these terms in 35 United States Code Section
102(g). Inventorship of patents and patent applications claiming such New
Inventions and Discoveries shall be determined under the patent laws of the
United States.
7.02 It is contemplated that the combinations of the DDS-Registered
Trademark- technology with the Compounds may produce respective New
Inventions and Discoveries. Allergen shall have an option to license Oculex's
interest in any New Invention and Discovery. The parties shall cooperate to
secure the broadest patent coverage possible for all New Inventions and
Discoveries. Oculex shall promptly notify Allergan, in writing, of any New
Invention or Discovery conceived or reduced to practice in whole or in part
by its Principal Investigator, faculty, staff, employees, or students. Such
notice shall provide a full written description of each New Invention or
Discovery in sufficient detail to permit its understanding by one of ordinary
skill in the art to which the invention pertains.
8. APPLICABLE LAW
8.01 This Agreement shall be governed by the laws of the State of
California, without regard to its conflict of laws rules.
9. NOTICE
9.01 Any notice required or permitted hereunder shall be in writing
and shall be deemed given as of the date it is:
(a) delivered by hand;
(b) received or refused by Registered or Certified Mail,
postage prepaid, return receipt requested; or
(c) received by facsimile, as can be presumptively
demonstrated by return fax or letter demonstrating successful facsimile
transmission; and addressed to the party to receive such notice at the
address(es) and/or facsimile telephone number(s) set forth below, or such other
address as is subsequently specified to the notifying party by the receiving
party in writing.
IF TO ALLERGAN:
John Kent, Ph.D.
Vice President, Pharmaceutical Sciences
Allergan, Inc.
2525 Dupont Drive
Irvine, California 92612
Telephone: 949-246-6295
Fax: 949-246- 6756
Page 4 of 10
<PAGE>
With a copy to:
General Counsel
Allergan, Inc.
2525 Dupont Drive
Irvine, California 92612
IF TO OCULEX:
Oculex Pharmaceuticals, Inc.
639 North Pastoria Avenue
Sunnyvale, CA 94086-2917
Attention: Jerry Gin, Ph.D.
10. TERMINATION
10.01 Either party may terminate this Agreement upon immediate prior
notice if any of the following conditions occur:
(1) If animal, and/or toxicological test results or
business considerations, in the opinion of Allergan, support termination of the
Research; or
(2) If either party fails to comply with the terms of
the Agreement upon receipt of written notice of breach from the other party and
subsequent failure to cure such breach within twenty (20) days after said
written notice of breach.
10.02 Except as otherwise indicated in this Article 10, Allergan may
terminate this Agreement for any reason upon thirty (30) days written notice.
10.03 Termination of this Agreement by either party shall not affect
the rights and obligations of the parties accrued prior to the Effective Date of
the termination. The rights and duties under Articles 5, 6, 7, 8, 9, 12, 13, 14,
15 and 16 shall survive the termination or expiration of this Agreement.
11. AMENDMENTS
11.01 This Agreement may only be extended, renewed or otherwise amended
by the mutual written consent of parties hereto or as may be otherwise provided
in this Agreement.
12. ENTIRE AGREEMENT
12.01 This Agreement, including any Appendices, constitutes and
contains the entire agreement and final understanding between the parties
concerning the Research and all other subject matters addressed herein or
pertaining thereto. This Agreement supersedes and replaces all prior
negotiations and all prior or contemporaneous representations, promises or
agreements, proposed or otherwise between the parties, whether written or oral,
concerning the Services and all other subject matters addressed herein or
pertaining thereto, with the exception of any
Page 5 of 10
<PAGE>
Confidential Disclosure Agreements executed between the parties before the
Effective Date hereof.
13. ASSIGNMENT
13.01 Neither party hereto may assign, cede or transfer any of its
rights or obligations under this Agreement without the written consent of the
other party; provided, however, Allergan Sales Inc. may assign this Agreement in
whole or in part to any of its affiliates or subsidiaries without the consent of
Oculex.
14. INDEPENDENT CONTRACTOR
14.01 In the performances of all Services hereunder, Oculex shall be
deemed to be and shall be an independent contractor and, as such, shall not be
entitled to any benefits applicable to employees of Allergan.
15. DELIVERY TO ALLERGAN OF UNUSED MATERIALS
15.01 Upon termination of this Agreement or full performance of the
Studies, any and all compounds, drugs, devices, forms, whether or not completed,
and other related materials that were furnished to Oculex by or on behalf of
Allergan shall be promptly returned to Allergan at Allergan's expense.
16. WAIVER
16.01 No waiver of any term, provision or condition of this Agreement
whether by conduct or otherwise in any one or more instances shall be deemed to
be or construed as a further or continuing waiver of such term, provision or
condition, or of any other term, provision or condition of this Agreement.
17. EXHIBITS OR ADDENDA
17.01 This Agreement includes the following Exhibits, which is
incorporated by reference herein in its entirety.
(a) Exhibit A: List of Patents
(b) Exhibit B: Summary of Services and Payment Schedule
Page 6 of 10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate by proper persons thereunto duly authorized.
ALLERGAN SALES, INC. OCULEX PHARMACEUTICALS, INC.
By: /s/ Larry A. Wheeler By: /s/ Jerry B. Gin
--------------------------------- --------------------------------
(Signature) (Signature)
Name: Larry A. Wheeler Name: Jerry B. Gin, Ph.D.
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Title: V.P., Biological Sciences Title: President & CEO
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Date: 12/1/99 Date: 12/15/99
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EXHIBIT "A"
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LIST OF PATENTS
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EXHIBIT "B"
SUMMARY OF SERVICES AND PAYMENT SCHEDULE
Over the ensuing one year after the Effective Date, Oculex, with the
cooperation and assistance of Allergan, will use reasonable efforts to
determine the feasibility of formulating up to five (5) Compounds with the
DDS-Registered Trademark- technology. It is understood that Oculex lacks the
resources to formulate all five Compounds at one time, therefore, Oculex
shall undertake such Services with respect to no more than two (2) Compounds
at any one time, with subsequent Compounds after the first two Compounds to
be formulated serially, upon Allergan's request, as follows. Promptly upon
execution of this Agreement Allergan shall choose two (2) Compounds for
Oculex to undertake to formulate. Following delivery of a Compound/DDS
formulation to Allergan, Allergan may request that Services be undertaken
with regard to another Compound from among the five (5) Compounds. In such
case, Oculex shall then promptly begin performance of the Services as
requested by Allergan. Beyond the first two Compounds, Oculex shall not
proceed to begin Services on any Compound without Allergan's prior written
consent. Notwithstanding any other provision hereof, Oculex shall perform all
the Services within the one (1) year period of this Agreement.
In addition to the five(5) compounds (as defined in paragraph 1.01 above),
Allergan shall have the right from time to time, during the term of this
Agreement, to request Oculex to formulate one or more compounds (herein
referred to as the "Benchmark Compounds") with DDS technology for the purpose
of comparing a particular Benchmark Compound to one of Allergan's Compounds.
The Benchmark compounds may or may not be proprietary to Allergan. It is
understood that if Allergan elects to request formulation of one or more
Benchmark Compound, this may delay the ability of Oculex to formulate one of
the five (5) Allergan proprietary Compounds. In this event the parties shall
cooperate to amend the work services schedule contemplated herein and, if
necessary, extend the term of this Agreement to complete DDS formulations for
all of the five (5) possible Compounds.
In consideration of Oculex performing the Services, beginning on the
Effective Date of this Agreement and at the beginning of each [*] period
thereafter, Allergan shall make payment of [*], for a total of [*] periods,
on each Compound and Benchmark Compound concerning which Services have been
requested and initiated, unless this Agreement is otherwise terminated by
Allergan as herein provided. Payments on Compounds or Benchmark Compounds for
which Services are requested after the Effective Date of this Agreement shall
start at the beginning of the first [*] payment period following such request
by Allergan.
These Services will include:
- Allergan to provide Compounds and Benchmark Compounds to Oculex
with appropriate but limited physical/chemical information.
- Oculex to formulate the Compounds and Benchmark Compounds into
DDS-Registered Trademark- implants at concentrations sufficient
to permit an agreed-upon sustained delivery of the Compounds
and Benchmark Compounds in animals over a minimum of 30 days.
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- The in vitro release testing shall be performed by Oculex to
establish 30 day release.
- Oculex to monitor release curves following in vitro testing..
- Allergan to provide Oculex with assays for Compounds and Benchmark
Compounds, and Oculex will provide additional analytical work on
assays as needed.
- Oculex shall provide Allergan with a written progress report on
its formulation work at the end of each 60 day period.
If Oculex is successful with its formulation work, and Allergan, at its sole
discretion, is satisfied with the results thereof, then the parties shall agree
on the funds required to proceed with the next steps, which shall include:
- Oculex to provide Allergan the necessary number of Compound/DDS
implants and Benchmark Compound/DDS implants for in vivo testing.
Results will be discussed to enable enhancement/optimization of the Compound/DDS
formulations.
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Exhibit 10.13
DISTRIBUTION, SUPPLY AND LICENSE AGREEMENT (U.S.)
THIS AGREEMENT (the "Agreement"), made effective as of the 14 day of
April, 1997 (the "Effective Date"), by and between Oculex Pharmaceuticals,
Inc., a corporation incorporated under the laws of California, having its
principal offices at 639 North Pastoria Avenue, Sunnyvale, California
94086-2917 (hereinafter referred to as "Oculex") and Storz Instrument
Company, a corporation incorporated under the laws of the State of Missouri,
having its principal offices at 3365 Tree Court Industrial Drive, St. Louis,
Missouri 63122 (hereinafter referred to as "Storz");
W I T N E S S E T H:
WHEREAS, Oculex is developing a proprietary drug delivery system for
use in delivering anti-inflammatory ophthalmic pharmaceutical agents to the
eye;
WHEREAS, Oculex owns technical information and know-how relating to
the synthesis, manufacture, implantation, and utilization of such products;
WHEREAS, Storz is interested in means for facilitating the use of
anti-inflammatory ophthalmic pharmaceutical products in cataract surgery or
in any other application for [*] in the [*] (hereinafter further defined
and referred to as the "Field");
WHEREAS, Storz desires to purchase from Oculex, or a source
designated by Oculex and reasonably acceptable to Storz drug delivery
products in the Field made by and/or for and sold by Oculex or any
Third-Party Supplier, to secure from Oculex an exclusive license under
Oculex's patent rights and know-how and the exclusive right to distribute,
use and/or sell such products in the hereinafter defined Territory, and to
obtain a right of first refusal to expand the Field to include the use of
such products to deliver anti-bacterial ophthalmic pharmaceutical agents to
the eye, upon the fulfillment of certain conditions, all upon the terms and
conditions hereinafter provided; and
WHEREAS, Oculex is willing to sell or have sold to Storz such
products and to grant such distribution right, licenses and right of first
refusal.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Storz and Oculex agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following terms shall be deemed to
have the following meanings:
1(a) "Competing Product" shall mean a product for use in the Field
that is not an Oculex Product and that is sold by Storz, its sublicensee
and/or Related Company in the Territory the sales of which, as reported in
the IMS Reports, equal or exceed twenty percent (20%) of Storz' or its
sublicensee's and/or Related Company's sales of Oculex Products in the
Territory, as reported in the IMS Reports, during an applicable calendar year.
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1(b) "Exclusive Eye Implant Product" shall mean all Oculex Products
sold by Storz during an applicable period wherein sales of implant products
by third parties in the Field and in the Territory as reported by IMS Reports
for such applicable period do not exceed twenty percent (20%) of sales of the
Oculex Products by Storz and its sublicensees during such applicable period
as reported by such IMS Reports.
1(c) "FDA" shall mean the United States Food and Drug Administration.
1(d) "Field" shall mean the use of anti-inflammatory ophthalmic
pharmaceutical agents in cataract surgery, or in any other application, for
treating an [*] in the [*] .
1(e) "GMP Audit" shall mean an assessment of (i) Oculex's and/or any
Third-Party Supplier's (as defined herein) compliance with Good Manufacturing
Practice for Pharmaceuticals: General, as set forth in Title 21 United States
Code of Federal Regulations, Part 211, and elsewhere, as well as any
applicable similar laws or regulations of any relevant foreign governments,
general industry practices and (ii) the effectiveness of Oculex's and/or any
such Third-Party Supplier's quality assurance programs in effect at the time
concerned.
1(f) "IMS Reports" shall mean the quarterly reports published by the
Hospital/Laboratory Database Division of IMS America, Plymouth Meeting,
Pennsylvania 19462-1048 in its publication "Hospital Supply Index: Product
Analyses", or by a mutually acceptable substitute medical product sales
reporting agency or publication.
1(g) "Licensed Know-how" shall mean any and all data, technology,
drawings, documentation and other proprietary and confidential information
which relates to Oculex Products and is owned, controlled or licensed by
Oculex (with the right to grant sublicenses) on the effective date or during
the term of this Agreement.
1(h) "Licensed Patent Rights" shall mean (i) the patents and patent
applications identified in the first section of Appendix A attached hereto;
(ii) any divisional, continuation, continuation-in-part (to the extent such
continuation-in-part applications claim subject matter disclosed in a patent
application or patent included in (i) or (ii) of this Paragraph 1(i)), or
substitute patent applications of any such applications; (iii) any foreign
counterpart of or corresponding to such patents and patent applications in
the Territory, including, without limitation, those patents and patent
applications identified in the second section of Appendix A attached hereto;
(iv) any patents which shall issue on any of the above-described patent
applications; and (v) any reissues, reexaminations and extensions of the
above, which are owned, controlled by or licensed to Oculex (with a right to
sublicense) on the Effective Date or during the term of this Agreement, and
which relate to Oculex Products. Oculex, at the written request of Storz,
will update Appendix A to reflect the then-current list of Licensed Patent
Rights, but no more than twice annually.
1(i) "Licensed Product", singular or plural, shall mean:
(i) any product useful in the Field claimed in any pending claim
in any pending patent application of the Licensed Patent
Rights in the Territory, or claimed in one or more valid,
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enforceable claims in one or more unexpired patents of the
Licensed Patent Rights in the Territory, or
(ii) any product useful in the Field employing, or intended to be
utilized employing, a process or method claimed in any
pending claim in any pending patent application of the
Licensed Patent Rights in the Territory, or claimed in one
or more valid, enforceable claims in one or more unexpired
patents of the Licensed Patent Rights in the Territory.
1(j) "NDA" shall mean an application as defined in the United States
Food, Drug and Cosmetic Act and applicable regulations promulgated thereunder
to the FDA, the filing of which is necessary to commence commercial sale of
Oculex Product in the Territory.
1(k) "Net Sales" shall mean the total or gross billings for sales or
other transfers of Oculex Products by Storz, or any sublicensees and/or any
Related Companies of Storz, in any arm's-length transactions to unrelated
third-party distributors, retailers or end users, less the following
deductions where factually applicable: (i) discounts and rebates allowed to
and taken by third parties, in amounts customary to the trade; (ii) outbound
transportation and insurance charges; (iii) special outbound packing; (iv)
sales, excise, use, turnover, inventory, value-added and similar taxes and/or
duties imposed upon sales of Oculex Products, but not including net income
tax; and (v) replacements in amounts refunded or credited upon purchase price
on returned or defective Oculex Products. Sales shall be accounted for when
invoiced and credits and refunds shall be accounted for when allowed. As used
herein, the word "sublicensee", singular or plural, shall mean a sublicensee
of any of the rights granted to Storz hereunder.
1(l) "Oculex Product", singular or plural, shall mean any drug
delivery product for use in the Field, including without limitation Licensed
Products, made by or for and/or sold or otherwise transferred (i) by Oculex
or any Third-Party Supplier, or (ii) if Storz exercises its option under
either Section 5(d) or 5(e), by Storz or any Storz Additional Source.
1m) "Phase II Clinical Trials" shall mean the well controlled trials
being conducted in the Territory according to the then current good Clinical
Practice regulations promulgated by the FDA for evaluating the Oculex Product
versus placebo in cataract patients.
1(n) "Potential Field" shall mean the use of [*] ophthalmic
pharmaceutical agents in [*] , or any other application, for treating an [*]
in the [*] .
1(o) "Process Validation" shall mean establishment of documented
evidence which provides a high degree of assurance that a specific process
conducted by Oculex and/or any Third-Party Supplier, will consistently
produce a particular Oculex Product meeting the Specification for such Oculex
Product and quality attributes for that Oculex Product, in accordance with
the FDA document entitled "General Principles of Process
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Validation", and other FDA documents and regulations, and any applicable
similar regulations of any relevant foreign governments.
1p) "Proprietary Information" shall mean, subject to the limitations
set forth in Section 12 hereof, all information received by a party hereto
pursuant to this Agreement from the other party. In particular, Proprietary
Information shall be deemed to include, but not be limited to, any patent
application or drawing, any trade secret, information, invention, idea,
sample of assay components, process, formula or test data relating to any
research project, work in process, future development, engineering,
manufacturing, regulatory, marketing, servicing, financing or personnel
matter relating to the disclosing party, its present or future products,
sales, suppliers, clients, customers, employees, investors or business,
whether in oral, written, graphic or electronic form.
1(q) "Related Company", singular or plural, shall mean a
corporation, partnership, trust or other entity that directly, or indirectly
through one or more intermediates, controls, is controlled by or is under
common control with a party to this Agreement. For such purposes, "control",
"controlled by" and "under common control with" shall mean the possession of
the power to direct or cause the direction of the management and policies of
an entity, whether through the ownership of voting stock or partnership
interest, by contract or otherwise. In the case of a corporation, the direct
or indirect ownership of at least fifty percent (50%) of its outstanding
voting shares (or, for countries limiting foreign ownership to forty percent
(40%) or more, direct or indirect ownership of more than forty percent (40%))
shall in any event be deemed to confer control, it being understood that the
direct or indirect ownership of a lesser percentage of such shares shall not
necessarily preclude the existence of control.
1(r) "Sample Cost" shall mean the cost to Oculex to supply Samples
to Storz, including the direct cost of labor, materials, shipping and
overhead solely associated with manufacturing Samples. No profit or general
corporate overhead may be included in Sample Cost.
1(s) "Second Source" shall mean a source of Oculex Products approved
by the FDA as an alternative or additional source of Oculex Products for
order by Storz for sale in the Territory which is designated by Oculex as a
Third Party Supplier of Oculex Products other than the source of Oculex
Product first approved by the FDA hereunder.
1(t) "Specifications" shall mean those specifications for a
particular Oculex Product, including any quality assurance protocols agreed
upon by the parties hereto. The Specifications for the first Oculex Product
to be supplied hereunder are attached hereto and incorporated herein as
Appendix B. The Specifications for subsequent Oculex Products will be
attached to Appendix B when the parties mutually agree upon such
Specifications. Any modifications of the Specifications for any Oculex
Product shall be effective when approved and signed by both parties hereto.
The parties agree that neither party may unreasonably withhold its agreement
to changes in any Specifications necessitated by FDA requirements.
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1(u) "Territory" shall mean the United States of America and its
territories and possessions.
1(v) "Third Party Supplier" shall mean any third party designated by
Oculex as a FDA approved supplier of Oculex Products.
1(w) "Unit of Oculex Product" shall mean an Oculex Product supplied
to Storz, its sublicensee and/or Related Company under this Agreement in a
dose approved by the FDA for a single application in the eye.
SECTION 2. INITIAL AND DEVELOPMENT MILESTONE PAYMENTS AND RELATED MATTERS
2(a) INITIAL PAYMENT: Within thirty (30) days following execution of
this Agreement, Storz will pay to Oculex the sum of [*] as a license fee,
of which [*] shall be paid as a license fee in full
consideration for the license to utilize the Licensed Know-how granted in
Paragraph 4(a) hereof, and of which the remaining [*]
shall be paid as a license fee in partial consideration for the license of
the Licensed Patent Rights granted in Paragraph 4(b) hereof.
2(b) MILESTONE PAYMENTS: Upon satisfactory completion by Oculex, and
receipt by Storz of documentation evidencing such completion, of the
following milestones during the term of this Agreement (hereinafter referred
to as "Milestones"), Storz shall pay to Oculex by the dates for payment
indicated below (hereinafter referred to as "Milestone Payment Dates") the
sums (hereinafter referred to as "Milestone Payments") set forth in the
following schedule for the particular purpose indicated for each Milestone
(i), (ii) and (iii):
(i) PHASE II CLINICAL TRIAL MILESTONE: Within sixty (60) days
following Storz' receipt of documentation evidencing results
from Oculex's completion of Phase II Clinical Trials, Storz
will make a Milestone Payment for such Phase II Clinical
Trials in accordance with the following schedule, if the
results achieved in such completed Phase II Clinical Trial
demonstrate that the Oculex Product is [*] more [*] than
[*] with [*] or [*] than normally associated with [*]:
<TABLE>
<CAPTION>
Date Documentation is Received by Storz Amount
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[*] [*]
[*] [*]
[*] [*]
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(ii) APPROVAL MILESTONE: Within thirty (30) days following
delivery by Oculex and acceptance by Storz of Oculex Product
in the amount ordered in the Initial Order following the
FDA's earliest NDA approval of the Oculex Product for the
United States, Storz will make a Milestone Payment in
accordance with the following schedule, based on
demonstration in well controlled phacoemulsion-technique
cataract surgery trials available to support a claim under
regulatory requirements in the Territory that:
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(a) Oculex Product is [*] more [*] than [*] with
[*] or [*] than normally associated with [*]:
<TABLE>
<CAPTION>
Date of Approval Amount
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<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
or, if (a) is not satisfied, then
(b) Oculex Product is [*] more [*] than [*] with
[*] or [*] than normally associated with [*]:
<TABLE>
<CAPTION>
Date of Approval Amount
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<S> <C>
[*] [*]
[*] [*]
[*] [*]
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or, if (b) is not satisfied, then
(c) Oculex Product does not meet minimum requirements
under this Paragraph 2(b)(ii) and [*].
In the event that Oculex demonstrates that the Oculex Product is
[*] more [*] than [*] under Paragraph 2(b)(ii)(b) and
receives the Milestone Payment specified therein, but thereafter
and within the time frames set forth under 2(b)(ii)(a) Oculex
demonstrates that the Oculex Product is [*] more [*] than
[*] under 2(b)(ii)(a), Storz will pay the difference between
the amount paid under 2(b)(ii)(b) and the amount due under
2(b)(ii)(a) within thirty (30) days following Storz' receipt of
documentation evidencing such result. However, in no event shall
any payment under 2(b)(ii)(b) be payable hereunder after a
payment under 2(b)(ii)(a).
(iii) APPROVAL ROYALTY PRE-PAYMENT MILESTONE: Within thirty (30)
days following delivery by Oculex and acceptance by Storz of
Oculex Product in the amount ordered in the Initial Order
following the FDA's earliest NDA approval of the Oculex
Product for the United States, Storz will make a Milestone
Payment to Oculex in accordance with the following schedule
if, based on the approval of the claims indicated, Oculex
has demonstrated in the clinical trials specified in
Paragraph 2(b)(ii) that:
(a) the Oculex Product is [*] more [*] than [*] with
[*] or [*] than normally associated with [*]:
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<TABLE>
<CAPTION>
Date of Approval Amount
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[*] [*]
[*] [*]
[*] [*]
</TABLE>
or, if (a) is not satisfied, then
(b) Oculex Product is [*] more [*] than [*] with
[*] or [*] than normally associated with [*]:
<TABLE>
<CAPTION>
Date of Approval Amount
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<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
or, if (b) is not satisfied, then
(c) Oculex Product does not meet minimum requirements under
this Paragraph 2(b)(iii) and [*] .
In the event that Oculex demonstrates that the Oculex
Product is [*] more [*] than [*] under 2(b)(iii)(b)
and receives the Milestone Payment specified therein, but
thereafter and within the time frames set forth under
2(b)(iii)(a) Oculex demonstrates that the Oculex Product is
[*] more [*] than [*] under 2(b)(iii)(a), Storz will
pay the difference between the amount paid under
2(b)(iii)(b) and the amount due under 2(b)(iii)(a) within
thirty (30) days following Storz' receipt of documentation
evidencing such result. However, in no event shall any
payment under 2(b)(iii)(b) be payable hereunder after a
payment under 2(b)(iii)(a). Payments due to Oculex under
this Paragraph 2(b)(iii) are in addition to those due to
Oculex under Section 2(b)(ii).
Any payment under this Paragraph 2(b)(iii) will be
deductible from earned royalty/product payments on Net Sales
throughout the Territory until recovered in full, but in no
event will deductions from any individual quarterly earned
royalty/product payment exceed [*] of the calculated
earned royalty/product payments payable for Net Sales
during the quarter concerned.
(iv) EFFECT OF TERMINATION ON MILESTONE PAYMENTS: Storz shall not
be obligated to pay any sum payable under this Paragraph
2(b) if prior to the Milestone Date set forth in this
Paragraph 2(b) for the Milestone concerned, either party
hereto has given notice of termination under any provision
of this Agreement.
SECTION 3. APPOINTMENT AND SALE OF PRODUCTS
3(a) Oculex hereby appoints Storz as Oculex's exclusive distributor for
the Territory of Oculex Products in the Territory. Oculex will sell only to
Storz, any sublicensees, and/or any Related Companies of
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Storz, or have sold by a Third-Party Supplier only to Storz, any sublicensees
and/or Related Companies of Storz, Oculex Products conforming to the
Specifications. In furtherance of the exclusive distribution rights granted
hereunder, Oculex agrees that it will not sell to anyone other than Storz,
its sublicensees and/or Related Companies, any Oculex Product, including
without limitation any Oculex Product including an anti-inflammatory
ophthalmic pharmaceutical agent(s) in addition to or in combination with any
other ophthalmic pharmaceutical agent or agents. Oculex agrees, and will
require any Third-Party Supplier to agree, not to knowingly sell or otherwise
transfer any Oculex Products to any third party for sale and/or use in the
Field in the Territory. In recognition of the exclusive licenses and the
additional rights granted to Storz hereunder, Oculex will exert reasonable
efforts to deter the sale in the Territory, other than by Storz, its
sublicensees and/or Related Companies, of Oculex Products and/or competitive
products made by or for, or under license from, Oculex for permitted sale in
countries outside the Territory. Storz will exert reasonable efforts to deter
the sale outside the Territory, other than by Oculex and/or its licensees, of
Oculex Products sold by Storz, its sublicensees and/or Related Companies
within the Territory.
3(b) Oculex agrees to sell or have sold to Storz, any sublicensees
and/or Related Companies, their full requirements of Oculex Products at the
prices set forth in Paragraph 3(e) hereof, shipped prepaid, within thirty
(30) days after receipt of order, in bulk or packaged, according to the
Specifications, F.O.B. Storz' facility, on payment terms of net thirty (30)
days. After any necessary regulatory, pricing and reimbursement approvals are
obtained, Storz will promote and market the Oculex Products in the Territory
on a timely basis employing at least the same level of advertising, marketing
and promotion efforts that Storz employs with respect to Storz' other drug
products of comparable commercial significance under similar circumstances.
Any Oculex Product delivered by Oculex or any Third-Party Supplier to Storz
under this Agreement shall meet the Specifications and shall be labeled,
packaged, sterilized and ready for distribution for use in the Field, as
required under the Specifications for such Oculex Product. Any Oculex Product
delivered by Oculex to Storz under this Agreement which is approved by the
FDA for a maximum shelf life of more than two (2) years shall have on the
date of delivery of such Oculex Product to Storz (i) a remaining unelapsed
shelf life of at least two (2) years on the date of delivery to Storz, and
(ii) not more than six (6) months of such FDA-approved maximum shelf life
elapsed. Any Oculex Product delivered by Oculex to Storz under this Agreement
approved by the FDA for a maximum shelf life of two (2) years or less shall
have on the date of delivery of such Oculex Product to Storz not more than
three (3) months of such FDA-approved maximum shelf life elapsed.
3(c) Storz and its sublicensees shall purchase or have purchased from
Oculex, or any Third-Party Supplier, their full requirements of Oculex Products,
except as provided in Paragraphs 3(d), 3(e) and 3(f) hereof. Storz shall place
orders to Oculex or the Third Party Supplier designated by Oculex for the
Territory. Storz will
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place its orders for Oculex Products on Storz' standard Purchase Order Form
attached hereto as Appendix C. The terms and conditions printed on the
reverse of such Purchase Order are incorporated herein by reference, except
where they are in conflict with the terms of this Agreement, in which case
the terms of this Agreement shall prevail. Such orders will be placed by
Storz at least quarterly for delivery by Oculex or any Third-Party Supplier
within sixty (60) days of receipt of order by Oculex. Oculex shall promptly
notify Storz of any event or situation that could reasonably result in any
inability of Oculex or its Third-Party Supplier to any material extent to
supply Oculex Product on or before the delivery date requested in any
purchase order or forecast submitted by Storz hereunder.
3(d) Within six (6) months following the submission by Oculex to the
FDA of an NDA requesting approval of the Oculex Products, Storz will supply
Oculex its reasonable estimate (hereinafter "Initial Forecast") of Storz'
requirements on a quarterly basis for the first year of supply of Oculex
Products and of samples of Units of Oculex Products (hereinafter "Samples")
for sale or other transfer in the Territory following approval of the NDA by
the FDA. Within thirty (30) days following Oculex's delivery to Storz of a
copy of a letter received by Oculex from the FDA indicating that the Oculex
Product is approvable, Storz shall place a binding purchase order
(hereinafter "Initial Order") for Storz' requirements of Oculex Products and
Samples for the first calendar quarter following Oculex's earliest receipt of
approval for sale of such Oculex Product. Oculex shall not be obligated to
supply in any quarter covered by the Initial Forecast more than the quantity
estimated for such quarter in the Initial Forecast. After submission of the
Initial Order, Storz may thereafter place further orders for FDA-approved
Oculex Product(s), provided that Storz pays the royalty prepayment due to
Oculex pursuant to Paragraph 2(b)(iii) on a timely basis.
3(e) For all Oculex Products, except Samples ordered by Storz, its
sublicensees and/or Related Companies from Oculex or any Third-Party Supplier
designated by Oculex, Storz, its sublicensees and/or any Related Companies
shall pay to Oculex [*] per Unit of Oculex Product delivered to Storz
(hereinafter referred to as the "Product Supply Price"). Storz, its
sublicensee and/or Related Company shall pay to Oculex the Sample Cost of
Oculex for manufacture and packaging of any Samples ordered, subject to a
limitation on the number of Samples that Oculex or the Third Party Supplier
must supply of (i) [*] of amounts of Units of Octet Products included in
the forecast for the first year immediately following the date on which
Oculex first delivers Oculex Product to Storz, and (ii) [*] of amounts of
Units of Oculex Products included in the forecast for each subsequent year
during the term of this Agreement. For example, if Storz' forecast provides
that Storz requires [*] Units of Oculex Products in the first year of the
Agreement, Storz may order a maximum of [*] Samples in that year under this
Paragraph. Any Oculex Products
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purchased for use as Samples in excess of the aforesaid limitations in any
year during the term of this Agreement shall be purchased at the Product
Purchase Price.
3(f) Following Storz' submission of its Initial Forecast, Storz will
thereafter provide to Oculex non-binding rolling forecasts of the anticipated
purchase requirements for Oculex Products and Samples of Storz, its
sublicensees and any Related Companies. Forecasts shall be due sixty (60)
days prior to the commencement of each calendar quarter and shall set forth
(i) Storz' actual requirements for the following quarter, which portion of
the forecast shall be binding, and serve as an order for Oculex Products and
Samples, and (ii) Storz' reasonable estimate of its requirements for the
following three (3) calendar quarters. Oculex shall deliver the Oculex
Products and Samples ordered for delivery by the delivery date specified
therein, but in no event shall Oculex be required to deliver more Oculex
Products in any given calendar quarter following the calendar quarters
covered by the Initial Forecast than: (i) [*] in excess of the amount
provided in the nonbinding forecast for such calendar quarter due five (5)
months prior to the beginning of the applicable calendar quarter, or (ii) [*]
in excess of the amount provided in the nonbinding forecast for such
calendar quarter due either eight (8) months or eleven (11 ) months prior to
the beginning of the applicable calendar quarter.
3(g) Within sixty (60) days following the date of the FDA's first
NDA approval of the Oculex Product for sale in the United States, Oculex will
advise Storz in writing of its intention to qualify a Second Source.
3(h) Oculex and Storz shall each appoint a representative as a point
of contact for each company for information exchange and dispute resolution
between the parties during the development of the Oculex Products by Oculex.
Each of the parties shall pay the travel and related costs of its
representative and/or employees in connection with this Paragraph 3(h).
Oculex shall provide to Storz access to, or copies of, Oculex's clinical
data, and all applications to, or correspondence with, governmental agencies
in connection with regulatory approval of Oculex Products and submissions and
requests therefor, including correspondence relating to clinical trials or
marketing of Oculex Products, which information shall be Proprietary
Information of Oculex. Storz shall likewise provide to Oculex access to any
clinical data, and access to, or copies of, all applications to, or
correspondence with, any such government agencies in connection with
regulatory approval of Oculex Products, including all correspondence relating
to clinical trials or marketing of Oculex Products, which information shall
be Proprietary Information of Storz.
3(i) Oculex, or any Third-Party Supplier, shall furnish Storz with a
written certificate for each lot of Oculex Products sold to Storz, its
sublicensee and/or any Related Company, stating that the Oculex Products in
that lot, identified by lot number, meet the Specifications. Storz, its
sublicensee and/or Related Company, within thirty (30) days of receipt of the
Oculex Products, shall have the right to reject any lots, cases or units
which fail to meet the Specifications. If Storz rejects Oculex Product it
shall so advise Oculex or any Third-Party Supplier of
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the reason for the rejection and shall not pay the Product Supply Price
therefor. Whether or not Oculex accepts Storz' basis for rejection, promptly
on receipt of a notice of rejection of Oculex Product, Oculex shall use
reasonable efforts at Storz' request to replace such rejected Oculex Product.
After notice of rejection is given, Storz shall cooperate with Oculex in
determining whether the rejected Oculex Products met the Specifications.
Storz will return to Oculex such portion of the allegedly non-conforming
batch of Oculex Product as Oculex may reasonably request for such evaluation,
accompanied by a written identification of the non-conforming aspects of such
Oculex Product. Oculex will evaluate the Oculex Product to verify that such
rejected Oculex Product does not conform to the Specifications, and shall
notify Storz as promptly as reasonably possible whether it accepts Storz'
basis for any rejection. If Oculex disagrees with Storz' determination that
certain Oculex Product does not meet the Specifications, such Oculex Product
shall be submitted to a mutually acceptable third party laboratory, which
shall determine whether such Oculex Product meets the Specifications. The
parties agree that such laboratory's determination shall be final and
determinative. If such laboratory determines the rejected Oculex Product
meets the Specifications and is commercially marketable, Storz shall bear all
costs billed by such third party laboratory for such testing and the added
costs of shipping the quantities of such rejected product to such third party
laboratory for analysis, and if in its sole discretion Storz (i) determines
to market such formerly rejected Oculex Product, Storz shall pay Oculex the
Product Supply Price therefor, or (ii) decides not to market such rejected
Oculex Product, Storz shall reimburse Oculex for its fully loaded costs of
manufacture of such rejected batch of Oculex Product and Oculex's direct
expense for shipment thereof. If Storz determines to market formerly rejected
Oculex Product, Storz shall reduce its order for Oculex Product during the
next calendar quarter by the amount of such formerly rejected Oculex Product
to the extent such product has been replaced by Oculex as heretofore set
forth in this Paragraph 3(i). If such laboratory determines that the rejected
Oculex Product does not meet the Specifications and/or is not commercially
marketable, Oculex shall bear all costs billed by such third party laboratory
for such testing and shall reimburse Storz for the costs of returning the
rejected batch to Oculex or of disposing of the rejected batch, as specified
by Oculex. Cost of freight to return to Storz, its sublicensee and/or Related
Company the reworked or replaced lot will be prepaid by Oculex.
3(j) Upon reasonable prior notice to Oculex, Storz, any representative
thereof, and/or any representatives of any United States or other domestic or
foreign governmental regulatory agency, shall have the right to inspect, during
normal business hours, the manufacturing areas of Oculex and/or any such
Third-Party Supplier which are involved in the production of the Oculex
Products, including any subcontractor(s) of Oculex or any Third-Party Supplier,
to perform a GMP Audit or other regulatory or quality assurance inspection, and
to review records of Oculex and/or any such Third-Party Supplier to assure
compliance with any of the terms of this Agreement. Except as otherwise required
by law, the right to review records relating to manufacture and/or costs
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of Oculex Product shall be limited to a period of three (3) years after such
manufacture and/or sale to Storz. Upon reasonable request by Storz, Oculex,
or any Third-Party Supplier, will provide copies to Storz, at Storz' expense,
of any manufacturing, cost and/or quality control records associated with the
products being manufactured for Storz, its sublicensee and/or Related
Company, provided that Oculex will not be obligated to disclose any
information which is unrelated to Oculex Products or which is proprietary
information of a third party to which Oculex owes an obligation of
confidentiality.
3(k) Oculex agrees to reasonably assist Storz in the investigation of
any complaints involving the material, manufacture, quality or design of Oculex
Products.
3(l) Storz shall include in its report of royalties due under this
Agreement for the fourth quarter of each calendar year the level of sales, if
any, by Storz, its sublicensees and/or Related Companies of any products in the
Field, other than Oculex Products, in the Territory during such calendar year.
3(m) If at any time during the term of this Agreement, Storz is selling
any product that is implanted in the eye for use in the Field in the Territory
(an "Implant Product"), then Oculex may by written notice advise Storz that
Oculex intends to terminate this Agreement and the rights and licenses herein
granted unless within one hundred eighty (180) days (hereinafter the "3(m)
Notice Period") following receipt of such notice from Oculex, Storz ceases
selling such Implant Product. If Storz does not cease selling such Implant
Product within the 3(m) Notice Period, then Oculex may by further written notice
terminate this Agreement and all rights and licenses granted hereunder effective
upon Storz' receipt of such further written notice from Oculex. Oculex must
deliver any written notice of intention to terminate pursuant to this Paragraph
3(m) to Storz not later than one hundred twenty (120) days following the date on
which Oculex first becomes aware that Storz is selling such Implant Product.
3(n) If prior to the date on which Oculex receives the first letter
from the FDA stating that the Oculex Product is approvable, Storz is selling
any product for use in the Field in the Territory that is not implanted in
the eye with calendar year net sales greater than [*] (a "Relevant
Product"), then Oculex may by written notice advise Storz that Oculex intends
to terminate this Agreement and the rights and licenses herein granted unless
within one hundred twenty (120) days (hereinafter the "3(n) Notice Period")
following receipt of such notice from Oculex, Storz commits in writing to
cease selling such Relevant Product not later than one hundred eighty (180)
days following the date on which the FDA approves the first Oculex Product
for sale in the Territory. If (i) Storz does not make such commitment within
the 3(n) Notice Period, or (ii) if Storz makes such commitment within the
3(n) Notice Period but does not cease sales of such Relevant Product within
such one hundred eighty (180) day period, then Oculex may by further written
notice terminate this Agreement and all rights and licenses granted hereunder
effective upon Storz' receipt of such further written notice from
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Oculex. Oculex must deliver any written notice of intention to terminate
pursuant to this Paragraph 3(n) to Storz not later than one hundred twenty
(120) days following the date on which Oculex first becomes aware that Storz
is selling such Relevant Product.
3(o) If at any time after the expiration of one (1) year following the
date on which Storz pays the amount due under Paragraph 2(b)(iii) hereof, Storz
is distributing or selling a Competing Product, Oculex shall have the right to
convert the exclusive rights and licenses granted to Storz under this Agreement
to nonexclusive rights and licenses for the remaining term of this Agreement
(the "Conversion Option"), as follows: Oculex shall exercise it Conversion
Option under this Paragraph 3(0) by providing written notice to Storz of
Oculex's intention to exercise its Conversion under this provision and Storz'
failure to cease such distribution and sale within one hundred twenty (120) days
of its receipt of such notice. Oculex must provide such notice of its exercise
of its Conversion Option under this Paragraph 3(0) within one hundred twenty
(120) days of the date on which Oculex first becomes aware that Storz is
distributing or selling a particular Competing Product, or be deemed to have
waived its rights under this Paragraph 3(0) with respect to that Competing
Product. Any such conversion of Storz' rights and licenses under this Agreement
from exclusive to nonexclusive shall be effective upon further notice by Oculex
to Storz if Storz has not ceased it distribution and/or sales of such Competing
Product within such one hundred twenty (120) day period. The foregoing
provisions of this Paragraph 3(o) notwithstanding, Oculex shall have no right to
exercise its Conversion Option during the one year period immediately following
payment of the amount due under Paragraph 2(b)(iii), and the one hundred twenty
day period within which Oculex must give such notice of intention to exercise
its Conversion Option, shall not begin under this Paragraph 3(o), for a period
of one (1) year following the date on which Storz pays the amount due under
Paragraph 2(b)(iii) of this Agreement.
3(p) If prior to the date upon which Oculex receives the first FDA
approval, Storz' merges with, is acquired by or otherwise transfers its business
unit to which this Agreement relates to a third party, Storz shall so notify
Oculex and if Oculex believes that such merger, acquisition or transfer may
materially impact Storz' ability to promote Oculex Products, then Oculex may by
written notice advise Storz that Oculex intends to terminate this Agreement and
the rights and licenses herein granted unless within one hundred twenty (120)
days following receipt of such notice from Oculex (hereinafter the "3(p) Notice
Period"), Storz can demonstrate to Oculex's satisfaction Storz' continued
ability to promote the Oculex Product at a level appropriate for the fulfillment
of Storz' obligations under Paragraph 3(b) after Oculex receives the FDA
approval of the Oculex Product. If Storz cannot demonstrate the foregoing within
the 3(p) Notice Period, then Oculex may by further written notice terminate this
Agreement and all rights and licenses granted hereunder effective upon Storz'
receipt of such further written notice from Oculex. In the event this Agreement
is terminated according to this Paragraph 3(p), Oculex shall refund to Storz
within ninety (90) days following the effective date of termination under this
Paragraph 3(p) the
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most recent single payment made to Oculex under either Paragraph 2(a) or
2(b). Oculex must deliver any written notice of intention to terminate under
this Paragraph 3(p) to Storz not later than one hundred twenty (120) days
following the date on which Oculex receives notice of such merger,
acquisition or other transfer from Storz, or be deemed to have waived its
rights to terminate under this Paragraph 3(n). All payments under Section 2
which may become due during the 3(p) Notice Period shall be deferred and will
not become due and payable until the earlier of (i) thirty (30) days
following expiration of the 3(p) Notice Period (ii) the date upon which the
relevant payment becomes due, if prior to the date such payment becomes due
Storz receives notice from Oculex that it will not exercise its option to
terminate this Agreement pursuant to this Paragraph 3(p), or (iii) the date
upon which Storz receives notice from Oculex that Oculex will not exercise
its option to terminate this Agreement, if the relevant payment had become
due prior to Storz' receipt of such notice. In the event Oculex terminates
this Agreement according to this Paragraph 3(p), no further payments shall be
due and payable to Oculex pursuant to this Agreement.
SECTION 4. LICENSES GRANTED
4(a) Oculex hereby grants to Storz and Storz hereby accepts a [*]
license, with the right to grant sublicenses, to utilize any Licensed
Know-how disclosed directly or indirectly to Storz in connection with this
Agreement in perpetuity to offer for sale, use and/or sell the Oculex
Products and any other products in the Field and in the Territory and to
manufacture, have manufactured and import the Oculex Products in the Field
and in the Territory in the event Storz obtains the right to manufacture the
Oculex Products pursuant to Section 5. Such license of Licensed Know-how
shall be exclusive for as long as the appointment of Storz as distributor of
Oculex Products in the Field and in the Territory made in Paragraph 3(a) of
this Agreement shall remain exclusive.
4(b) Oculex hereby grants to Storz and Storz hereby accepts an
exclusive royalty-bearing license, with the right to grant sublicenses, under
the Licensed Patent Rights to offer for sale, use and/or sell the Licensed
Products in the Field only and in the Territory. The license granted hereunder
specifically excludes any license to manufacture Licensed Product, except as
specifically provided otherwise in Section 5 of this Agreement, and shall become
non-exclusive if the appointment of Storz as the distributor of Oculex Products
in the Field and in the Territory made in Paragraph 3(a) of this Agreement is
converted to non-exclusive pursuant to any provision of this Agreement.
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SECTION 5. ROYALTIES
5(a) As further, ongoing consideration for the exclusive distribution
rights herein granted in Paragraph 3(a), and the license granted in Paragraph
4(b) hereof, Storz agrees to pay to Oculex an earned royalty on Net Sales during
each calendar quarter or portion thereof during the term of this Agreement, such
earned royalty to be calculated utilizing the royalty percentages specified in
this Section 5. Storz shall be entitled to offset in full against earned royalty
payable hereunder the total Product Supply Price paid by Storz for all Units of
Oculex Product on which Net Sales were reported for royalty calculation purposes
for the applicable quarter. Subject to the reductions in the earned royalties
set forth in Paragraph 5(b) below if the Oculex Product is not an Exclusive Eye
Implant Product, the royalty percentage to be used for calculation of earned
royalty on Net Sales shall be determined from the tables set forth hereinafter,
based upon the particular U.S. dollar amount of actual cumulative Net Sales
during the applicable calendar year and Storz' ability to promote the
alternative efficacy and side effect claims, as set forth hereinafter:
(i) if the Oculex Product has been demonstrated in well
controlled phacoemulsion-technique cataract surgery trials
as [*] more [*] than [*] with [*] or [*]
[*] than normally associated with [*] , the percentage
royalty payable by Storz on Net Sales during the applicable
calendar quarter shall be based upon the cumulative Net
Sales during the relevant calendar year during the term of
this Agreement as follows, and in accordance with the
instructions for calculating such percentage royalty
described in Paragraph 5(a)(iv):
<TABLE>
<CAPTION>
Cumulative Net Sales In Territory For Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
or, if (i) is not satisfied, then
(ii) if the Oculex Product has been demonstrated in well
controlled phacoemulsion-technique cataract surgery trials
as [*] more [*] than [*] with [*] or [*] than
normally associated with [*], the percentage royalty payable
by Storz on Net Sales during the applicable calendar quarter
shall be based upon the cumulative Net Sales during the
relevant calendar year during the term of this Agreement as
follows, and in accordance with the instructions for
calculating such percentage royalty described in Paragraph
5(a)(iv):
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<TABLE>
<CAPTION>
Cumulative Net Sales In Territory For Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
or, if (ii) is not satisfied, then
(iii) Oculex Product does not meet minimum requirements hereunder
and [*] under this Section 5, [*] Storz shall [*]
pay the Product Purchase Price specified in Paragraph 3(e)
for each Unit of Oculex Product delivered under this
Agreement.
(iv) The percentage royalty to be utilized for a particular
portion of Net Sales during an applicable calendar quarter
shall be determined by first calculating the cumulative Net
Sales from previous quarters during the applicable calendar
year ("Prior Sales") and the Net Sales during the relevant
calendar quarter for which an earned royalty is being
calculated ("Current Sales"). Then, the earned royalty on
Current Sales shall be calculated as follows:
(1) Determine the percentage royalty applicable to the
Current Sales, or separate portions thereof: First,
identify the range in the applicable table of Paragraph
5(a)(i) or 5(a)(ii) within which the Prior Sales falls,
and [*] the Prior Sales from the [*] of such range
("Range Differential"). Then,
(a) if the Current Sales are [*] or [*] the
Range Differential, the applicable Percentage
Royalty for all Current Sales shall be the
percentage royalty in the applicable table of
Paragraph 5(a)(i) or 5(a)(ii) corresponding to the
[*] in which the Prior Sales falls; or
(b) if the Current Sales are [*] the Range
Differential, the applicable Percentage Royalty
for that portion of Current Sales equal to the
Range Differential shall be the percentage royalty
in the applicable table of Paragraph 5(a)(i) or
5(a)(ii) corresponding to the range in which the
Prior Sales falls, and the applicable Percentage
Royalty for that portion of Current Sales
[*] the Range Differential shall be the
percentage royalty in the applicable table of
Paragraph 5(a)(i) or 5(a)(ii) corresponding to the
next [*] of Cumulative Net Sales in the same
table of Paragraph 5(a)(i) or 5(a)(ii). In
the unlikely event that the portion of Current
Sales [*] the Range Differential during a
calendar quarter [*] the difference between
the [*] and [*] of the [*] range, the
percentage
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royalty applicable to the amount of the Range
Differential [*] the [*] of the [*] range
shall be the percentage royalty corresponding
to the [*] range.
(2) Once the applicable percentage royalty has been
determined, calculate the Total Earned Royalty for Net
Sales in the current calendar quarter for each portion
of Current Sales for which an applicable percentage
royalty was determined in accordance with
5(a)(iv)(1)(a) or 5(a)(iv)(1)(b) by [*] each
such identified portion of Current Sales by the
percentage rate applicable thereto, and then sum all of
the results of such multiplication.
(3) Once the Total Earned Royalty on Net Sales has been
determined, calculate the Earned Royalty Payable by
[*] the number of units on which Current Sales
is based for the applicable calendar quarter by the
Purchase Price paid therefor under Paragraph 3(e), and
[*] the result from the Total Earned Royalty on
Net Sales in the current calendar quarter.
Two illustrative examples of the calculation required
under the various potential circumstances of Paragraph
5(a)(i) are set forth in Exhibit D attached hereto.
Such royalty payment due under this Paragraph 5(a) shall be mailed to Oculex
within sixty (60) days following the end of each calendar quarter concerned for
the term of this Agreement.
5(b) If for two (2) consecutive calendar quarters, Oculex Product is
not an Exclusive Eye Implant Product, whether or not such Oculex Product is
covered by the Licensed Patent Rights (hereinafter referred to as an "Non-EEIP
Event"), then effective with the quarter in which either party hereto notifies
the other party in writing that such Non-EEIP Event has occurred, the
corresponding percentage rate used to calculate any earned royalty/product
payment set forth in Paragraph 5(a) above shall be [*] percentage points
if 5(a)(i) applies or [*] percentage points if 5(a)(ii) applies for such
calendar quarter, such reduction to remain in effect until Oculex Product
is an Exclusive Eye Implant Product, whether or not such Oculex Product is
covered by the Licensed Patent Rights, for any two (2) consecutive calendar
quarters following the calendar quarter in which such notice of the Non-EEIP
Event was given, in which event the corresponding percentage rate used to
calculate any earned royalty/product payment set forth in Paragraph 5(a)
above shall be restored to its otherwise appropriate level under the other
terms of this Agreement.
5(c) If (i) Oculex advises Storz that Oculex does not intend to qualify
a Second Source; or (ii) Oculex advises Storz that Oculex intends to qualify a
Second Source but in fact fails to initiate and diligently pursue qualification
of a Second Source, or (iii) Oculex in any event fails to qualify a Second
Source within three (3) years
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following the date that Storz receives such written advice from Oculex, then
Storz shall have the right to select a Second Source acceptable to Oculex,
which acceptance shall not be unreasonably withheld, and Oculex shall take
such steps as are necessary, including without limitation any transfer of
know-how, regulatory approvals and information and grant of licenses, to
qualify such Second Source to manufacture and supply Oculex Products
hereunder as a Third-Party Supplier.
5(d) If for any reason Oculex or any Third-Party Suppliers are
unable to supply at least [*] of the full requirements of Storz, its
sublicensees and/or Related Companies for Oculex Products throughout the
Territory in accordance with Section 3 hereof for [*] during the term of
this Agreement, then Storz, its sublicensee and/or Related Companies shall
have the right upon written notice to Oculex, to manufacture or import, or
have manufactured by any additional source selected by Storz (hereinafter
referred to as "Storz Additional Source"), the total requirements of Storz,
its sublicensees and/or Related Companies for Oculex Products for the
remaining term of this Agreement for Storz, its sublicensees and/or Related
Companies, and Storz will be relieved of its obligation to purchase its
requirements of Oculex Product from Oculex or its Third Party Supplier. In
the event that Storz exercises its right to manufacture or appoint a Storz
Additional Source under this Paragraph 5(d), the earned royalty/product
payments set forth in Paragraphs 5(a) and 5(b), as applicable, payable on Net
Sales of any Oculex Products not supplied by either Oculex or a Third-Party
Supplier shall be [*] set forth in Subparagraphs 5(a)(i) and (ii) for the
remaining term of this Agreement.
5(e) If for any reason Oculex (i) [*] , or (ii) [*] , or (iii)
Oculex declares bankruptcy, then Storz and its sublicensees and/or Related
Companies shall have the right upon ninety (90) days prior written notice to
Oculex, to manufacture or import, or have manufactured by a Storz Additional
Source, the total requirements for Oculex Products of Storz, its sublicensees
and/or Related Companies for the Territory and for the remaining term of this
Agreement to the exclusion of Oculex. In the event that Storz exercises its
right to exclusively manufacture or appoint a Storz Additional Source under
this Paragraph 5(e), the earned royalty/product' payments set forth in
Paragraphs 5(a) and 5(b), as applicable, payable on Net Sales of any Oculex
Products not supplied by either Oculex or a Third-Party Supplier shall be [*]
regardless of the Cumulative Net Sales in the Territory for the calendar year
concerned for the remaining term of this Agreement.
5(f) In the event Storz exercises its option to exclusively manufacture
under Paragraph 5(d) or 5(e) hereof, Oculex shall have no right to manufacture
Oculex Products for itself or any third party for sale anywhere in the Territory
for the remaining term of this Agreement. In addition to the exclusive rights to
use, offer for sale and sell Oculex Products (including without limitation the
Licensed Products) and to use any Licensed Know-how
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disclosed to Storz to use, offer to sell and sell Oculex Products granted in
Paragraphs 4(a) and 4(b), and effective upon the written notice by Storz to
Oculex required under Paragraph 5(d) or 5(e) hereof, Oculex shall grant to
Storz the additional exclusive right and license to manufacture, have
manufactured and import Oculex Products under the Licensed Patent Rights and
under the Licensed Know-how. To facilitate such manufacturing, Oculex will
promptly transfer to Storz the Licensed Know-how and any other information
and/or knowledge (including without limitation any trade secrets relating to
manufacture and packaging of Oculex Products), grant to Storz a right of
reference to all regulatory and other governmental approvals and filings
required to make, package, sterilize and/or import Oculex Product or
components thereof, to execute all documents and amendments to this Agreement
necessary to grant the rights and licenses required under this Paragraph
5(f), and otherwise cooperate and assist Storz without additional
compensation, to the extent necessary to enable Storz to commercially
manufacture in production quantities, or have manufactured, the Oculex
Products in a timely manner to meet the full requirements of Storz, its
sublicensees and/or Related Companies for Oculex Products for the remaining
term of this Agreement. Oculex's obligations under this Paragraph 5(f) shall
survive any termination of this Agreement by Storz under Section 16 hereof or
expiration of this Agreement under Section 15 hereof, wherein prior to the
effective date of such termination or expiration Storz has given notice of
its election to exercise Storz' option under Paragraph 5(d) or 5(e) hereof.
SECTION 6. ROYALTY CALCULATION, REPORTS AND RECORDS
6(a) Storz agrees, and will require its sublicensees and any Related
Companies to agree, to keep true and accurate records adequate to establish any
royalty or other amount payable under this Agreement and to permit an
independent certified public accountant selected by Oculex and reasonably
acceptable to Storz, to inspect, on a confidential basis and at Oculex's
expense, said records once annually at reasonable times upon reasonable notice,
but only within a period of three (3) years after the royalty period to which
such records relate. Storz shall provide to Oculex calendar quarterly reports of
earned royalty due and payable on Net Sales, if any, of Storz, its sublicensees
and/or any Related Companies of Oculex Products in the immediately preceding
calendar quarter, which reports shall be mailed to Oculex within forty-five (45)
days after the end of each calendar quarter, accompanied by payment of all
amounts shown to be so due and payable, if any. Any payment payable under
Sections 5 and 6 hereof shall be made to a banking institution designated by
Oculex by check or wire or electronic transmission, as Oculex may direct from
time to time, in legal tender of the United States of America. In the event that
an audit of Storz records under this Paragraph 6(a) should reveal an
underpayment of earned royalty on Net Sales for any calendar quarter otherwise
due and payable under this Agreement that exceeds [*] of the total
amount actually paid by Storz, then Storz shall reimburse Oculex for the direct
expense
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to Oculex for such audit insofar as such expenses relate to the audit of the
calendar quarter or quarters for which such under payment in excess of [*]
occurred.
6(b) Earned royalty, as provided in Section 5 hereof, shall begin to
accrue upon the first commercial sale of Oculex Product by Storz, its
sublicensee and/or Related Company to any unrelated third-party distributor,
retailer or end user.
6(c) Only a single royalty under Section 5 hereof shall be payable to
Oculex for each specific Unit of Oculex Product regardless of the number of
countries in which manufacture, importation, sale, resale and/or use of such
Units of Oculex Product is made by Storz, any sublicensees, any Related
Companies and/or any direct or indirect customer thereof.
6(d) Royalty and other payments due to Oculex under this Agreement
shall accrue in the national currency of the country of sale by Storz, its
sublicensee or any Related Company, to an unrelated third-party distributor,
retailer or end user. If Oculex's country of residence, as indicated by Oculex's
mailing address designated on page 1 of this Agreement, is different from such
country of sale, then, if the laws or regulations of the country of sale so
permit, such royalty and other payments shall be converted into and paid in the
equivalent value in the currency of the country of Oculex's residence at the
applicable rate of exchange for such payments existing on the day of remittance.
Storz shall file such transfer applications and other papers as may be required
with the competent authorities to secure the transfer and conversion within the
time stipulated hereunder for the payment of royalty or other amounts due to
Oculex by the use of any lawful method as may be specified in writing by Oculex
for such purpose, provided same is in conformity with the laws and regulations
of the relevant countries subject to the terms and conditions of Paragraph 6(e)
of this Agreement. Oculex agrees to accept as royalty payments any such payments
from any sublicensee of Storz directly to Oculex, in lieu of such payments from
Storz, provided that Storz remains fully liable for such payment in the event of
non-payment by such sublicensee.
6(e) In the event that Storz or any sublicensee is prevented from
remitting to Oculex any payments owing to Oculex in the currency designated in
Paragraph 6(d) hereof by reason of any statutes, laws, codes or government
regulations, or the unavailability of such currency, then such payments may be
paid by depositing them in the currency in which such payments accrued to the
account of Oculex in a bank reasonably acceptable thereto. If the statutes,
laws, codes or government regulations should prohibit both remittance and bank
deposit of such payments, then the obligation to pay, deposit, accrue or
otherwise account for such payments shall be suspended for so long as said
prohibition shall be in effect, unless otherwise mutually agreed, and shall be
reinstated immediately upon any withdrawal or other invalidation of such
prohibition.
6(f) All taxes, assessments and fees of any nature levied by any
governmental entity in the Territory of this Agreement on the sale of Oculex
Products by Storz, any Storz sublicensee or any Related Company shall
20
[*] Confidential treatment requested with respect to certain portions of
this exhibit
<PAGE>
be paid by Storz, any sublicensee or any Related Company for its account.
However, if an income or other tax is levied on the recipient of any royalty
under this Agreement by any governmental entity and is legally required to be
withheld from the payment of royalty from Storz or any Storz sublicensee to
Oculex or from any Storz sublicensee and/or Related Company to Storz, such
tax shall be paid by Storz, its sublicensee and/or Related Company for the
account of Oculex, in which event an official receipt will be secured
evidencing such payment, the receipt forwarded to Oculex, and the amount of
such tax deducted from royalty paid to Oculex.
SECTION 7. RIGHT OF FIRST REFUSAL
In the event Oculex develops any product within the Potential Field
to the point that initial safety trials of such product in humans have been
completed anywhere in the world, and Oculex has formulated a protocol for
initial safety and efficacy clinical trials, Oculex shall make available to
Storz all information in Oculex's possession regarding prior trials and
development of such product that Storz may reasonably require to determine
its interest in such product. Storz shall have one hundred twenty (120) days
after receiving all of such information (hereinafter referred to as
"Evaluation Period") to evaluate its interest in expanding the definition of
Field under this Agreement to include the Potential Field. Storz shall notify
Oculex of its interest in such expansion of the Field to include the
Potential Field by providing written notice thereof to Oculex within the
Evaluation Period. Upon the date such notice is received by Oculex, the
definitions of Field in this Agreement and in any other agreement between the
parties relating to the distribution of the Oculex Product outside the
Territory shall be expanded to include the Potential Field, and the
definitions of Oculex Products and Licensed Products along with any other
definitions, rights and obligations of either party under this Agreement that
are related or dependent upon the definition of the Field shall be expanded
to conform therewith. In furtherance of the exclusive distribution rights
granted in Paragraph 3(a) in the event the definition of Field is expanded
pursuant to this Section 7 to include the Potential Field, Oculex agrees that
it will not, and will not permit a Third-Party Supplier to, sell to anyone
other than Storz, its sublicensees and/or Related Companies, any Oculex
Product in such expanded Field in the Territory, including without limitation
any product in such expanded Field including an [*] , an [*] or [*]
ophthalmic pharmaceutical agent(s) in addition to or in combination with any
other ophthalmic pharmaceutical agent or agents. The parties shall agree upon
acceptable milestone target dates and milestone payments for the development,
approval and supply of the first new Oculex Product in such expanded Field
substantially similar to those provided on the Effective Date for the first
Oculex Product supplied under this Agreement, taking into consideration the
commercial market for such new Oculex Product.
21
[*] Confidential treatment requested with respect to certain portions of
this exhibit
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SECTION 8. PATENT ENFORCEMENT AND DEFENSE
8(a) In the event that either party shall learn of any infringement of
any of the Licensed Patent Rights in the Territory by any third party, such
party shall immediately notify the other party of such infringement.
8(b) Oculex shall have the first right, but not the obligation, to
bring suit in its own name for infringement of any patent of the Licensed Patent
Rights. If Oculex fails to institute and action against such infringement within
ninety (90) days after the parties become aware of such infringement, Storz
shall have the right to bring suit in Storz' own name for infringement of any
patent included in the Licensed Patent Rights. Regardless of which party brings
suit, the party bringing suit shall consult with the other party regarding
strategy therefor, and the other party agrees to cooperate fully with the other
party in the conduct of any such suit, including if required to file suit, the
furnishing of a power of attorney granting only such authority as is essential
for such filing and conduct of the suit, and each party shall have the right to
participate in such action at its own expense using counsel of its own choice.
Each party shall be responsible for any costs and expenses for its own
attorneys, and any other expenses of suit shall be borne by the party filing
suit. Any recovery obtained by award or settlement or otherwise in such suit
shall be used to reimburse each party's expense (including counsel fees) and
thereafter, any remaining amount shall be shared equally by the parties.
8(c) Either party hereto shall have the right to defend, with counsel
of its choosing, against any claim and/or suit for patent infringement brought
by any third party against such party based on such party's manufacture,
importation, offer for sale, use or sale of Oculex Product, or to secure a
royalty-bearing license from any such third party to settle any such
controversy; provided that any settlement of such suit or license obtained with
respect to such third party's technology shall not materially adversely affect
the other party's rights and interests without such other party's prior consent,
such consent not to be unreasonably withheld. Each party shall notify the other
party hereto promptly of the commencement of any such suit, and such other party
shall cooperate fully with and assist the party defending any such suit. The
costs and expenses of any such suit, counterclaim, defense and/or judgment
against a party hereto and/or any settlement of any such claim and/or suit shall
initially be for the account of such party. However, if any of the unreimbursed
costs and expenses incurred in any such suit or claim are subject to a claim for
indemnification under Section 9, the party claiming indemnification for any such
suit or claim against such party and/or any settlement thereof, and/or any
payment or royalty made to any third party pursuant to a license from such third
party to avoid such party's infringement of any third-party patent rights by
manufacture, use, sale, offer for sale and/or import of Oculex Products, shall
be reimbursed by the indemnifying party hereto as provided in Section 9.
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SECTION 9. REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNIFICATION
9(a) Oculex warrants and represents that the Phase II Clinical Trials
are being conducted in phacoemulsion-technique cataract surgeries with adequate
patients to demonstrate statistical significance.
9(b) Oculex covenants that it will use diligent efforts to pursue
approval of Oculex Products for sale by Storz in the Territory.
9(c) Oculex warrants and represents that Oculex is the owner of the
entire right, title and interest in and to, or is an exclusive licensee under,
the Licensed Patent Rights, and the Licensed Know-how, that Oculex has the right
to grant any and all licenses granted in Sections 3 and 4 hereof, that no
license under any of said Licensed Patent Rights and/or Licensed Know-how has
heretofore been granted in the Field, that to Oculex's best knowledge and belief
on the Effective Date the Licensed Patent Rights are, or will be, valid and
enforceable, and that manufacture, use, import, offer for sale and/or sale of
the Oculex Products will not infringe any patent presently known to Oculex on
the Effective Date.
9(d) Oculex covenants that Oculex will promptly disclose to Storz any
and all Licensed Know-how presently owned or heretofore developed by Oculex, and
covenants that Oculex will timely disclose to Storz any additional Licensed
Know-how that Oculex may own, acquire or develop during the term of this
Agreement, related to Storz' activities and necessary for Storz to carry out is
obligations and fully exercise its rights under the licenses in effect at the
time concerned.
9(e) Oculex covenants that Oculex will prosecute and/or maintain the
Licensed Patent Rights in a commercially reasonable manner for the term of this
Agreement and that after execution of this Agreement, that any fee payable to
the United States Patent and Trademark Office for any of the Licensed Patent
Rights will not be paid based on a claim of small entity status and that Oculex
will instruct Oculex's attorneys to that effect. Oculex further covenants that
Oculex will provide to Storz, within thirty (30) days of any request by Storz in
connection with evaluation and/or prosecution of an action by Storz against a
third-party infringer of the Licensed Patent Rights pursuant to Section 8, any
information and copies of any records that Oculex has concerning conception
and/or first reduction to practice of the Licensed Patent Rights and the dates
thereof that Storz may reasonably require to bring and prosecute a suit against
such infringer. The responsibility for payment of any patent maintenance and/or
other governmental fees with respect to the filing, prosecution and maintenance
of all patents and patent applications included in the Licensed Patent Rights
shall be paid by Oculex and Oculex retains the right to control and finally
decide any matters relating thereto.
9(f) Oculex represents and warrants that as of the Effective Date,
Oculex is its own ultimate parent entity and does not have total assets and/or
annual net sales of Ten Million U.S. Dollars (US$10,000,000.00) or more within
the meaning of Title II of the Hart-Scott-Rodino Antitrust Improvement Act of
1976 (15 U.S.C. Section 18a)
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and the regulation promulgated thereunder, 16 C.F.R. 801.1 et seq.
Consequently, the parties mutually agree that a pre-merger notification is
not required pursuant to such statute or rules.
9(g) Oculex represents that Oculex, or any Third-Party Supplier, at the
time of delivery to Storz, has title to and the right to convey title to Storz
in any Oculex Products sold to Storz or any sublicensees.
9(h) Oculex warrants that as of the Effective Date Oculex was unaware
of any third party claims alleging that the sale and/or use of Oculex Products
infringe any third-party patents or other third-party proprietary rights.
9(i) Oculex agrees to defend, indemnify and hold harmless Storz, its
sublicensees or Related Companies from any claim and/or suit, including
reasonable attorneys' fees therefor, for actual or alleged infringement,
including willful infringement (except to the extent such wilfulness is based on
errors or omissions of Storz), by the manufacture, use, sale, offer for sale or
import of Oculex Products, or of any patents and/or other proprietary rights of
any third-party. If Storz is barred from selling or reasonably determines to
cease selling Oculex Products because of actual or alleged infringement of any
third-party patent or proprietary rights by virtue of sale and/or use of Oculex
Products, then Storz shall thereafter have no obligation to purchase Oculex
Products under the terms of this Agreement until such infringement claim is
resolved to Storz' reasonable satisfaction.
9(j) Oculex further represents and warrants that at the time of
shipment of Oculex Products to Storz, any sublicensee and/or Related Company,
(i) materials constituting or being part of any such shipment of Oculex Products
shall conform to the Specifications and that none of such materials will be
adulterated or misbranded within the meaning of the U.S. Federal Food, Drug and
Cosmetic Act, as amended, and the regulations issued thereunder, or any similar
foreign law, or within the meaning of any state or local law, the adulteration
and misbranding provisions of which are similar to the U.S. Federal Act, and
(ii) materials constituting or being part of any such shipment of Oculex
Products are not any product which may not, under the provisions of any law or
regulation, be introduced into interstate commerce. Oculex shall reimburse
Storz, its sublicensee and any Related Company for any costs of voluntary or
involuntary recall, recovery or withdrawal of Oculex Products required by any
U.S. federal, state or local laws, orders or regulations; except to the extent
that such recall arises out of the negligence or improper act of Storz, its
sublicensee and any Related Company or employees or agents thereof. THE EXPRESS
REPRESENTATIONS AND WARRANTIES STATED IN THIS SECTION 9 ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
9(k) Oculex covenants that it will not make any changes to the Oculex
Products, the Specifications for Oculex Products, or the process of
manufacturing or quality controlling such materials, without the express consent
of Storz, which consent shall not be unreasonably withheld. Neither party hereto
shall be obligated to
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supply or manufacture under this Agreement any Oculex Product that does not
comply with applicable U.S. federal, state and local laws and regulation.
9(l) The parties represent and warrant that they have the full right to
enter into this Agreement and that such party's entry into, and any terms of,
this Agreement separately or collectively do not conflict with any other
contractual obligations of such party. Each party agrees that it will not enter
into any agreements after the Effective Date hereof that are inconsistent or
conflict with such party's obligations under this Agreement.
9(m) Upon notification by Storz to Oculex that there has been or may be
a claim and/or suit instituted by a third party against Storz, its sublicensee
or Related Company for personal injury or property damage by virtue of the use
of Oculex Products purchased from Oculex and/or any Third-Party Supplier under
this Agreement, then Oculex, its successors and assigns shall defend, indemnify
and save harmless Storz, its sublicensees and any Related Companies, their
successors and assigns, against such claim and/or suit, including reasonable
attorneys' fees therefor, unless such claim or suit is wholly due to the
negligence or improper act of Storz, its sublicensee or Related Company, for
which Storz shall similarly indemnify Oculex, its successor and assigns. To the
extent that such claim or suit is in part due to the negligence or improper act
of Storz, Oculex shall indemnify Storz for that portion of such claim not due in
part to the negligence or improper act of Storz, its sublicensee or Related
Company, and Storz shall indemnify Oculex for that portion of such claim due to
the negligence or improper act of Storz.
9(n) Upon notification by Oculex to Storz that there has been or may be
a claim and/or suit instituted by a third party against Oculex or a Related
Company of Oculex for personal injury or property damages arising out of the use
of Oculex Products manufactured by Storz, then Storz, its successors and assigns
shall defend, indemnify and save harmless Oculex, its successors and assigns
against such claim or suit, unless such claim or suit is wholly due to the
negligence or improper act of Oculex or any Related Company of Oculex, or to any
breach of any representation, warranty or covenant by Oculex, in which event
Oculex shall similarly indemnify Storz, its successors and assigns. To the
extent that such claim or suit is in part due to the negligence or improper act
of Oculex, Storz shall indemnify Oculex for that portion of such claim not due
in part to the negligence or improper act of Oculex or its Related Company, and
Oculex shall indemnify Storz for that portion of such claim due to the
negligence or improper act of Oculex or any Related Company of Oculex. Any
indemnification under this Agreement is contingent upon the indemnified party
giving the indemnifying party prompt notice of such claim or suit and the
indemnified party reasonably cooperating with the indemnifying party with
respect to such claim. The indemnifying party shall have the right to control
and conduct the defense thereof, including the right to defend or settle such
claim or suit, provided such settlement does not materially adversely
25
<PAGE>
affect the rights of the indemnified party, and the indemnified party and
shall reasonably cooperate with the indemnifying party's prosecution, defense
and settlement of such claim.
9(o) Within thirty (30) days following Oculex's receipt of Storz'
Initial Order under Paragraph 3(d) of this Agreement, Oculex shall establish and
thereafter for the duration of Oculex's supply of Oculex Products to Storz
hereunder, maintain and/or require any Third-Party Supplier to maintain,
comprehensive general liability insurance, including contractual and product
liability, in amounts not less than $1,000,000 per occurrence and $3,000,000
annual aggregate covering any Oculex Products on a date of occurrence basis (not
a date of claim basis). Additionally, if any Oculex or such Third-Party Supplier
is located in the United States, then Oculex shall, and shall require any such
supplier to maintain Workers' Compensation Insurance with employer's liability
coverage limits of not less than $1,000,000. Oculex shall submit certificates
evidencing such insurance to Storz for the period of purchase of Oculex Products
by Storz or its sublicensee or Related Company.
SECTION 10. PATENT AND LICENSE NOTICE
Storz shall, and shall require each of its sublicensees (including
Related Companies), if any, to mark all Licensed Products made by Storz and sold
in the Territory with the number(s) of any applicable patent(s) of the Licensed
Patent Rights in accordance with the provisions of 35 U.S.C. Section. 287.
SECTION 11. TRADEMARKS AND TRADENAMES
11(a) Storz, its sublicensee and/or Related Company shall apply only
Storz' or any Storz sublicensee's and/or Related Company's trademarks to
Licensed Products manufactured by Storz hereunder, if any, except for the notice
required in Paragraph 1 l(b) hereof, and except as required by law. Neither
party may utilize the other party's tradename or trademarks for any press
release, advertising purpose or the like without the written consent of the
other party based on an advance review of any such proposed release or
advertisement.
11(b) Paragraph 1 l(a) notwithstanding, the parties agree that Storz
will, in consultation with Oculex, select an appropriate, registerable
trademark(s) (hereinafter the "Designated Trademark(s)") for use in the
marketing and sale of the Oculex Products in the Territory. Such trademark(s)
shall be initially owned by Oculex, and Oculex will file and prosecute an
application for registration of the Designated Trademark on the principal
register of the United States Patent and Trademark Office not later than one
(1) month following the first commercial sale of the Oculex Product. Oculex
hereby grants to Storz an exclusive license in the Territory to use the
Designated Trademark on the Oculex Product(s) sold by Storz hereunder, which
Designated Trademark will be utilized in connection with both parties'
commercialization of, and will be applied to the packaging of, the Oculex
Products sold or transferred in the Territory. Storz shall have the right to
apply to the Oculex Products and utilize any trademarks and labeling it
selects in addition to the Designated Trademark upon Oculex' prior approval,
which shall not be unreasonably withheld, provided that any such additional
trademarks and labeling
26
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shall conform to applicable rules and regulations of government authorities in
the Territory. After Storz has sold the Oculex Product for more than two (2)
years, Oculex shall assign to Storz all right, title and interest in and to the
Designated' Trademark along with the goodwill associated therewith in the
Territory, upon the written request of Storz and at no additional compensation
or reimbursement to Oculex. If Oculex assigns its right, title and interest in
the Designated Trademark to Storz pursuant to the preceding sentence, Storz
shall thereafter solely bear all costs accruing after the date of such
assignment of filing and prosecuting applications for registration and of
maintaining and defending all registrations of such mark in the Territory. Each
party hereto covenants not to damage the Designated Trademark or to reduce the
goodwill associated with the Designated Trademark during the conduct of business
relating thereto within or outside the Territory. Storz and Oculex each agree
not to utilize the Designated Trademark in connection with, or apply the
Designated Trademark to, any product other than an Oculex Product during
Oculex's continued supply of Oculex Products hereunder. In the event that this
Agreement is terminated by Oculex pursuant to Paragraphs 3(m), 3(n), 3(p), 16(a)
or 16(b) and Oculex has assigned the Designated Trademark to Storz pursuant to
this Paragraph 11 (b), Storz shall assign to Oculex all right, title and
interest in and to the Designated Trademark along with the good will associated
therewith upon the written request of Oculex and at no compensation or
reimbursement to Storz. In the event that Oculex ceases to supply Oculex Product
to Storz in the event Storz exercises its rights to manufacture or to appoint a
Storz Additional Source pursuant to Paragraph 5(e), Storz shall retain the
exclusive right to use the Designated Trademark in connection with any products
sold by Storz in the Field in the Territory, whether or not such products are
covered by the Licensed Patent Rights.
SECTION 12. CONFIDENTIALITY
12(a) During the term of this Agreement, and for a period of ten (10)
years after termination thereof, each party will maintain all Proprietary
Information received by it under this Agreement in trust and confidence and will
not disclose any such Proprietary Information to any third party or use any such
Proprietary Information for any purposes other than those necessary or permitted
for performance under this Agreement. In particular, neither party shall use any
know-how of the other party for the manufacture or sale of any product other
than the Oculex Product, except as expressly authorized by this Agreement. Each
party may use such Proprietary Information only to the extent required to
accomplish the purposes of this Agreement. Proprietary Information shall not be
used for any purpose or in any manner that would constitute a violation of any
laws or regulations, including without limitation the export control laws of the
United States. Proprietary Information shall not be reproduced in any form
except as required to accomplish the intent of this Agreement. No Proprietary
Information shall be disclosed to any employee, agent, consultant or Related
Company who does not have a need for such information. To the extent that
disclosure is authorized by this Agreement, the disclosing party will obtain
prior
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agreement from its employees, agents, consultants, Related Companies or
clinical investigators to whom disclosure is to be made to hold in confidence
and not make use of such information for any purpose other than those
permitted by this Agreement. Each party will use at least the same standard
of care as it uses to protect its own Proprietary Information of a similar
nature to ensure that such employees, agents, consultants and clinical
investigators do not disclose or make any unauthorized use of such
Proprietary Information, which shall in any event not be less than reasonable
care. Each party will promptly notify the other upon discovery of any
unauthorized use or disclosure of the Proprietary Information. The foregoing
obligations of this Paragraph 12(a) shall not apply to, and proprietary
Information shall not include, any information which:
(i) is now, or becomes to be, in the public domain,
through no breach of this Agreement by the
receiving party; or
(ii) the receiving party can demonstrate by competent
proof was in its possession prior to the time of
disclosure under this Agreement by the disclosing
party or
(iii) is disclosed to the receiving party by a third party
owing no obligation of confidentiality to the
disclosing party with respect to the Confidential
Information.
The parties agree that the material financial terms of the Agreement will be
considered Proprietary Information of both parties. Notwithstanding the
foregoing, either party may disclose such terms to bona fide potential corporate
partners, to the extent required or contemplated by this Agreement, and to
financial underwriters and other parties with a need to know such information.
All such disclosures shall be made only to parties under an obligation of
confidentiality.
12(b) Notwithstanding any other provision of this Agreement, each party
may disclose Proprietary Information if such disclosure:
(i) is in response to a valid order of a court or other
governmental body of the United States or a foreign
country, or any political subdivision thereof;
provided, however, that the responding party shall
first have given notice to the other party hereto and
shall have made a reasonable effort to obtain a
protective order requiring that the Proprietary
Information so disclosed be used only for the
purposes for which the order was issued and that the
disclosure and use thereof be restricted as described
in this Section 12 to the extent feasible under the
circumstances;
(ii) is otherwise required by law or regulation, including
requirements imposed by the Securities and Exchange
Commission with respect to documents filed therewith;
or
(iii) is otherwise necessary to file or prosecute patent
applications, prosecute or defend litigation, comply
with applicable governmental regulations or otherwise
establish rights or
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enforce obligations under this Agreement, but only
to the extent that any such disclosure is necessary.
SECTION 13. ADVERSE REACTIONS
The parties shall use diligent efforts promptly to report to each
other by telephone or facsimile any information on severe or unanticipated
adverse reactions to the use of any Oculex Product in Phase II Clinical
Trials or in any clinical trial of Oculex Products conducted thereafter. In
no event shall Storz disclose the occurrence or symptoms of any adverse
reaction to any third party without the prior written approval of Oculex,
except as required by law or regulation or as necessary to act in a medical
emergency, in which case Storz shall use diligent efforts to provide Oculex
with simultaneous notification. Each party hereby covenants with the other to
make all adverse reaction reports to the appropriate authorities in a timely
fashion and in the manner required by all applicable laws and regulations.
SECTION 14. FORCE MAJEURE
Neither party to this Agreement shall be responsible to the other party
for nonperformance or delay in performance of any terms or conditions of this
Agreement due to acts of God, acts of governments, wars, riots, strikes,
accidents in transportation, or other causes beyond the reasonable control of
the parties, provided that the party affected by any of the foregoing shall make
reasonable efforts to overcome such event of force majeure. Failure to pay money
shall not be excused under this Section.
SECTION 15. TERM OF AGREEMENT
Unless this Agreement shall be terminated by either party pursuant to
the provisions hereof, this Agreement shall remain in force and effect from the
Effective Date until the expiration of the last-to-expire of the patents
included in the Licensed Patent Rights in the Territory, or if no such patent
issues, until fifteen (15) years after the Effective Date. This Agreement will
thereafter automatically renew for successive three (3) year periods, unless
either party shall by written notice six (6) months in advance of the end of
such renewal period advise that such party desires to terminate this Agreement,
in which case this Agreement shall expire effective six (6) months after the
date on which such notice is delivered. In the event that Storz exercises its
option under Paragraph 5(d) or 5(e), this agreement shall expire upon the later
of (i) fifteen (15) years after the Effective Date or (ii) the date on which
Storz' exercise of such option under Paragraph 5(d) or 5(e) becomes effective.
Upon expiration of this Agreement pursuant to this Section 15, Storz, its
sublicensees and any of its Related Companies shall have a fully paid-up,
royalty-free license under the Licensed Patent Rights and the Licensed Know-how
in the Territory to make, have made, import, offer to sell, use and/or sell
Licensed Products in the Territory without limitation.
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SECTION 16. TERMINATION
16(a) In the event that either party hereto shall fail to comply with
any of its material obligations under this Agreement, and such failure is not
cured within thirty (30) days after the other party provides written notice of
such failure to such party, which notice shall fully specify the obligation with
which the first party has not complied, then the other party, by further written
notice to such party, may terminate this Agreement.
16(b) All rights and licenses granted under or pursuant to this
Agreement by Oculex to Storz are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy Code"),
licenses and rights to "intellectual property" as defined under Section 101 of
the Bankruptcy Code. The parties agree that Storz, as recipient of such rights
under this Agreement, shall retain and may fully exercise all of its rights and
elections under the Bankruptcy Code. Oculex shall also have the right to
terminate this Agreement in the event of the filing of a voluntary or
involuntary petition of bankruptcy of Storz.
16(c) Storz may terminate this Agreement at any time on ninety (90)
days notice in writing to Oculex.
SECTION 17. ASSIGNABILITY
17(a) This Agreement may be assigned by either of the parties hereto
and shall inure to the benefit of the parties' heirs, successors, assigns or
other legal representatives.
17(b) Oculex agrees to notify Storz in writing within thirty (30) days
of its first knowledge of any change in ownership or transfer of rights in any
of the Licensed Patent Rights from any owner to any third party.
SECTION 18. NOTICES AND PAYMENTS
Any notice or communication required or permitted to be given by either
party hereunder shall be in written form and shall be considered to be
sufficiently given if mailed by registered airmail or transmitted by telex,
facsimile or other electronic means, addressed to the parties hereto as follows,
or any substitute address of either party notified in writing to the other
party:
To Storz:
Storz Instrument Company
3365 Tree Court Industrial Drive
St. Louis, Missouri 63122, U.S.A.
Attention: President
Telephone Number: 314/225-5051
Facsimile Number: 314/861-2137
To Oculex:
Oculex Pharmaceuticals, Inc.
639 North Pastoria Avenue
Sunnyvale, California 94086-2917
Attention: President
Telephone Number: 408/481-0424
Facsimile Number: 408/481-0662
30
<PAGE>
Any payments to be made under this Agreement shall likewise be directed to the
address indicated above, or to a bank in the United States designated in writing
by Oculex effective thirty (30) days following Storz' receipt of such written
notice from Oculex.
SECTION 19. APPLICABLE LAW
The parties hereto agree that this Agreement shall be considered to
have been made in, and construed and interpreted in accordance with the
substantive laws of, the State of Missouri, the courts of which shall have
exclusive jurisdiction over any dispute arising hereunder.
SECTION 20. SEVERABILITY
This Agreement is subject to the restrictions, limitations, terms and
conditions of all applicable governmental regulations, approvals and clearances.
If any term or provision of this Agreement is held invalid, illegal or
unenforceable in any respect for any reason, that invalidity, illegality or
unenforceability shall not affect any other term or provision hereof, and this
License Agreement shall be interpreted and construed as if such term or
provision, to the extent the same shall have been held to be invalid, illegal or
unenforceable, had never been contained herein. In the event this Section 20
becomes applicable, the parties shall meet and attempt to negotiate an amendment
to this Agreement to achieve the parties' original intent to the extent feasible
and permissible under any applicable laws and regulations.
SECTION 21. WAIVER
Failure by either party to enforce any rights under this Agreement
shall not be construed as a waiver of such rights nor shall a waiver by either
party in one or more instances be construed as constituting a continuing waiver
or as a waiver in other instances.
SECTION 22. MISCELLANEOUS
22(a) Upon the termination of this Agreement and/or any sublicense
granted hereunder, Storz, its sublicensees and any Related Companies shall have
the right to dispose of all Licensed Products and/or Oculex Products then on
hand, including work in process, and to meet all pending orders for Licensed
Products and/or Oculex Products, but earned royalty which would otherwise be
payable pursuant to Paragraph 5(a) of this Agreement had such termination not
become effective, shall be paid with respect to all such Licensed Products
and/or Oculex Products when sold as though this Agreement had not been
terminated.
22(b) Neither termination nor expiration of this Agreement shall
terminate Storz' obligation to report and pay all earned royalty which shall
then have accrued up to the date of such expiration or termination. Storz'
obligation to submit its and its sublicensees' books and records for inspection
shall continue after such expiration or termination in accordance with the
provisions of Paragraph 6(a) hereof.
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<PAGE>
22(c) This Agreement contains all of the agreements and
understandings made between the parties hereto concerning the subject matter
hereof, and any prior agreements, express or implied, relating to the subject
matter hereof are expressly superseded and canceled. No amendment of this
Agreement shall be effective unless in writing and signed by the parties
hereto.
22(d) This Agreement may be executed simultaneously in two identical
and unaltered counterparts, either one of which need not contain the
signature of more than one party, and in such event both such counterparts
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate effective on the day and year first above written.
OCULEX PHARMACEUTICALS, INC.
By: /s/ Jerry B. Gin ATTEST:
---------------------------------------
Jerry G. Gin By: /s/ Vernon G. Wong
--------------------------------------- ----------------------------
(Type or Print Name)
Title: President Vernon G. Wong
------------------------------------ ----------------------------
(Type or Print Name)
Date: 4/14/97
-------------------------------------
Fed. Tax # 77-0228667
--------------------------------
STORZ INSTRUMENT COMPANY
By: /s/ Robert H. Blankemeyer ATTEST:
--------------------------------------
Robert H. Blankemeyer By: /s/ Carla Young
-------------------------------------- ----------------------------
(Type or Print Name)
Title: President Carla Young
----------------------------------- ----------------------------
(Type or Print Name)
Date: 4/11/97
------------------------------------
32
<PAGE>
APPENDIX A
LICENSED PATENT RIGHTS
The Licensed Patent Rights for the United States of America referred to in the
attached Distribution, Supply and License Agreement (U.S.) include, without
limitation, the following:
<TABLE>
<CAPTION>
GRANT PATENT
OCULEX'S PATENT # DATE APPLN.# FILING DATE EXPIRATION DATE OCULEX'S PATENT TITLE
<S> <C> <C> <C> <C> <C> <C>
Biodegradable Ocular
US [*] [*] [*] Implants
Biodegradable Ocular
US [*] [*] [*] Implants
</TABLE>
[*] Confidential treatment requested with respect to certain portions of
this exhibit
<PAGE>
APPENDIX B
SPECIFICATIONS OF OCULEX PRODUCTS
A biodegradable drug delivery system (DDS) with the main components being
composed of [*] and dexamethasone (dexamethasone DDS). The formulation is
configured to give a therapeutic level of dexamethasone for a sufficient
period within the interior of the anterior chamber of the eye to control
inflammation after cataract surgery. The entire system will degrade within a
three to four week period.
The packaging of the product shall consist of:
*Dexamethasone DDS
*Container holding Dexamethasone DDS
* [*]
*Foil pouch to house Dexamethasone DDS and [*]
*Package insert
*Box to house pouched Dexamethasone DDS
The dexamethasone DDS shall be delivered as a fully packaged sterilized and
labeled product.
[*] Confidential treatment requested with respect to certain portions of
this exhibit
<PAGE>
APPENDIX C
PURCHASE ORDER SAMPLE
<PAGE>
APPENDIX D
EXAMPLES OF PERCENTAGE ROYALTY DETERMINATION UNDER SECTION 5
EXAMPLE 1:
Under the following table from Paragraph 5(a)(i) above:
<TABLE>
<CAPTION>
Cumulative Net Sales in Territory for Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
assume Net Sales for the first quarter of a calendar year equal [*] , and
Net Sales for the second quarter equal [*] . Also assume that the Net Sales
for the second quarter are based on sales of [*] units of Oculex Product.
The Prior Sales equal [*], and the Current Sales equal [*] . Prior Sales
falls within the first range of the applicable table and the Range
Differential ( [*] of $ [*] minus Prior Sales) equals [*] . In this case,
the Current Sales are [*] than the Range Differential, and 5(a)(iv)(1)(b)
applies. Therefore, because the Prior Sales falls in the first range, the
percentage royalty applicable to the Range Differential portion ( [*] ) of
Current Sales for the second quarter will be [*] , and the percentage
royalty applicable to the portion of Current Sales [*] the Range
Differential (Current Sales of [*] minus Range Differential of [*] [*] )
for the second quarter will be [*] . The Total Earned Royalty on Net Sales
for the second quarter equals [*] (Range Differential portion) [*] by [*]
( [*] ), plus [*] ( [*] Range Differential portion) [*] by [*] ( [*]
), for a total of [*] . Earned Royalty Payable would be determined by [*]
the number of units of Oculex Products on which Net Sales were reported for
royalty calculation for the second calendar quarter [*] the Purchase Price
under Paragraph 3(c) [ [*] units [*] by [*] = [*] ], and [*] the
result from Total Earned Royalty on Net Sales calculated for such second
quarter, or
[*]
EXAMPLE 2:
Under the following table from Paragraph 5(a)(i) above:
<TABLE>
<CAPTION>
Cumulative Net Sales in Territory For Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
assume Net Sales for the first, second and third quarters of a calendar year
equal [*] , [*] and [*] , respectively, and Net Sales for the fourth
quarter equal [*] . Also assume that the Net Sales for the fourth quarter
are based on sales of [*] units of Oculex Product. The Prior Sales equal
[*] , and the Current Sales equal [*] . Prior Sales falls within the second
range of the applicable table and the Range Differential ( [*] of [*]
minus Prior Sales) equals [*] . In this case, the Current Sales are [*]
than the Range Differential, and 5(a)(iv)(1)(b) applies. Therefore, because
the Prior Sales falls in the [*] range, the percentage royalty applicable to
the Range Differential portion ( [*] ) of Current Sales for the second
quarter will be [*] , and the percentage royalty applicable to the portion
of Current Sales [*] the Range Differential (Current Sales of [*] minus
Range Differential of [*] = [*] ) for the second quarter will be [*] .
The Total Earned Royalty on Net Sales for the second quarter equals [*]
(Range Differential portion) [*] by [*] ( [*] ), plus [*] ( [*] Range
Differential portion) [*] by [*] ( [*] ), for a total of [*] . Earned
Royalty Payable would be determined by [*] the number of units of Oculex
Products on which Net Sales were reported for royalty calculation for the
second calendar quarter [*] the Purchase Price under Paragraph 3(c) [ [*]
units [*] by [*] ], and [*] the result from Total Earned Royalty on Net
Sales calculated for such second quarter, or
[*]
[*] Confidential treatment requested with respect to certain portions of
this exhibit
<PAGE>
Exhibit 10.14
DISTRIBUTION, SUPPLY AND LICENSE AGREEMENT (FOREIGN)
THIS AGREEMENT (the "Agreement"), made effective as of the 14 day of
April, 1997 (the "Effective Date"), by and between Oculex Pharmaceuticals,
Inc., a corporation incorporated under the laws of California, having its
principal offices at 639 North Pastoria Avenue, Sunnyvale, California
94086-2917 (hereinafter referred to as "Oculex") and Storz Instrument
Company, a corporation incorporated under the laws of the State of Missouri,
having its principal offices at 3365 Tree Court Industrial Drive, St. Louis,
Missouri 63122 (hereinafter referred to as "Storz");
WITNESSETH:
WHEREAS, Oculex is developing a proprietary drug delivery system for
use in delivering anti-inflammatory ophthalmic pharmaceutical agents to the
eye;
WHEREAS, Oculex owns technical information and know-how relating to
the synthesis, manufacture, implantation, and utilization of such products;
WHEREAS, Storz is interested in means for facilitating the use of
anti-inflammatory ophthalmic pharmaceutical products in cataract surgery or
in any other application for treating [*] in the [*] (hereinafter further
defined and referred to as the "Field");
WHEREAS, Storz desires to purchase from Oculex, or a source
designated by Oculex and reasonably acceptable to Storz drug delivery
products in the Field made by and/or for and sold by Oculex or any
Third-Party Supplier, to secure from Oculex an exclusive license under
Oculex's patent rights and know-how and the exclusive right to distribute,
use and/or sell such products in the hereinafter defined Territory, and to
obtain a right of first refusal to expand the Field to include the use of
such products to deliver anti-bacterial ophthalmic pharmaceutical agents to
the eye, upon the fulfillment of certain conditions, all upon the terms and
conditions hereinafter provided; and
WHEREAS, Oculex is willing to sell or have sold to Storz such
products and to grant such distribution right, licenses and right of first
refusal.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Storz and Ocutex agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following terms shall be deemed to
have the following meanings:
1(a) "Competing Product" shall mean a product for use in the
Field that is not an Oculex Product and that is sold by Storz, its
sublicensee and/or Related Company in the Territory the sales of which, as
reported by a Sales Reporting Agency, equal or exceed twenty percent (20%) of
Storz or its sublicensee's and/or Related Company's sales of Oculex Products
in the Territory, as reported by such Sales Reporting Agency, during an
applicable calendar year.
1
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
1(b) "Exclusive Eye Implant Product" shall mean all Oculex Products
sold by Storz during an applicable period wherein sales of implant products
by third parties in the Field and in the Territory as reported by a Sales
Reporting Agency for such applicable period do not exceed twenty percent
(20%) of sales of the Oculex Products by Storz and its sublicensees in the
Territory during such applicable period as reported by such Sales Reporting
Agency.
1(c) "FDA Equivalent" shall mean that agency or collective agencies
of a country of the Territory that is the counterpart of the United States
Food and Drug Administration for such country responsible for approval of
pharmaceuticals and/or medical devices, as applicable, for products such as
Oculex Products hereunder.
1(d) "Field" shall mean the use of anti-inflammatory ophthalmic
pharmaceutical agents in cataract surgery, or in any other application, for
treating an [*] in the [*].
1(e) "GMP Equivalent Audit" shall mean an assessment of (i) Oculex's
and/or any Third-Party Supplier's (as defined hereinafter) compliance with
Good Manufacturing Practice for Pharmaceuticals: General, as set forth in
Title 21 United States Code of Federal Regulations, Part 211, and elsewhere,
as well as any applicable similar regulations of any relevant foreign
governments and/or general industry practices and (ii) the effectiveness of
Oculex's and/or any such Third-Party Supplier's quality assurance programs in
effect at the time concerned.
1(f) "Licensed Know-how" shall mean any and all data, technology,
drawings, documentation and other proprietary and confidential information
which relates to Oculex Products and is owned, controlled or licensed by
Oculex (with the right to grant sublicenses) on the effective date or during
the term of this Agreement.
1(g) "Licensed Patent Rights" shall mean (i) the patents and patent
applications identified in the Section II of Appendix A attached hereto; (ii)
any divisional, continuation, continuation-in-part (to the extent such
continuation-in-part applications claim subject matter disclosed in a patent
application or patent included in (i) or (ii) of this Paragraph l(h)), or
substitute patent applications of any such applications; (iii) any patent
applications in any country of the Territory, as hereinafter defined, filed
by Oculex on the Licensed Inventions or counterpart of or corresponding to
the United States patents and patent applications identified in Section I of
Appendix A attached hereto, in any country of the Territory, including,
without limitation, those patents and patent applications identified in
Section II of Appendix A attached hereto; (iv) any patents which shall issue
on any of the above-described patent applications; and (v) any reissues,
reexaminations and extensions of the above, which patent rights identified in
subparagraphs (i) -(v) herein are owned, controlled by or licensed to Oculex
(with a right to sublicense) on the Effective Date or during the term of this
Agreement, and which relate to Oculex Products. Oculex, at the written
request of Storz, will update Appendix A to reflect the then-current list of
Licensed Patent Rights, but no more than twice annually.
1(h) "Licensed Product", singular or plural, shall mean:
2
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
(i) any product useful in the Field and in any country of
the Territory claimed in any pending claim in any
pending patent application of the Licensed Patent
Rights in or for said country, or claimed in one or
more valid, enforceable claims in one or more
unexpired patents of the Licensed Patent Rights in or
for said country, or
(ii) any product useful in the Field and in any country of
the Territory employing, or intended to be utilized
employing, a process or method claimed in any pending
claim in any pending patent application of the
Licensed Patent Rights in or for said country, or
claimed in one or more valid, enforceable claims in
one or more unexpired patents of the Licensed Patent
Rights in or for said country.
1(i) "Major European Country", singular or plural, shall mean one or
all, as applicable, of the European countries of Belgium, France, Germany,
Great Britain and The Netherlands.
1(j) "NDA Equivalent" shall mean an application equivalent to an NDA
as defined in the United States Food, Drug and Cosmetic Act and applicable
regulations promulgated thereunder, made to an FDA Equivalent of any country
of the Territory, the filing of which is necessary to commence commercial
sale of Oculex Product in such country.
1(k) "Net Sales" shall mean the total or gross billings for sales or
other transfers of Oculex Products by Storz, its sublicensees and/or any
Related Companies, as hereinafter defined, in any arm's-length transactions
to unrelated third-party distributors, retailers or end users, less the
following deductions where factually applicable: (i) discounts and rebates
allowed to and taken by third parties, in amounts customary to the trade;
(ii) outbound transportation and insurance charges; (iii) special outbound
packing; (iv) sales, excise, use, turnover, inventory, value-added and
similar taxes and/or duties imposed upon sales of Oculex Products, but not
including net income tax; and (v) replacements in amounts refunded or
credited upon purchase price on returned or defective Oculex Products. Sales
shall be accounted for when invoiced and credits and refunds shall be
accounted for when allowed. As used herein, the word "sublicensee", singular
or plural, shall mean a sublicensee of any Of the rights granted to Storz
hereunder.
1(l) "Oculex Product", singular or plural, shall mean any drug
delivery product for use in the Field, including without limitation Licensed
Products, made by or for and/or sold or otherwise transferred (i) by Oculex
or any Third-Party Supplier, or (ii) if Storz exercises its option under
either Section 5(d) or 5(e), by Storz or any Storz Additional Source.
1(m) "Potential Field" shall mean the use of [*] ophthalmic
pharmaceutical agents in [*], or any other application, for treating an [*]
in the [*].
1(n) "Process Validation" shall mean establishment of documented
evidence which provides a high degree of assurance that a specific process
conducted by Oculex and/or any Third-Party Supplier, will consistently
produce a particular Oculex Product meeting the Specification for such Oculex
Product and quality
3
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
attributes for that Oculex Product, in accordance with the FDA document
entitled "General Principles of Process Validation", and other FDA documents
and regulations, and any applicable similar regulations of any relevant
foreign governments.
1(o) "Proprietary Information" shall mean, subject to the limitations
set forth in Section 12 hereof, all information received by a party hereto
pursuant to this Agreement from the other party. In particular, Proprietary
Information shall be deemed to include, but not be limited to, any patent
application or drawing, any trade secret, information, invention, idea, sample
of assay components, process, formula or test data relating to any research
project, work in process, future development, engineering, manufacturing,
regulatory, marketing, servicing, financing or personnel matter relating to the
disclosing party, its present or future products, sales, suppliers, clients,
customers, employees, investors or business, whether in oral, written, graphic
or electronic form.
1(p) "Related Company", singular or plural, shall mean a corporation,
partnership, trust or other entity that directly, or indirectly through one or
more intermediates, controls, is controlled by or is under common control with a
party to this Agreement. For such purposes, "control", "controlled by" and
"under common control with" shall mean the possession of the power to direct or
cause the direction of the management and policies of an entity, whether through
the ownership of voting stock or partnership interest, by contract or otherwise.
In the case of a corporation, the direct or indirect ownership of at least fifty
percent (50%) of its outstanding voting shares (or, for countries limiting
foreign ownership to forty percent (40%) or more, direct or indirect ownership
of more than forty percent (40%)) shall in any event be deemed to confer
control, it being understood that the direct or indirect ownership of a lesser
percentage of such shares shall not necessarily preclude the existence of
control.
1(q) "Sales Reporting Agency" shall mean reports published by a
mutually acceptable private or governmental agency or organization (for in
example in the United States, the Hospital/Laboratory Database Division of IMS
America, Plymouth Meeting, Pennsylvania 19462-1048 in its publication "Hospital
Supply Index: Product Analyses") of end-user or dealer sales of pharmaceutical
products and/or medical devices in the Territory.
1(r) "Sample Cost" shall mean the cost to Oculex to supply Samples
to Storz, including the direct cost of labor, materials, shipping and
overhead solely associated with manufacturing Samples. No profit or general
corporate overhead may be included in Sample Cost.
1(s) "Second Source" shall mean a source of Oculex Products approved by
the FDA Equivalent for at least the Major European Countries as an alternative
or additional source of Oculex Products for order by Storz for sale in the
Territory which is designated by Oculex as a Third Party Supplier of Oculex
Products other than the source of Oculex Product first approved by the relevant
FDA Equivalents hereunder.
1(t) "Specifications" shall mean those specifications for a particular
Oculex Product, including any quality assurance protocols agreed upon by the
parties hereto. The Specifications for the first Oculex Product to be supplied
hereunder are attached hereto and incorporated herein as Appendix B. The
Specifications for
4
<PAGE>
subsequent Oculex Products will be attached to Appendix B when the parties
mutually agree upon such Specifications. Any modifications of the
Specifications for any Oculex Product shall be effective when approved and
signed by both parties hereto. The parties agree that neither party may
unreasonably withhold its agreement to changes in any Specifications
necessitated by FDA requirements.
1(u) "Territory" shall mean Canada, Republic of South Africa and the
countries of Europe (including without limitation the countries of western
Europe, eastern Europe and the former Union of Soviet Socialist Republics).
1(v) "Third Party Supplier" shall mean any third party designated by
Oculex as a FDA Equivalent approved supplier of Oculex Products for each
country of the Territory in which FDA Equivalent approval has been granted.
1(w) "Unit of Oculex Product" shall mean an Oculex Product
supplied to Storz, its sublicensee and/or Related Company under this
Agreement in a dose approved by the FDA Equivalent for the country of sale of
the Territory for a single application in the eye.
SECTION 2. INITIAL AND DEVELOPMENT MILESTONE PAYMENTS AND RELATED MATTERS
2(a) INITIAL PAYMENT: Within thirty (30) days following execution of
this Agreement, Storz will pay to Oculex the sum of [*] as a license fee in
full consideration for the license to utilize the Licensed Know-how granted
in Paragraph 4(a) hereof.
2(b) MILESTONE PAYMENTS: Upon satisfactory completion by Oculex, and
receipt by Storz of documentation evidencing such completion, of the
following milestones during the term of this Agreement (hereinafter referred
to as "Milestones"), Storz shall pay to Oculex by the dates for payment
indicated below (hereinafter referred to as "Milestone Payment Dates") the
sums (hereinafter referred to as "Milestone Payments") set forth in the
following schedule for the particular purpose indicated for each Milestone
(i) and (ii):
(i) APPROVAL MILESTONE: Within thirty (30) days following
delivery and acceptance by Storz of Oculex Product in the
amount ordered in the Initial Order following the
applicable countries' FDA Equivalent's earliest NDA
Equivalent approval of the Oculex Product for a total of
[*] countries of the Major European Countries,
Storz will make a Milestone Payment in accordance with the
following schedule, based on demonstration in well
controlled phacoemulsification-technique cataract
surgery trials available to support a claim under
regulatory requirements in the [*] Major European
Countries that:
(a) the Oculex Product is [*] more [*] than [*] with
[*] or [*] than normally associated with [*]:
<TABLE>
<CAPTION>
DATE OF APPROVAL AMOUNT
---------------- ------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
5
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
or, if (a) is not satisfied, then
(b) the Oculex Product is [*] more [*] than [*] with
[*] or [*] than normally associated with [*]:
<TABLE>
<CAPTION>
DATE OF APPROVAL AMOUNT
---------------- ------
<S> <C>
[*] [*]
[*] [*]
</TABLE>
or, if (b) is not satisfied, then
(c) the Oculex Product does not meet minimum
requirements under this Paragraph 2(b)(i) and [*].
In the event that Oculex demonstrates that the Oculex
Product is [*] more [*] than [*] under 2(b)(i)(b) and
receives the Milestone Payment specified therein, but
thereafter and within the time frames set forth under
2(b)(i)(a) Oculex demonstrates that the Oculex Product is
[*] more [*] than [*] under 2(b)(i)(a), Storz will pay the
difference between the amount paid under 2(b)(i)(b) and the
amount due under 2(b)(i)(a) within thirty (30) days following
Storz' receipt of documentation evidencing such result.
However, in no event shall any payment under 2(b)(i)(b) be
payable hereunder after a payment under 2(b)(i)(a).
(ii) APPROVAL ROYALTY PRE-PAYMENT MILESTONE: Within thirty
(30) days following delivery by Oculex and acceptance by
Storz of Oculex Product in the amount ordered in the
Initial Order following the applicable countries' FDA
Equivalent's earliest NDA Equivalent approval of the
Oculex Product for a total of [*] countries of
the Major European Countries, Storz will make a
Milestone Payment to Oculex in accordance with the
following schedule if, based on the approval of the claims
indicated, Oculex has demonstrated in the clinical trials
specified in Paragraph 2(b)(i) that:
(a) the Oculex Product is [*] more [*] than
[*] with [*] or [*] than normally associated with
[*]:
<TABLE>
<CAPTION>
DATE OF APPROVAL AMOUNT
---------------- ------
<S> <C>
[*] [*]
[*] [*]
</TABLE>
or, if (a) is not satisfied, then
(b) the Oculex Product is [*] more [*]
than [*] with [*] or [*]
than normally associated with [*]:
<TABLE>
<CAPTION>
DATE OF APPROVAL AMOUNT
---------------- ------
<S> <C>
[*] [*]
[*] [*]
</TABLE>
or, if (b) is not satisfied, then
(c) the Oculex Product does not meet minimum requirements
hereunder under this Paragraph 2(b)(ii) and [*].
6
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
In the event that Oculex demonstrates that the Oculex Product
is [*] more [*] than [*] under 2(b)(ii)(b) and receives the
Milestone Payment specified therein, but thereafter and
within the time frames set forth under 2(b)(ii)(a) Oculex
demonstrates that the Oculex Product is [*] more [*] than [*]
under 2(b)(ii)(a), Storz will pay the difference between the
amount paid under 2(b)(ii)(b) and the amount due under
2(b)(ii)(a) within thirty (30) days following Storz' receipt
of documentation evidencing such result. However, in no event
shall any payment under 2(b)(ii)(b) be payable hereunder after
a payment under 2(b)(ii)(a). Any payment under this Paragraph
2(b)(ii) will be deductible from earned royalty/product
payments on Net Sales throughout the Territory until recovered
in full, but in no event will deductions from any individual
quarterly earned royalty/product payment exceed [*] of the
calculated earned royalty/product payments payable for Net
Sales during the quarter concerned.
(iii) EFFECT OF TERMINATION ON MILESTONE PAYMENTS: Storz shall not
be obligated to pay any sum payable under this Paragraph 2(b)
if prior to the Milestone Date set forth in this Paragraph
2(b) for the Milestone concerned, either party hereto has
given notice of termination under any provision of this
Agreement.
SECTION 3. APPOINTMENT AND SALE OF LICENSED PRODUCTS
3(a) Oculex hereby appoints Storz as Oculex's exclusive distributor for
the Territory of Oculex Products in the Territory. Oculex will sell only to
Storz, its sublicensees and/or any Related Companies of Storz, or have sold by a
Third-Party Supplier only to Storz, its sublicensees and/or Related Companies of
Storz, Oculex Products conforming to the Specifications. In furtherance of the
exclusive distribution rights granted hereunder, Oculex agrees that it will not
sell to anyone other than Storz, its sublicensees and/or Related Companies, any
Oculex Product, including without limitation any Oculex Product including an
anti-inflammatory ophthalmic pharmaceutical agent(s) in addition to or in
combination with any other ophthalmic pharmaceutical agent or agents. Oculex
agrees, and will require any Third-Party Supplier to agree, not to knowingly
sell or otherwise transfer any Oculex Products to any third party for sale
and/or use in the Field in any country of the Territory. In recognition of the
exclusive licenses and the additional rights granted to Storz hereunder, Oculex
will exert reasonable efforts to deter the sale in the Territory, other than by
Storz, its sublicensees and/or Related Companies, of Oculex Products and/or
competitive products made by or for, or under license from, Oculex for permitted
sale in countries outside the Territory. Storz will exert reasonable efforts to
deter sale outside the Territory, other than by Oculex and/or its licensees, of
Oculex Products sold by Storz, its sublicensees and/or Related Companies within
the Territory.
3(b) Oculex agrees to sell or have sold to Storz any sublicensees
and/or Related Companies, their full requirements of Oculex Products at the
prices set forth in Paragraph 3(e) hereof, shipped prepaid, within thirty
7
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
(30) days after receipt of order, in bulk or packaged, according to the
Specifications, F.O.B. Storz' facility, on payment terms of net thirty (30)
days. Storz represents that after any necessary regulatory, pricing and
reimbursement approvals are obtained in a country of the Territory, Storz
will promote and market the Oculex Products in such country of the Territory
on a timely basis employing at least the same level of advertising, marketing
and promotion efforts in such country of the Territory that Storz employs
with respect to Storz' other drug products of comparable commercial
significance under similar circumstances in such country. Storz' obligations
to promote and market diligently Oculex Products pursuant to the preceding
sentence shall apply on a country by country basis within the Territory. Any
Oculex Product delivered by Oculex or any Third-Party Supplier to Storz under
this Agreement shall meet the Specifications and shall be labeled, packaged,
sterilized and ready for distribution for use in the Field in approved
countries of the Territory, as required under the Specifications for such
Oculex Product. Any Oculex Product delivered by Oculex to Storz under this
Agreement approved by the FDA Equivalent of a country of the Territory for a
maximum shelf life of more than two (2) years shall have on the date of
delivery of such Oculex Product to Storz (i) a remaining unelapsed shelf life
of at least two (2) years, and (ii) not more than six months of such FDA
Equivalent-approved maximum shelf life elapsed. Any Oculex Product delivered
by Oculex to Storz under this Agreement approved by the FDA Equivalent of a
country of the Territory for a maximum shelf life of two (2) years or less
shall have on the date of delivery of such Oculex Product to Storz not more
than three (3) months of such FDA Equivalent-approved maximum shelf life
elapsed.
3(c) Storz and its sublicensees and/or Related Companies shall
purchase or have purchased from Oculex, or any Third-Party Supplier, their
full requirements of Oculex Products, except as provided in Paragraphs 3(d),
3(e) and 3(f) hereof. Storz shall place orders to Oculex or the Third-Party
Supplier designated by Oculex for a country of the Territory in which
FDA-Equivalent approval has been obtained. Storz will place its orders for
Oculex Products on Storz' standard Purchase Order Form attached hereto as
Appendix C. The terms and conditions printed on the reverse of such Purchase
Order are incorporated herein by reference, except where they are in conflict
with the terms of this Agreement, in which case the terms of this Agreement
shall prevail. Such orders will be placed by Storz at least quarterly for
delivery by Oculex or any Third-Party Supplier within sixty (60) days of
receipt of order by Oculex. Oculex shall promptly notify Storz of any event
or situation that could reasonably result in any inability of Oculex or its
Third-Party Supplier to any material extent to supply Oculex Product on or
before the delivery date requested in any purchase order or forecast
submitted by Storz hereunder.
3(d) Within six (6) months following the submission by Oculex to the
FDA Equivalent of a particular country of the Territory of an NDA Equivalent
requesting approval of the Oculex Products for such country, Storz will
provide Oculex its reasonable estimate (hereinafter "Initial Forecast") of
Storz' requirements on a quarterly basis for the first year of supply of
Oculex Products and of samples of Units of Oculex Products (hereinafter
"Samples") for sale or other transfer in such country of the Territory
following approval of the NDA Equivalent by
8
<PAGE>
the FDA Equivalent concerned. Within thirty (30) days following Oculex's
delivery to Storz of a copy of a letter received by Oculex from the FDA
Equivalent indicating that the Oculex Product is approvable, Storz shall
place a binding purchase order (hereinafter "Initial Order") for Storz'
requirements of Oculex Products and Samples for the first calendar quarter
following Oculex's earliest receipt of approval for sale of such Oculex
Product in the country concerned. After submission of the Initial Order,
Storz may thereafter place further orders for FDA Equivalent-approved Oculex
Product(s), provided that Storz pays the royalty prepayment due to Oculex
pursuant to Paragraph 2(b)(ii) on a timely basis. Storz may submit orders and
forecasts for countries of the Territory for which the required regulatory
approvals have been obtained individually, or in any groups of geographically
associated countries, in the unfettered discretion of Storz. Oculex shall not
be obligated to supply in any quarter covered by the Initial Forecast for any
country of the Territory more than the quantity estimated for such quarter in
the Initial Forecast for such country.
3(e) Except for Samples ordered by Storz, its sublicensees and/or
Related Companies from Oculex or any Third-Party Supplier designated by
Oculex, Storz, its sublicensees and/or Related Companies shall pay to Oculex
[*] per Unit of Oculex Product delivered to Storz (hereinafter referred to as
the "Product Supply Price"). Storz, its sublicensee and/or Related Company
shall pay to Oculex the Sample Cost of Oculex for manufacture and packaging
of such Samples ordered, subject to a on the number of Samples that Oculex or
a Third Party Supplier must supply of (i) [*] of amounts of Units of Oculex
Products included in the forecast for the first year immediately following
the date on which Oculex first delivers Oculex Products to Storz, and (ii) [*]
of amounts of Units of Oculex Products included in the forecast for each
subsequent year during the term of this Agreement. For example, if Storz'
forecast provides that Storz requires [*]Units of Oculex Products in the
first year of the Agreement, Storz may order a maximum of [*] Samples in that
year under this Paragraph. Any Oculex Products purchased for use as Samples
in excess of the aforesaid limitations in any year during the term of this
Agreement shall be purchased at the Product Purchase Price.
3(f) Following Storz' submission of its Initial Forecast, Storz will
thereafter provide to Oculex non-binding rolling forecasts of its anticipated
purchase requirements for Oculex Products and Samples of Storz, its
sublicensees and any Related Companies. Forecasts shall be due sixty (60)
days prior to the commencement of each calendar quarter and shall set forth
(i) Storz' actual requirements for the following quarter, which portion of
the forecast shall be binding, and serve as an order for Oculex Products and
Samples, and (ii) Storz' reasonable estimate of its requirements for the
following three (3) calendar quarters. Oculex shall deliver the Oculex
Products and Samples ordered for delivery by the delivery date specified
therein, but in no event shall Oculex be required to deliver more Oculex
Products in any given calendar quarter following the calendar quarters
covered by the Initial Forecast than: (i) [*] in excess of the amount that
was forecast for such calendar quarter in the forecast due five (5) months
prior to the beginning of the applicable calendar quarter, or (ii)
9
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exhibit
<PAGE>
[*] in excess of the amount that was forecast for such calendar quarter in
the forecast due either eight (8) months or eleven (11) months prior to the
beginning of the applicable calendar quarter.
3(g) Within sixty (60) days following the date of the earliest FDA
Equivalent's earliest NDA Equivalent approval of the Oculex Product for at least
three (3) countries of the Major European Countries, Oculex will advise Storz in
writing of its intention to obtain such FDA Equivalent's approval of a Second
Source for such countries. Such Second Source may the same source as a Second
Source approved under any other agreement between the parties hereto relating to
the subject matter of the Licensed Patent Rights.
3(h) Oculex and Storz shall each appoint a representative as a point of
contact for each company for information exchange and dispute resolution between
the parties during the development of the Oculex Products by Oculex. Each of the
parties shall pay the travel and related costs of its representative and/or
employees in connection with this Section 3(h). Oculex shall provide to Storz
access to, or copies of, Oculex's clinical data, and all applications to, or
correspondence with, governmental agencies in connection with regulatory
approval of Oculex Products and submissions and requests therefor, including
correspondence relating to clinical trials or marketing of Oculex Products,
which information shall be Proprietary Information of Oculex. Storz shall
likewise provide to Oculex access to any clinical data, and access to, or copies
of, all applications to, or correspondence with, any such government agencies in
connection with regulatory approval of Oculex Products, including all
correspondence relating to clinical trials or marketing of Oculex Products,
which information shall be Proprietary Information of Storz.
3(i) Oculex, or any Third-Party Supplier, shall furnish Storz with a
written certificate for each lot of Oculex Products sold to Storz, its
sublicensee and/or any Related Company, stating that the Oculex Products in that
lot, identified by lot number, meet the Specifications. Storz, its sublicensee
and/or Related Company, within thirty (30) days of receipt of the Oculex
Products, shall have the right to reject any lots, cases or units which fail to
meet the Specifications. If Storz rejects Oculex Product it shall so advise
Oculex or any Third-Party Supplier of the reason for the rejection and shall not
pay the Product Supply Price therefor. Whether or not Oculex accepts Storz'
basis for rejection, promptly on receipt of a notice of rejection of Oculex
Product, Oculex shall use reasonable efforts at Storz' request to replace such
rejected Oculex Product. After notice of rejection is given, Storz shall
cooperate with Oculex in determining whether the rejected Oculex Products met
the Specifications. Storz will return to Oculex such portion of the allegedly
non-conforming batch of Oculex Product as Oculex may reasonably request for such
evaluation, accompanied by a written identification of the non-conforming
aspects of such Oculex Product. Oculex will evaluate the Oculex Product to
verify that such rejected Oculex Product does not conform to the Specifications,
and shall notify Storz as promptly as reasonably possible whether it accepts
Storz' basis for any rejection. If Oculex disagrees with Storz' determination
that certain Oculex Product does not meet the Specifications, such Oculex
Product shall be submitted to a mutually acceptable third party laboratory,
which shall determine whether such Oculex Product meets the Specifications. The
parties agree that such
10
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exhibit
<PAGE>
laboratory's determination shall be final and determinative. If such
laboratory determines the rejected Oculex Product meets the Specifications
and is commercially marketable, Storz shall bear all costs billed by such
third party laboratory for such testing and the added costs of shipping the
quantities of such rejected product to such third party laboratory for
analysis, and if in its sole discretion Storz (i) determines to market such
formerly rejected Oculex Product, Storz shall pay Oculex the Product Supply
Price therefor, or (ii) decides not to market such rejected Oculex Product,
Storz shall reimburse Oculex for its fully loaded costs of manufacture of
such rejected batch of Oculex Product and Oculex's direct expense for
shipment thereof. If Storz determines to market formerly rejected Oculex
Product, Storz shall reduce its order for Oculex Product during the next
calendar quarter by the amount of such formerly rejected Oculex Product to
the extent such product has been replaced by Oculex as heretofore set forth
in this Paragraph 3(i). If such laboratory determines that the rejected
Oculex Product does not meet the Specifications and/or is not commercially
marketable, Oculex shall bear all costs billed by such third party laboratory
for such testing and shall reimburse Storz for the costs of returning the
rejected batch to Oculex or of disposing of the rejected batch, as specified
by Oculex. Cost of freight to return to Storz, its sublicensee and/or Related
Company the reworked or replaced lot will be prepaid by Oculex.
3(j) Upon giving reasonable notice to Oculex, Storz, any representative
thereof, and/or any representatives of any United States or other domestic or
foreign governmental regulatory agency, shall have the right to inspect, during
normal business hours, the manufacturing areas of Oculex and/or any such
Third-Party Supplier which are involved in the production of the Oculex
Products, including any subcontractor(s) of Oculex or any such Third-Party
Supplier, to perform a GMP Audit or other regulatory or quality assurance
inspection, and to review records of Oculex and/or any such Third-Party Supplier
to assure compliance with any of the terms of this Agreement. Except as
otherwise required by law, the right to review records relating to manufacture
and/or costs of Oculex Product shall be limited to a period of three (3) years
after such manufacture and/or sale to Storz. Upon reasonable request by Storz,
Oculex or any Third-Party Supplier, will provide copies to Storz, at Storz'
expense, of any manufacturing, cost and/or quality control records associated
with the products being manufactured for Storz, its sublicensee and/or Related
Company, provided that Oculex will not be obligated to disclose any information
which is unrelated to Oculex Products or which is proprietary information of a
third party to which Oculex owes an obligation of confidentiality.
3(k) Oculex agrees to reasonably assist Storz in the investigation of
any complaints involving the material, manufacture, quality or design of Oculex
Products.
3(l) Storz shall include in its report of royalties due under this
Agreement for the fourth quarter of each calendar year the level of sales, if
any, by Storz, its sublicensees and/or Related Companies of any products in the
Field, other than Oculex Products, in the Territory during such calendar year.
3(m) If at any time during the term of this Agreement, Storz is selling
any product that is implanted in the eye for use in the Field anywhere in the
Territory (an "Implant Product"), then Oculex may by written notice
11
<PAGE>
advise Storz that Oculex intends to terminate this Agreement and the rights
and licenses herein granted unless within one hundred eighty (180) days
(hereinafter the "3(m) Notice Period")following receipt of such notice from
Oculex, Storz ceases selling such Implant Product. If Storz does not cease
selling such Implant Product within the 3(m) Notice Period, then Oculex may
by further written notice terminate this Agreement and all rights and
licenses granted hereunder effective upon Storz' receipt of such further
written notice from Oculex. Oculex must deliver such written notice of
intention to terminate to Storz under this Paragraph 3(m) not later than one
hundred twenty (120) days following the date on which Oculex first becomes
aware that Storz is selling such Implant Product.
3(n) If prior to the date on which Oculex receives the first letter
from the FDA stating that the Oculex Product is approvable, Storz is selling
any product for use in the Field in the Territory that is not implanted in
the eye with calendar year net sales throughout the Territory greater than [*]
(a "Relevant Product"), then Oculex may by written notice advise Storz that
Oculex intends to terminate this Agreement and the rights and licenses herein
granted unless within one hundred twenty (120) days (hereinafter the "3(n)
Notice Period") following receipt of such notice from Oculex, Storz commits
in writing to cease selling such Relevant Product not later than one hundred
eighty (180) days following the date on which the FDA approves the first
Oculex Product for sale in each country of the Territory. If (i) Storz does
not make such commitment within the 3(n) Notice Period, or (ii) if Storz
makes such commitment within the 3(n) Notice Period but does not cease sales
of such Relevant Product in each such country within such one hundred eighty
(180) day period following the date on which the FDA approves the Oculex
Product for sale in such country, then Oculex may by further written notice
terminate all rights and licenses granted hereunder as to such country
effective upon Storz' receipt of such further written notice from Oculex.
Oculex must deliver any written notice of intention to terminate pursuant to
this Section 3(n) to Storz not later than one hundred twenty (120) days
following the date on which Oculex first becomes aware that Storz is selling
such Relevant Product in the country concerned.
3(o) If at any time after the expiration of one (1) year following the
date on which Storz pays the amount due under Paragraph 2(b)(ii) hereof, Storz
is distributing or selling a Competing Product in a country of the Territory,
Oculex shall have the right to convert the exclusive rights and licenses granted
to Storz for such country of the Territory under this Agreement to nonexclusive
rights and licenses for the remaining term of this Agreement (the "Conversion
Option"), as follows: Oculex shall exercise it Conversion Option under this
Paragraph 3(o) by providing written notice to Storz of Oculex's intention to
exercise its Conversion Option terminate under this provision and Storz' failure
to cease such distribution and sale within one hundred twenty (120) days of its
receipt of such notice. Oculex must provide such notice of its exercise of its
Conversion Option under this Paragraph 3(o) within one hundred twenty (120) days
of the date on which Oculex first becomes aware that Storz is distributing or
selling a particular Competing Product in a particular country of the Territory,
or be deemed to have waived its rights under this Paragraph 3(0) as to such
country with respect to that Competing Product. Any
12
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exhibit
<PAGE>
such conversion of Storz' rights and licenses under this Agreement from
exclusive to nonexclusive shall be effective upon further notice by Oculex to
Storz if Storz has not ceased it distribution and/.or sales of such Competing
Product in the country concerned within such one hundred twenty (120) day
period. The foregoing provisions of this Paragraph 3(0) notwithstanding,
Oculex shall have no right to exercise its Conversion Option during the one
year period immediately following payment of the amount due under Paragraph
2(b)(ii), and the one hundred twenty day period within which Oculex must give
such notice of intention to exercise its Conversion Option, shall not begin
under this Paragraph 3(0), for a period of one (1) year following the date on
which Storz pays the amount due under Paragraph 2(b)(ii) of this Agreement.
3(p) If prior to the date upon which Oculex receives the first FDA
approval, Storz' merges with, is acquired by or otherwise transfers its business
unit to which this Agreement relates to a third party, Storz shall so notify
Oculex and if Oculex believes that such merger, acquisition or transfer may
materially impact Storz' ability to promote Oculex Products, then Oculex may by
written notice advise Storz that Oculex intends to terminate this Agreement and
the rights and licenses herein granted unless within one hundred twenty (120)
days following receipt of such notice from Oculex (hereinafter the "3(p) Notice
Period"), Storz can demonstrate to Oculex's satisfaction Storz' continued
ability to promote the Oculex Product at a level appropriate for the fulfillment
of Storz' obligations under Paragraph 3(b) after Oculex receives the FDA
approval of the Oculex Product. If Storz cannot demonstrate the foregoing within
the 3(p) Notice Period, then Oculex may by further written notice terminate this
Agreement and all rights and licenses granted hereunder effective upon Storz'
receipt of such further written notice from Oculex. In the event this Agreement
is terminated according to this Paragraph 3(p), Oculex shall refund to Storz
within ninety (90) days following the effective date of termination under this
Paragraph 3(p) the most recent single payment made to Oculex under either
Paragraph 2(a) or 2(b). Oculex must deliver any written notice of intention to
terminate under this Paragraph 3(p) to Storz not later than one hundred twenty
(120) days following the date on which Oculex receives notice of such merger,
acquisition or other transfer from Storz, or be deemed to have waived its rights
to terminate under this Paragraph 3(n). All payments under Section 2 which may
become due during the 3(p) Notice Period shall be deferred and will not become
due and payable until the earlier of (i) thirty (30) days following expiration
of the 3(p) Notice Period (ii) the date upon which the relevant payment becomes
due, if prior to the date such payment becomes due Storz receives notice from
Oculex that it will not exercise its option to terminate this Agreement pursuant
to this Paragraph 3(p), or (iii) the date upon which Storz receives notice from
Oculex that Oculex will not exercise its option to terminate this Agreement, if
the relevant payment had become due prior to Storz' receipt of such notice. In
the event Oculex terminates this Agreement according to this Paragraph 3(p), no
further payments shall be due and payable to Oculex pursuant to this Agreement.
13
<PAGE>
SECTION 4. LICENSES GRANTED
4(a) Oculex hereby grants to Storz and Storz hereby accepts a [*]
license, with the right to grant sublicenses, to utilize any Licensed
Know-how disclosed directly or indirectly to Storz in connection with this
Agreement in perpetuity to offer for sale, use and/or sell the Oculex
Products and any other products in the Field and in the Territory and to
manufacture, have manufactured and import the Oculex Products in the Field
and in the Territory in the event Storz obtains the right to manufacture the
Oculex Products pursuant to Section 5. Such license of Licensed Know-how
shall be exclusive for as long as the appointment of Storz as distributor of
Oculex Products in the Field and in the Territory made in Paragraph 3(a) of
this Agreement shall remain exclusive.
4(b) Oculex hereby grants to Storz and Storz hereby accepts an
exclusive royalty-bearing license, with the right to grant sublicenses, under
the Licensed Patent Rights to offer for sale, use and/or sell the Licensed
Products in the Field only and in the Territory. The license granted hereunder
specifically excludes any license to manufacture Licensed Product, except as
specifically provided otherwise in Section 5 of this Agreement, and shall become
non-exclusive if the appointment of Storz as the distributor of Oculex Products
in the Field and in the Territory made in Paragraph 3(a) of this Agreement is
converted to non-exclusive pursuant to any provision of this Agreement.
SECTION 5. ROYALTIES
5(a) As further, ongoing consideration for the exclusive distribution
rights herein granted in Paragraph 3(a) and the license granted in Paragraph
4(b) hereof, Storz agrees to pay to Oculex an earned royalty on Net Sales during
each calendar quarter or portion thereof during the term of this Agreement, such
earned royalty to be calculated utilizing the royalty percentages specified in
this Section 5. Storz shall be entitled to offset in full against earned royalty
payable hereunder the total Product Supply Price paid by Storz for all Units of
Oculex Product on which Net Sales were reported for royalty calculation purposes
for the applicable quarter. Subject to the reductions in the earned royalties
set forth in Paragraph 5(b) below if the Oculex Product is not an Exclusive Eye
Implant Product, the royalty percentage to be used for such calculation of
earned royalty on Net Sales of Oculex Products in each country of the Territory
shall be determined from the tables set forth hereinafter, based upon the
particular U.S. dollar amount of actual cumulative Net Sales during the
applicable calendar year throughout the Territory and Storz' ability to promote
the alternative efficacy and side effect claims in the country concerned, as set
forth hereinafter:
(i) if the Oculex Product has been demonstrated in well controlled
phacoemulsification-technique cataract surgery trials as
[*] more [*] than [*] with [*] or [*] than normally associated
with [*], the percentage royalty payable by Storz on Net Sales
during the applicable calendar quarter shall be based upon the
cumulative Net Sales during
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exhibit
<PAGE>
the relevant calendar year during the term of this Agreement
as follows, and in accordance with the instructions for
calculating such percentage royalty described in Paragraph
5(a)(iv):
<TABLE>
<CAPTION>
Cumulative Net Sales in Territory for Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
or, if (i) is not satisfied, then
(ii) if the Oculex Product has been demonstrated in well controlled
phacoemulsification-technique cataract surgery trials as
[*] more [*] than [*] with [*] or [*] than normally
associated with [*], the percentage royalty payable
by Storz on Net Sales during the applicable calendar quarter
shall be based upon the cumulative Net Sales during the
relevant calendar year during the term of this Agreement as
follows, and in accordance with the instructions for
calculating such percentage royalty described in Paragraph
5(a)(iv):
<TABLE>
<CAPTION>
Cumulative Net Sales in Territory for Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
or, if (ii) is not satisfied, then
(iii) Oculex Product does not meet minimum requirements hereunder
and [*] under this Section 5, [*] Storz shall [*] pay the
Product Purchase Price specified in Paragraph 3(e) for each
Unit of Oculex Product delivered under this Agreement.
(iii) The percentage royalty to be utilized for a particular portion
of Net Sales during an applicable calendar quarter shall be
determined by first calculating the cumulative Net Sales from
previous quarters during the applicable calendar year ("Prior
Sales") and the Net Sales during the relevant calendar
quarter for which an earned royalty is being calculated
("Current Sales"). Then, the earned royalty on Current Sales
shall be calculated as follows:
(1) Determine the percentage royalty applicable to the
Current Sales, or separate portions thereof: First,
identify the range in the applicable table of Paragraph
5(a)(i) or 5(a)(ii) within which the Prior Sales falls,
and [*] the Prior Sales from the [*] of such range
("Range Differential"). Then,
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(a) if the Current Sales are [*] or [*] the
Range Differential, the applicable Percentage
Royalty for all Current Sales shall be the
percentage royalty in the applicable table of
Paragraph 5(a)(i) or 5(a)(ii) corresponding to the
[*] in which the Prior Sales falls; or
(b) if the Current Sales are greater than the Range
Differential, the applicable Percentage Royalty for
that portion of Current Sales equal to the Range
Differential shall be the percentage royalty in the
applicable table of Paragraph 5(a)(i) or 5(a)(ii)
corresponding to the range in which the Prior Sales
falls, and the applicable Percentage Royalty for
that portion of Current Sales [*] the Range
Differential shall be the percentage royalty in the
applicable table of Paragraph 5(a)(i) or 5(a)(ii)
corresponding to the next [*] of Cumulative Net
Sales in the same table of Paragraph 5(a)(i) or
5(a)(ii). In the unlikely event that the portion of
Current Sales [*] the Range Differential during a
calendar quarter [*] the difference between the [*]
and [*] of the [*] range, the percentage royalty
applicable to the amount of the Range Differential
[*] the [*] of the [*] range shall be the percentage
royalty corresponding to the [*] range.
(2) Once the applicable percentage royalty has been
determined, calculate the Total Earned Royalty for Net
Sales in the current calendar quarter for each portion
of Current Sales for which an applicable percentage
royalty was determined in accordance with 5(a)(iv)(1)(a)
or 5(a)(iv)(1)(b) by [*] each such identified
portion of Current Sales by the percentage rate
applicable thereto, and then sum all of the results of
such multiplication.
(3) Once the Total Earned Royalty on Net Sales has been
determined, calculate the Earned Royalty Payable by
[*] the number of units on which Current Sales
is based for the applicable calendar quarter by the
Purchase Price paid therefor under Paragraph 3(e), and
[*] the result from the Total Earned Royalty on Net
Sales in the current calendar quarter.
Two illustrative examples of the calculation required under the various
potential circumstances of Paragraph 5(a)(i) are set forth in Exhibit D
attached hereto.
Such royalty payment due under this Paragraph 5(a) shall be mailed to Oculex
within sixty (60) days following the end of each calendar quarter concerned
for the term of this Agreement.
5(b) If for two (2) consecutive calendar quarters, Oculex Product is not
an Exclusive Eye Implant Product, whether or not such Oculex Product is
covered by the Licensed Patent Rights (hereinafter referred to as
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<PAGE>
an "Non-EEIP Event"), then effective with the quarter in which either party
hereto notifies the other party in writing that such Non-EEIP Event has
occurred, the corresponding percentage rate used to calculate any earned
royalty/product payment set forth in Paragraph 5(a) above shall be [*]
percentage points if 5(a)(i) applies or [*] percentage points if 5(a)(ii)
applies for the Territory for such calendar quarter, such reduction to remain
in effect until Oculex Product is an Exclusive Eye Implant Product, whether
or not such Oculex Product is covered by the Licensed Patent Rights, for any
two (2) consecutive calendar quarters following the calendar quarter in which
such notice of the Non-EEIP Event was given, in which event the corresponding
percentage rate used to calculate any earned royalty/product payment set
forth in Paragraph 5(a) above shall be restored to its otherwise appropriate
level for the Territory under the other terms of this Agreement.
5(c) If (i) Oculex advises Storz that Oculex does not intend to qualify
a Second Source in the required number of countries; or (ii) Oculex advises
Storz that Oculex intends to qualify a Second Source in such countries but in
fact fails to initiate and diligently pursue qualification of a Second
Source, or (iii) Oculex in any event fails to qualify a Second Source in such
countries within three (3) years following the date that Storz receives such
written advice from Oculex, then Storz shall have the right to select a
Second Source acceptable to Oculex, which acceptance shall not be
unreasonably withheld, and Oculex shall take such steps as are necessary,
including without limitation any transfer of know-how, regulatory approvals
and information and grant of licenses, to qualify such Second Source to
manufacture and supply Oculex Products hereunder as a Third-Party Supplier.
5(d) If for any reason Oculex or any Third-Party Suppliers are unable to
supply at least [*] of the full requirements of Storz, its sublicensees
and/or Related Companies for Oculex Products throughout the Territory in
accordance with Section 3 hereof for [*] during the term of this Agreement,
then Storz, its sublicensees and/or Related Companies shall have the right
upon written notice to Oculex, to manufacture or import, or have manufactured
by any additional source selected by Storz (hereinafter referred to as "Storz
Additional Source"), the total requirements for Oculex Products throughout
the Territory for the remaining term of this Agreement for Storz, its
sublicensees and/or Related Companies, and Storz will be relieved of its
obligation to purchase its requirements of Oculex Product from Oculex or its
Third Party Supplier. In the event that Storz exercises its right to
manufacture or appoint a Storz Additional Source under this Paragraph 5(d),
earned royalty/product payments set forth in Paragraphs 5(a) and 5(b), as
applicable, payable on Net Sales of any Oculex Products not supplied by
Oculex or a Third-Party Supplier shall be [*] set forth in Subparagraphs
5(a)(i) and 5(a)(ii) throughout the Territory for the remaining term of this
Agreement.
5(e) If for any reason Oculex (i) fails to file an NDA Equivalent in the
required number of countries of the Major European Countries by January 1,
2000, or (ii) Oculex ceases to diligently pursue obtaining regulatory
approvals for the Territory, or (iii) Oculex declares bankruptcy, then Storz
and its sublicensees and/or Related Companies shall have the right upon
ninety (90) days prior written notice to Oculex, to manufacture, or have
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[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
manufactured by a Storz Additional Source, the total requirements for Oculex
Products of Storz, its sublicensees and/or Related Companies throughout the
Territory for the remaining term of this Agreement to the exclusion of
Oculex. In the event that Storz exercises its right to exclusively
manufacture or appoint a Storz Additional Source under this Paragraph 5(e),
the earned royalty/product payments set forth in Paragraphs 5(a) and 5(b), as
applicable, payable on Net Sales of any Oculex Products not supplied by
either Oculex or a Third-Party Supplier shall be [*] regardless of the
Cumulative Net Sales in the Territory for the Calendar Year concerned
throughout the Territory for the remaining term of this Agreement.
5(f) In the event Storz exercises its option to exclusively manufacture
under Paragraph 5(d) or 5(e) hereof, Oculex shall have no right to
manufacture Oculex Products for itself or any third party for sale anywhere
in the Territory for the remaining term of this Agreement. In addition to the
exclusive rights to use, offer for sale and sell Oculex Products (including
without limitation the Licensed Products) and to use any Licensed Know-how
disclosed to Storz to use, offer to sell and sell Oculex Products granted in
Paragraphs 4(a) and 4(b), effective upon the written notice by Storz to
Oculex required under Paragraph 5(d) or 5(e) hereof, Oculex shall grant to
Storz the additional exclusive right and license to manufacture, have
manufactured and import Oculex Products under the Licensed Patent Rights and
under the Licensed Know-how. To facilitate such manufacturing, Oculex will
promptly transfer to Storz the Licensed Know-how and any other information
and/or knowledge (including without limitation any trade secrets relating to
manufacture and packaging of Oculex Products), grant to Storz a right of
reference to all regulatory and other governmental approvals and filings
required to make, package, sterilize and/or import Oculex Product or
components thereof, to execute all documents and amendments to this Agreement
necessary to grant the rights and licenses required under this Paragraph
5(f), and otherwise cooperate and assist Storz without additional
compensation, to the extent necessary to enable Storz to commercially
manufacture in production quantities, or have manufactured, the Oculex
Products in a timely manner to meet the full requirements of Storz, its
sublicensees and/or Related Companies for Oculex Products for the remaining
term of this Agreement. Oculex's obligations under this Paragraph 5(f) shall
survive any termination of this Agreement by Storz under Section 16 hereof or
expiration of this Agreement under Section 15 hereof, wherein prior to the
effective date of such termination or expiration Storz has given notice of
its election to exercise Storz' option under Paragraph 5(d) or 5(e) hereof.
SECTION 6. ROYALTY CALCULATION, REPORTS AND RECORDS
6(a) Storz agrees, and will require any Sublicensees and any Related
Companies to agree, to keep true and accurate records adequate to establish
any royalty or other amount payable under this Agreement and to permit an
independent certified public accountant selected by Oculex and reasonably
acceptable to Storz, to inspect, on a confidential basis and at Oculex's
expense, said records once annually at reasonable times upon reasonable
notice, but only within a period of three (3) years after the royalty period
to which such records relate. Storz shall provide to Oculex calendar
quarterly reports of earned royalty due and payable on Net Sales, if any, of
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[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
Storz, its sublicensees and/or any Related Companies of Oculex Products in
the immediately preceding calendar quarter, which reports shall be mailed to
Oculex within forty-five (45) days after the end of each calendar quarter,
accompanied by payment of all amounts shown to be so due and payable, if any.
Any payment payable under Sections 5 and 6 hereof shall be made to a banking
institution designated by Oculex by check or wire or electronic transmission,
as Oculex may direct from time to time, in legal tender of the United States
of America. In the event that an audit of Storz records under this Paragraph
6(a) should reveal an underpayment of earned royalty on Net Sales for any
calendar quarter otherwise due and payable under this Agreement that exceeds
[*] of the total amount actually paid by Storz, then Storz shall reimburse
Oculex for the direct expense to Oculex for such audit insofar as such
expenses relate to the audit of the calendar quarter or quarters for which
such under payment in excess of [*] occurred.
6(b) Earned royalty, as provided in Section 5 hereof, shall begin to
accrue upon the first commercial sale of Oculex Product by Storz, its
sublicensee and/or Related Company to an unrelated third-party distributor,
retailer or end user.
6(c) Only a single royalty under Section 5 hereof shall be payable
to Oculex for each specific Unit of Oculex Product regardless of the number
of countries in which manufacture, importation, sale, resale and/or use of
such Units of Oculex Product is made by Storz, its sublicensees, any Related
Companies and/or any direct or indirect customer thereof.
6(d) Royalty and other payments due to Oculex under this Agreement shall
accrue in the national currency of the country of sale by Storz, its
sublicensee or any Related Company, to an unrelated third-party distributor,
retailer or end user. If Oculex's country of residence, as indicated by
Oculex's mailing address designated on page 1 of this Agreement, is different
from such country of sale, then, if the laws or regulations of the relevant
countries so permit, such royalty and other payments shall be converted into
and paid in the equivalent value in the currency of the country of Oculex's
residence at the applicable rate of exchange for such payments existing on
the day of remittance. Storz shall file such transfer applications and other
papers as may be required with the competent authorities to secure the
transfer and conversion within the time stipulated hereunder for the payment
of royalty or other amounts due to Oculex by the use of any lawful method as
may be specified in writing by Oculex for such purpose, provided same is in
conformity with the laws and regulations of the relevant countries subject to
the terms and conditions of Paragraph 6(e) of this Agreement. Oculex agrees
to accept as royalty payments any such payments from any sublicensee of Storz
directly to Oculex, in lieu of such payments from Storz, provided that Storz
remains fully liable for such payment in the event of non-payment by such
sublicensee.
6(e) In the event that Storz or any sublicensee is prevented from
remitting to Oculex any payments owing to Oculex in the currency designated
in Paragraph 6(d) hereof by reason of any statutes, laws, codes or government
regulations, or the unavailability of such currency, then such payments may
be paid by depositing
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exhibit
<PAGE>
them in the currency in which such payments accrued to the account of Oculex
in a bank reasonably acceptable thereto. If the statutes, laws, codes or
government regulations should prohibit both remittance and bank deposit of
such payments, then the obligation to pay, deposit, accrue or otherwise
account for such payments shall be suspended for so long as said prohibition
shall be in effect, unless otherwise mutually agreed.
6(f) All taxes, assessments and fees of any nature levied by any
governmental entity in the Territory of this Agreement on the sale of
Licensed Products by Storz, any Storz Sublicensee or any Related Company
shall be paid by Storz, its sublicensee or any Related Company for its
account. However, if an income or other tax is levied on the recipient of any
royalty under this Agreement by any governmental entity and is legally
required to be withheld from the payment of royalty from Storz or any Storz
Sublicensee to Oculex or from any Storz Sublicensee and/or Related Company to
Storz, such tax shall be paid by Storz, its sublicensee and/or Related
Company for the account of Oculex, in which event an official receipt will be
secured evidencing such payment, the receipt forwarded to Oculex, and the
amount of such tax deducted from royalty paid to Oculex.
SECTION 7. RIGHT OF FIRST REFUSAL
In the event that the definition of "Field" in any agreement between the
parties relating to the distribution of Oculex Product outside the Territory
is expanded to include the Potential Field, the definition of Field in this
Agreement shall be automatically and without further or additional notice
under this Agreement expanded to include the Potential Field, and the
definitions of Oculex Products and Licensed Products, along with any other
definitions, rights and obligations of either party under this Agreement that
are related to or dependent upon the definition of Field shall be expanded to
conform therewith. In furtherance of the exclusive distribution rights
granted in Paragraph 3(a) in the event the definition of Field is expanded
pursuant to this Section 7 to include the Potential Field, Oculex agrees that
it will not, and will not permit a Third-Party Supplier to, sell to anyone
other than Storz, its sublicensees and/or Related Companies, any Ocutex
Product in such expanded Field in the Territory, including without limitation
any product in such expanded Field including an [*], an [*] or [*] ophthalmic
pharmaceutical agent(s) in addition to or in combination with any other
ophthalmic pharmaceutical agent or agents. The parties shall agree upon
acceptable milestone target dates and milestone payments for the development,
approval and supply of the first new Oculex Product in such expanded Field
substantially similar to those provided on the Effective Date for the first
Oculex Product supplied under this Agreement, taking into consideration the
commercial market for such new Oculex Product.
SECTION 8. PATENT ENFORCEMENT AND DEFENSE
8(a) In the event that either party shall learn of any infringement of
any of the Licensed Patent Rights in any country of the Territory by any
third party, such party shall immediately notify the other party of such
infringement.
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exhibit
<PAGE>
8(b) Oculex shall have the first right, but not the obligation, to bring
suit in its own name for infringement of any patent of the Licensed Patent
Rights in any country of the Territory. If Oculex fails to institute and
action against such infringement within ninety (90) days after the parties
become aware of such infringement, Storz shall have the right to bring suit
in Storz' own name for infringement of any patent included in the Licensed
Patent Rights. Regardless of which party brings suit, the party bringing suit
shall consult with the other party regarding strategy therefor, and the other
party agrees to cooperate fully with the other party in the conduct of any
such suit, including if required to file suit, the furnishing of a power of
attorney granting only such authority as is essential for such filing and
conduct of the suit, and each party shall have the right to participate in
such action at its own expense using counsel of its own choice. Each party
shall be responsible for any costs and expenses for its own attorneys, and
any other expenses of suit shall be borne by the party filing suit. Any
recovery obtained by award or settlement or otherwise in such suit shall be
used to reimburse each party's expense (including counsel fees) and
thereafter, any remaining amount shall be shared equally by the parties.
8(c) Either party hereto shall have the right to defend, with counsel of
its choosing, against any claim and/or suit for patent infringement brought
by any third party against such party based on such party's manufacture,
importation, offer for sale, use or sale of Oculex Product in any country of
the Territory, or to secure a royalty-bearing license from any such third
party to settle any such controversy; provided that any settlement of such
suit or license obtained with respect to such third party's technology shall
not materially adversely affect the Other party's rights and interests
without such other party's prior consent, such consent not to be unreasonably
withheld. Each party shall notify the other party hereto promptly of the
commencement of any such suit, and such other party shall cooperate fully
with and assist the party defending any such suit. The costs and expenses of
any such suit, counterclaim, defense and/or judgment against a party hereto
and/or any settlement of any such claim and/or suit shall initially be for
the account of such party. However, if any of the unreimbursed costs and
expenses, incurred in any such suit or claim are subject to a claim for
indemnification under Section 9, the party claiming indemnification for any
such suit or claim against such party and/or any settlement thereof, and/or
any payment or royalty made to any third party pursuant to a license from
such third party to avoid such party's infringement of any third-party patent
rights by manufacture, use, sale, offer for sale and/or import of Oculex
Products, shall be reimbursed by the indemnifying party hereto as provided in
Section 9.
SECTION 9. REPRESENTATIONS, WARRANTIES, COVENANTS AND INDEMNIFICATION
9(a) Oculex covenants that it will use diligent efforts to pursue
approval of Oculex Products for sale by Storz in at least the Major European
Countries and the countries of Canada and South Africa, and to the extent
reasonably feasible in all other countries of the Territory.
9(b) Oculex warrants and represents that Oculex is the owner of the
entire right, title and interest in and to, or is an exclusive licensee
under, the Licensed Patent Rights and the Licensed Know-how, that Oculex has
the right to grant any and all licenses and rights granted in Sections 3 and
4 hereof, that no license under any
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of the Licensed Patent Rights and/or Licensed Know-how has heretofore been
granted in the Field, that to Oculex's best knowledge and belief the Licensed
Patent Rights are, or will be, valid and enforceable, and that manufacture,
use and/or sale of the Oculex Product and/or the Licensed Inventions will not
infringe any patent known to Oculex on the Effective Date.
9(c) Ocutex warrants that Oculex will promptly disclose to Storz any and
all Licensed Know-how presently owned or heretofore developed by Oculex, and
covenants that Oculex will timely disclose to Storz any additional Licensed
Know-how that Oculex may own, acquire or develop during the term of this
Agreement, related to Storz' activities and necessary for Storz to carry out
its obligations and fully exercise its rights under the licenses and rights
in effect at the time concerned.
9(d) Oculex covenants that Oculex will prosecute and/or maintain the
Licensed Patent Rights in a commercially reasonable manner for the term of
this Agreement and that after execution of this Agreement, any fee payable to
any patent office or agency of any country of the Territory for any of the
Licensed Patent Rights will not be paid based on a claim of small entity
status and that Oculex will instruct Oculex's attorneys to that effect.
Oculex further covenants that Oculex will provide to Storz, within thirty
(30) days of any request by Storz in connection with evaluation and/or
prosecution of an action by Storz against a third-party infringer of the
Licensed Patent Rights pursuant to Paragraph 8, any information and copies of
any records that Oculex has concerning conception and/or first reduction to
practice of the Licensed Patent Rights and the dates thereof that Storz may
reasonably require to bring and prosecute a suit against such infringer. The
responsibility for payment of any patent maintenance and/or other
governmental fees with respect to the filing prosecution and/or maintenance
of all patents and patent applications included in the Licensed Patent Rights
shall be paid by Oculex and Oculex retains the right to control and finally
decide any matters relating thereto.
9(e) Oculex represents that Oculex, or any Third-Party Supplier, at the
time of delivery to Storz, has title to and the right to convey title to
Storz in, any Oculex Products sold to Storz or any sublicensees.
9(f) Oculex warrants that as of the Effective Date Oculex was unaware of
any third party claims alleging that the sale and/or use of Oculex Products
infringe any third-party patents or other third-party proprietary rights.
9(g) Oculex agrees to defend, indemnify and hold harmless Storz, its
sublicensees or Related Companies from any claim and/or suit, including
reasonable attorneys' fees therefor, for actual or alleged infringement,
including willful infringement (except to the extent such willfulness is
based on errors or omissions of Storz), by the manufacture, use, sale, offer
for sale or import of Oculex Products, or of any patents and/or other
proprietary rights of any third-party. If Storz is barred from selling or
reasonably determines to cease selling Oculex Products because of actual or
alleged infringement of any third-party patent or proprietary rights by
virtue of sale and/or use of Oculex Products, then Storz shall thereafter
have no obligation to purchase Oculex Products under the terms of this
Agreement until such infringement claim is resolved to Storz' reasonable
satisfaction.
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9(h) Oculex further represents and warrants that at the time of shipment
of Oculex Products to Storz, any sublicensee and/or Related Company, (i)
materials constituting or being part of any such shipment of Oculex Products
shall conform to the Specifications and that none of such materials will be
adulterated or misbranded within the meaning of the U.S. Federal Food, Drug
and Cosmetic Act, as amended, and the regulations issued thereunder, or any
similar law of any country of the Territory, or within the meaning of any
state or local law of any country of the Territory, the adulteration and
misbranding provisions of which are similar to the U.S. Federal Act, and (ii)
materials constituting or being part of any such shipment of Oculex Products
are not any product which may not, under the provisions of any law or
regulation, be introduced into commerce within the Territory. Oculex shall
reimburse Storz, its sublicensee and any Related Company for any costs of
voluntary or involuntary recall, recovery or withdrawal of Oculex Products
required by any laws, orders or regulations of any country of the Territory;
except to the extent that such recall arises out of the negligence or
improper act of Storz, its sublicensee and any Related Company or employees
or agents thereof. THE EXPRESS REPRESENTATIONS AND WARRANTIES STATED IN THIS
SECTION 9 ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
9(i) Oculex covenants that it will not make any changes to the Oculex
Products, the Specifications for Oculex Products, or the process of
manufacturing or quality controlling such materials without the consent of
Storz, which consent shall not be unreasonably withheld. Neither party hereto
shall be obligated to supply or manufacture under this Agreement any Oculex
Product that does not comply with applicable laws and regulations of the
countries of the Territory in which sale of Oculex Product has received
regulatory approval and Storz intends to sell such Oculex Product.
9(j) The parties represent and warrant that they have the full right to
enter into this Agreement and that such party's entry into, and any terms of,
this Agreement separately or collectively do not conflict with any other
contractual obligations of such party. Each party agrees that it will not
enter into any agreements after the Effective Date hereof that are
inconsistent or conflict with such party's obligations under this Agreement.
9(k) Upon notification by Storz to Oculex that there has been or may be
a claim and/or suit instituted by a third party against Storz, its
sublicensee or Related Company for personal injury or property damage by
virtue of the use of Oculex Products purchased from Oculex and/or any
Third-Party Supplier under this Agreement, then Oculex, its successors and
assigns shall defend, indemnify and save harmless Storz, its sublicensees and
any Related Companies, their successors and assigns, against such claim
and/or suit, including reasonable attorneys' fees therefor, unless such claim
or suit is wholly due to the negligence or improper act of Storz, its
sublicensee or Related Company, for which Storz shall similarly indemnify
Oculex, its successor and assigns. To the extent that such claim or suit is
in part due to the negligence or improper act of Storz, Oculex shall
indemnify Storz for that portion of such claim not due in part to the
negligence or improper act of Storz, its
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sublicensee or Related Company, and Storz shall indemnify Oculex for that
portion of such claim due to the negligence or improper act of Storz.
9(l) Upon notification by Oculex to Storz that there has been or may be
a claim and/or suit instituted by a third party against Oculex or a Related
Company of Oculex for personal injury or property damages arising out of the
use of Oculex Products manufactured by Storz, then Storz, its successors and
assigns shall defend, indemnify and save harmless Oculex, its successors and
assigns against such claim or suit, unless such claim or suit is wholly due
to the negligence or improper act of Oculex or any Related Company of Oculex,
or to any breach of any representation, warranty or covenant by Oculex, in
which event Oculex shall similarly indemnify Storz, its successors and
assigns. To the extent that such claim or suit is in part due to the
negligence or improper act of Oculex, Storz shall indemnify Oculex for that
portion of such claim not due in part to the negligence or improper act of
Oculex or its Related Company, and Oculex shall indemnify Storz for that
portion of such claim due to the negligence or improper act of Oculex or any
Related Company of Oculex. Any indemnification under this Agreement is
contingent upon the indemnified party giving the indemnifying party prompt
notice of such claim or suit and the indemnified party reasonably cooperating
with the indemnifying party with respect to such claim. The indemnifying
party shall have the right to control and conduct the defense thereof,
including the right to defend or settle such claim or suit, provided such
settlement does not materially adversely affect the rights of the indemnified
party, and the indemnified party and shall reasonably cooperate with the
indemnifying party's prosecution, defense and settlement of such claim.
9(m) Within thirty (30) days following Oculex's receipt of Storz'
Initial Order under Paragraph 3(d) of this Agreement, Oculex shall establish
and thereafter for the duration of Oculex's supply of Oculex Products to
Storz hereunder, maintain and/or require any Third-Party Supplier to
maintain, comprehensive general liability insurance, including contractual
and product liability, in amounts not less than $1,000,000 per occurrence and
$3,000,000 annual aggregate covering any Oculex Products on a date of
occurrence basis (not a date of claim basis). Additionally, if any Oculex or
such Third-Party Supplier is located in the United States, then Oculex shall,
and shall require any such supplier to maintain Workers' Compensation
Insurance with employees liability coverage limits of not less than
$1,000,000. Oculex shall submit certificates evidencing such insurance to
Storz for the period of purchase of Ocutex Products by Storz or its
sublicensee or Related Company.
SECTION 10. PATENT AND LICENSE NOTICE
Storz shall, and shall require each of its sublicensees (including
Related Companies), if any, to mark all Licensed Products made by Storz
and sold in the Territory with a listing of the number(s) of any applicable
patent(s) or other identification of the Licensed Patent Rights, if
required under the provisions of the law of the country in which the same are
made.
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SECTION 11. TRADEMARKS AND TRADENAMES
11(a) Storz, its sublicensee and/or Related Company shall apply only
Storz' or any Storz sublicensee's and/or Related Company's trademarks to
Licensed Products manufactured by Storz hereunder, if any, except for the
notice required in Paragraph 11(b) hereof, and except as required by law.
Neither party may utilize the other party's tradename or trademarks for any
press release, advertising purpose or the like without the written consent of
the other party based on an advance review of any such proposed release or
advertisement.
11(b) Paragraph 11(a) notwithstanding, the parties agree that Storz
will, in consultation with Oculex, select an appropriate, registerable
trademark(s) (hereinafter the "Designated Trademark(s)") for use in the
marketing and sale of the Oculex Products in the Territory. Such trademark
shall be initially owned by Oculex, and Oculex will file and prosecute an
application for registration of the Designated Trademark on the principal
register of each country of the Territory not later than one (1) month
following the first commercial sale of the Oculex Product in such country of
the Territory, for countries so providing, an intent to use registration
reasonably expected to mature into a commercial registration in countries in
which regulatory approval has been sought and for which an approvable letter
has been received by Oculex. Oculex hereby grants to Storz an exclusive
license in the Territory to use the Designated Trademark on the Oculex
Product(s) sold by Storz hereunder, which Designated Trademark will be
utilized in connection with Storz' commercialization of, and will be applied
to the packaging of, the Oculex Products sold or transferred in the
Territory. Storz shall have the right to apply to the Oculex Products and
utilize any trademark(s)s and labeling it selects in addition to the
Designated Trademark(s) upon Oculex' prior approval, which shall not be
unreasonably withheld, provided that any such additional trademarks and
labeling shall conform to applicable rules and regulations of government
authorities of each country in the Territory. After Storz has sold the Oculex
Product for more than two (2) years in a country of the Territory, Oculex
shall assign to Storz all right, title and interest in and to the Designated
Trademark(s) along with the goodwill associated therewith for such country in
the Territory, upon the written request of Storz and at no additional
compensation or reimbursement to Oculex. If Oculex assigns its right, title
and interest in the Designated Trademark to Storz pursuant to the preceding
sentence, Storz shall thereafter solely bear all costs accruing after the
date of such assignment of filing and prosecuting applications for
registration and of maintaining and defending all registrations of such mark
of each country in the Territory. Each party hereto covenants not to damage
the Designated Trademark(s) or to reduce the goodwill associated with the
Designated Trademark(s) during the conduct of business relating thereto
within or outside the Territory. Storz and Oculex each agree not to utilize
the Designated Trademark(s) in connection with, or apply the Designated
Trademark(s) to, any product other than an Oculex Product during Oculex's
continued supply of Oculex Products hereunder. In the event that this
Agreement is terminated by Oculex pursuant to Paragraphs 3(m), 3(n), 3(p),
16(a) or 16(b) and Oculex has assigned the Designated Trademark(s) to Storz
pursuant to this Paragraph 1 l(b), Storz shall assign to Oculex all right,
title and interest in and to the Designated Trademark(s) along with the good
will associated therewith upon
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the written request of Oculex and at no compensation or reimbursement to
Storz. In the event that Oculex ceases to supply Oculex Product to Storz in
the event Storz exercises its rights to manufacture or to appoint a Storz
Additional Source pursuant to Paragraph 5(e), Storz shall retain the
exclusive right to use the Designated Trademark in connection with any
products sold by Storz in the Field in the Territory, whether or not such
products are covered by the Licensed Patent Rights.
SECTION 12. CONFIDENTIALITY
12(a) During the term of this Agreement, and for a period of ten (10)
years after termination thereof, each party will maintain all Proprietary
Information received by it under this Agreement in trust and confidence and
will not disclose any such Proprietary Information to any third party or use
any such Proprietary Information for any purposes other than those necessary
or permitted for performance under this Agreement. In particular, neither
party shall use any know-how of the other party for the manufacture or sale
of any product other than the Oculex Product, except as expressly authorized
by this Agreement. Each party may use such Proprietary Information only to
the extent required to accomplish the purposes of this Agreement. Proprietary
Information shall not be used for any purpose or in any manner that would
constitute a violation of any laws or regulations, including without
limitation the export control laws of the United States or any foreign
country. Proprietary Information shall not be reproduced in any form except
as required to accomplish the intent of this Agreement. No Proprietary
Information shall be disclosed to any employee, agent, consultant or Related
Company who does not have a need for such information. To the extent that
disclosure is authorized by this Agreement, the disclosing party will obtain
prior agreement from its employees, agents, consultants, Related Companies or
clinical investigators to whom disclosure is to be made to hold in confidence
and not make use of such information for any purpose other than those
permitted by this Agreement. Each party will use at least the same standard
of care as it uses to protect its own Proprietary Information of a similar
nature to ensure that such employees, agents, consultants and clinical
investigators do not disclose or make any unauthorized use of such
Proprietary Information, which shall in any event not be less than reasonable
care. Each party will promptly notify the other upon discovery of any
unauthorized use or disclosure of the Proprietary Information. The foregoing
obligations of this Paragraph 12(a) shall not apply to, and proprietary
Information shall not include, any information which:
(i) is now, or becomes to be, in the public domain, through no
breach of this Agreement by the receiving party; or
(ii) the receiving party can demonstrate was in its possession
prior to the time of disclosure under this Agreement by the
disclosing party; or
(iii) is disclosed to the receiving party by a third party owing no
obligation of confidentiality to the disclosing party with
respect to the Proprietary Information. The parties agree
that the material financial terms of the Agreement will be
considered Proprietary Information
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of both parties. Notwithstanding the foregoing, either party
may disclose such terms to bona fide potential corporate
partners, to the extent required or contemplated by this
Agreement, and to financial underwriters and other parties
with a need to know such information. All such disclosures
shall be made only to parties under an obligation of
confidentiality.
12(b) Notwithstanding any other provision of this Agreement, each party
may disclose Proprietary Information if such disclosure:
(i) is in response to a valid order of a court or other
governmental body of the United States or a foreign country,
or any political subdivision thereof; provided, however, that
the responding party shall first have given notice to the
other party hereto and shall have made a reasonable effort to
obtain a protective order requiring that the Proprietary
Information so disclosed be used only for the purposes for
which the order was issued and that the disclosure and use
thereof be restricted as described in this Section 12 to the
extent feasible under the circumstances;
(ii) is otherwise required by law or regulation, including
requirements imposed by equivalent authorities to the United
States Secures and Exchange Commission; or
(iii) is otherwise necessary to file or prosecute patent
applications, prosecute or defend litigation, comply with
applicable governmental regulations or otherwise establish
rights or enforce obligations under this Agreement, but only
to the extent that any such disclosure is necessary.
SECTION 13. ADVERSE REACTIONS
The parties shall use diligent efforts promptly to report to each other
by telephone or facsimile any information on severe or unanticipated adverse
reactions to the use of any Oculex Product in Phase II Clinical Trials or in
any clinical trial of Oculex Products conducted thereafter. In no event shall
Storz disclose the occurrence or symptoms of any adverse reaction to any
third party without the prior written approval of Oculex, except as required
by law or regulation, in which case Storz shall use diligent efforts to
provide Oculex with simultaneous notification. Each party hereby covenants
with the other to make all adverse reaction reports to the appropriate
authorities in a timely fashion and in the manner required by all applicable
laws and regulations.
SECTION 14. FORCE MAJEURE
Neither party to this Agreement shall be responsible to the other party
for nonperformance or delay in performance of any terms or conditions of this
Agreement due to acts of God, acts of governments, wars, riots, strikes,
accidents in transportation, or other causes beyond the reasonable control of
the parties, provided that the party affected by any of the foregoing shall
make reasonable efforts to overcome such event of force majeure. Failure to
pay money shall not be excused under this Section.
27
<PAGE>
SECTION 15 TERM OF AGREEMENT
Unless this Agreement shall be terminated by either party pursuant to
the provisions hereof, this Agreement shall remain in force and effect from
the Effective Date until the expiration of the last-to-expire of the Licensed
Patent Rights in the Territory, at which time this Agreement will
automatically renew for successive three (3) year periods, unless either
party shall by written notice six (6) months in advance of the end of such
renewal period advise that such party desires to terminate this Agreement,
and this Agreement shall expire effective with the end of the period during
which such notice shall have been delivered, in the event that Storz
exercises its option under Paragraph 5(d) or 5(e), this agreement shall
expire upon the later of (i) fifteen (15) years after the Effective Date or
(ii) the date on which Storz' exercise of such option under Paragraph 5(d) or
5(e) becomes effective. Upon expiration of this Agreement pursuant to this
Section 15, Storz, its sublicensees and any Related Companies shall have a
fully paid-up, royalty-free license under the Licensed Patent Rights in the
Territory and the Licensed Know-how to make, have made, import, offer to
sell, use and/or sell Licensed Products in the Territory without limitation.
SECTION 16. TERMINATION
16(a) In the event that either party hereto shall fail to comply with
any of its material obligations under this Agreement, and such failure is not
cured within thirty (30) days after the other party provides written notice
of such failure to such party, which notice shall fully specify the
obligation with which the first party has not complied, then the other party,
by further written notice to such party, may terminate this Agreement.
16(b) All rights and licenses granted under or pursuant to this
Agreement by Oculex to Storz are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy Code"),
licenses and rights to "intellectual property" as defined under Section 101
of the Bankruptcy Code. The parties agree that Storz, as recipient of such
rights under this Agreement, shall retain and may fully exercise all of its
rights and elections under the Bankruptcy Code. Oculex shall also have the
right to terminate this Agreement in the event of the filing of a voluntary
or involuntary petition of bankruptcy of Storz.
16(c) Storz may terminate this Agreement at any time on ninety (90) days
notice in writing to Oculex.
SECTION 17. ASSIGNABILITY
17(a) This Agreement may be assigned by either of the parties hereto and
shall inure to the benefit of heirs, successors, assigns or other legal
representatives.
17(b) Oculex agrees to notify Storz in writing within thirty (30) days
of its first knowledge of any change in ownership or transfer of rights in
any of the Licensed Patent Rights from any owner to any third party.
SECTION 18. NOTICES AND PAYMENTS
Any notice or communication required or permitted to be given by either
party hereunder shall be in written form and shall be considered to be
sufficiently given if mailed by registered airmail or transmitted by telex,
28
<PAGE>
facsimile or other electronic means, addressed to the parties hereto as
follows, or any substitute address of either party notified in writing to the
other party:
To Storz:
Storz Instrument Company
3365 Tree Court Industrial Drive
St. Louis, Missouri 63122, U.S.A.
Attention: President
Telephone Number: 314/225-5051
Facsimile Number: 314/861-2137
To Oculex:
Oculex Pharmaceuticals, Inc.
639 North Pastoria Avenue
Sunnyvale, California 94086-2917
Attention: President
Telephone Number: 408/481-0424
Facsimile Number: 408/481-0662
Any payments to be made under this Agreement shall likewise be directed
to the address indicated above, or to a bank in the United States effective
thirty (30) days following receipt of written notice to that effect from
Oculex.
SECTION 19. APPLICABLE LAW
The parties hereto agree that this Agreement shall be considered to have
been made in, and construed and interpreted in accordance with the
substantive laws of, the State of Missouri, the courts of which shall have
exclusive jurisdiction over any dispute arising hereunder.
SECTION 20. SEVERABILITY
This Agreement is subject to the restrictions, limitations, terms and
conditions of all applicable governmental regulations, approvals and
clearances. If any term or provision of this Agreement is held invalid,
illegal or unenforceable in any respect for any reason, that invalidity,
illegality or unenforceability shall not affect any other term or provision
hereof, and this License Agreement shall be interpreted and construed as if
such term or provision, to the extent the same shall have been held to be
invalid, illegal or unenforceable, had never been contained herein. In the
event this Section 20 becomes applicable, the parties shall meet and attempt
to negotiate an amendment to this Agreement to achieve the parties' original
intent to the extent feasible and permissible under any applicable laws and
regulations.
SECTION 21. WAIVER
Failure by either party to enforce any rights under this License and
Supply Agreement shall not be construed as a waiver of such rights nor shall
a waiver by either party in one or more instances be construed as
constituting a continuing waiver or as a waiver in other instances.
29
<PAGE>
SECTION 22. MISCELLANEOUS
22(a) Upon the termination of this Agreement and/or any sublicense
granted hereunder, Storz, its sublicensees and Related Companies shall have
the right to dispose of all Licensed Products and/or Oculex Products then on
hand, including work in process, and to meet all pending orders for Licensed
Products and/or Oculex Products, but earned royalty which would otherwise be
payable pursuant to Paragraph 5(a) of this Agreement had such termination not
become effective, shall be paid with respect to all such Licensed Products
and/or Oculex Products when sold as though this Agreement had not been
terminated.
22(b) Neither termination nor expiration of this Agreement shall
terminate Storz' obligation to report and pay all earned royalty which shall
then have accrued up to the date of such expiration or termination. Storz'
obligation to submit its and any sublicensees' books and records for
inspection shall continue after such expiration or termination in accordance
with the provisions of Paragraph 6(a) hereof.
22(c) This Agreement contains all of the agreements and understandings
made between the parties hereto concerning the subject matter hereof, and any
prior agreements, express or implied, relating to the subject matter hereof
are expressly superseded and canceled. No amendment of this Agreement shall
be effective unless in writing and signed by the parties hereto.
22(d) This Agreement may be executed simultaneously in two identical and
unaltered counterparts, either one of which need not contain the signature of
more than one party, and in such event both such counterparts taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate effective on the day and year first above written.
OCULEX PHARMACEUTICALS, INC.
By: /s/ Gerry B. Gin ATTEST:
----------------------------------
Gerry B. Gin By: /s/ Vernon G. Wong
---------------------------------- -----------------------------------
(Type or Print Name)
Title: President Vernon G. Wong
------------------------------- -----------------------------------
(Type or Print Name)
Date: 4/4/97
-------------------------------
Fed. Tax# 77-0228667
----------------------------
STORZ INSTRUMENT COMPANY
By: /s/ Robert Blankemeyer ATTEST:
----------------------------------
Robert Blankemeyer By: /s/ Carla Young
---------------------------------- -----------------------------------
(Type or Print Name)
Title: President Carla Young
------------------------------- -----------------------------------
(Type or Print Name)
Date: 4/11/97
-------------------------------
30
<PAGE>
APPENDIX A
LICENSED PATENTS AND PATENT APPLICATIONS
SECTION 1: The patents and patent applications for the United States of
America corresponding to the Licensed Patent Rights referred to in the
attached Distribution, Supply and License Agreement (Foreign) include,
without limitation, the following:
<TABLE>
<CAPTION>
OCULEX'S COUNTRY PATENT EXPIRATION
PATENT# OR P.C.T. PATENT# APPLN.# DATE OCULEX'S PATENT TITLE
-------- --------- ------- ------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Biodegradable
US [*] [*] [*] Implants Ocular
Biodegradable
US [*] [*] [*] Implants Ocular
</TABLE>
SECTION 2: The Licensed Patent Rights for countries of the Territory
corresponding to the United States Patents identified in Section 1 above and
referred to in the attached Distribution, Supply and License Agreement
(Foreign) include, without limitation, the following:
<TABLE>
<CAPTION>
OCULEX'S COUNTRY PATENT EXPIRATION
PATENT# OR P.C.T. PATENT# APPLN.# DATE OCULEX'S PATENT TITLE
-------- --------- ------- ------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Biodegradable
[*] [*] [*] [*] Implants Ocular
Biodegradable
[*] [*] [*] [*] Implants Ocular
</TABLE>
31
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
APPENDIX B
SPECIFICATIONS OF OCULEX PRODUCTS
A biodegradable drug delivery system (DDS) with the main
components being composed of [*] and dexamethasone (dexamethasone
DDS). The formulation is configured to give a therapeutic level
of dexamethasone for a sufficient period within the interior of
the anterior chamber of the eye to control inflammation after
cataract surgery. The entire system will degrade within a three
to four week period. The packaging of the product shall consist
of:
* Dexamethasone DDS
* Container holding Dexamethasone DDS
* [*]
* Foil pouch to house Dexamethasone DDS and [*]
* Package insert
* Box to house pouched Dexamethasone DDS
The dexamethasone DDS shall be delivered as a fully packaged
sterilized and labeled product.
32
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
APPENDIX D
EXAMPLES OF PERCENTAGE ROYALTY DETERMINATION UNDER SECTION 5
EXAMPLE 1:
Under the following table from Paragraph 5(a)(i) above:
<TABLE>
<CAPTION>
Cumulative Net Sales In Territory For Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
assume Net Sales for the first quarter of a calendar year equal [*],
and Net Sales for the second quarter equal [*]. Also assume that the
Net Sales for the second quarter are based on sales of [*] units of Oculex
Product. The adjusted ranges under Paragraph 5(a)(i) would be as follows:
<TABLE>
<CAPTION>
Cumulative Net Sales In Territory For Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
The percentage royalty used for the first [*] in Net Sales for the second
quarter will be [*], and the percentage royalty used for the last [*] in Net
Sales for the second quarter will be [*] for a total of $[*]. Earned royalty
payable would be determined by subtracting the total Product Supply Price for
all units of Oculex Products on which Net Sales were reported for royalty
calculation for the second calendar quarter from the total royalty calculated
for such second quarter utilizing the percentage royalties from the table, or
<TABLE>
<S> <C> <C>
[*] [*] [*]
</TABLE>
EXAMPLE 2:
Under the following table from Paragraph 5(a)(i) above:
<TABLE>
<CAPTION>
Cumulative Net Sales In Territory For Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
assume Net Sales for the first, second and third quarters of a calendar year
equal $[*], [*] and [*], respectively for Cumulative Net Sales of $[*], and
Net Sales for the fourth quarter equal $[*]. Also assume that the Net Sales
for the fourth quarter are based on sales of [*] units of Oculex Product.
The adjusted ranges under Paragraph 5(a)(i) would be as follows:
33
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
<TABLE>
<CAPTION>
Cumulative Net Sales In Territory For Calendar Year Percentage Royalty
--------------------------------------------------- ------------------
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
The percentage royalty used for the first $[*] in Net Sales for the fourth
quarter will be [*], and the percentage royalty used for the last [*]
in Net Sales for the fourth quarter will be [*] for a total of $[*]. Earned
royalty payable would be determined by subtracting the total Product Supply
Price for all units of Oculex Products on which Net Sales were reported for
the fourth calendar quarter from the total royalty calculated for such fourth
quarter utilizing the percentage royalties from the table, or
<TABLE>
<S> <C> <C>
[*] [*] [*]
</TABLE>
34
[*] Confidential treatment requested with respect to certain portions of this
exhibit
<PAGE>
Exhibit 10.15
DATED THE 8th DAY OF DECEMBER 1997
BETWEEN
OCULEX PHARMACEUTICALS, INC
AND
DR JERRY GIN
DR VERNON WONG
AND
TRANSPAC INDUSTRIAL HOLDINGS LIMITED
TRANSPAC CAPITAL PTE LTD
REGIONAL INVESTMENT COMPANY LIMITED
=============================================================================
SECOND SUPPLEMENTAL AGREEMENT
=============================================================================
<PAGE>
THIS AGREEMENT is made on December 8, 1997.
BETWEEN: -
(1) OCULEX PHARMACEUTICALS, INC., a company incorporated in the State of
California, United States of America, with its place of business at 639
N. Pastoria Avenue, Sunnyvale, CA 94086-2917, United States of America
("Oculex" or the "Company") of the first part;
AND
(2) DR JERRY GIN (USA Passport No: 150219028) residing at 1206 Sargent
Drive, Sunnyvale, Ca 94087, United States of America ("JG"); and
DR VERNON WONG (USA Passport No: 152527479) residing at 180 Sand Hill
Circle, Menlo Park, CA 94025, United States of America ("VW")
collectively the "Major Shareholders", of the second part;
AND
(3) TRANSPAC INDUSTRIAL HOLDINGS LIMITED, a company incorporated in the
Republic of Singapore and having its registered office at 6 Shenton
Way, #20-09 DBS Tower Two, Singapore 068809 ("Transpac Industrial");
TRANSPAC CAPITAL PTE LTD, a company incorporated in the Republic of
Singapore and having its registered office at 6 Shenton Way, #20-09 DBS
Tower Two, Singapore 068809 ("Transpac Capital"); and
REGIONAL INVESTMENT COMPANY LIMITED, a company incorporated in the
Republic of Singapore and having its registered office at 6 Shenton
Way, #20-09 DBS Tower Two, Singapore 068809 ("Regional Investment")
collectively the "Investors" of the third part.
The above parties to collectively be referred to as the "Parties".
2
<PAGE>
WHEREAS: -
(A) Oculex is a company limited by shares and has at the date of this
Agreement an authorised share capital of 20,000,000 Common Stock and
11,000,000 Preferred Stock. As at the date of this Agreement, there are
3,865,061 issued and fully paid-up shares of Common Stock, 330,000
issued and fully paid-up shares of series A Preferred Stock and
3,667,878 issued and fully paid-up shares of series B Preferred Stock.
(B) The Major Shareholders hold approximately 40.86% of the issued share
capital in the Company represented by 3,091,086 shares of Common Stock
of the Company and 121,918 shares of Preferred B Stock of the Company.
(C) On 3rd October 1995, Oculex, the Major Shareholders, Transpac Industrial
and Transpac Capital entered into an Exchangeable Loan Agreement (the
"Loan Agreement") whereunder Transpac Industrial and Transpac Capital
agreed to make certain advances to Oculex upon certain conditions being
fulfilled.
(D) The Loan Agreement was subsequently amended by way of a Supplemental and
Accession Agreement dated 12th February 1996 (the "First Supplemental
Agreement') entered into between the parties to the Loan Agreement and
Regional Investment.
(E) The Loan Agreement (as amended by the First Supplemental Agreement) was
further varied by way of a Subscription Agreement dated 31 December 1996
entered into by and between the Parties, whereunder the Investors also
agreed to subscribe for 500,000 shares of Preferred B Stock in the
capital of Oculex.
(F) Pursuant to the Loan Agreement (amended as aforesaid, such amended Loan
Agreement to hereinafter be referred to as the "Amended Loan
Agreement"), the Investors are obliged to make advances to Oculex on the
terms and subject to the conditions of the Amended Loan Agreement and in
particular upon certain conditions being met. Pursuant to the proviso
set out in Clause 5 of the Amended Loan Agreement, the Investors may in
their absolute discretion waive any of such conditions in relation to
any or all of the advances and Oculex shall not be entitled to refuse to
accept any advance which the Investors have decided to make under the
Amended Loan Agreement.
(G) Pursuant to the Amended Loan Agreement, the Investors were obliged,
subject to the conditions set out-in the Amended Loan Agreement, to make
available to Oculex the aggregate sum of US$6,400,000. As at the date
hereof, the Investors have advanced to Oculex US$2,000,000 in total.
3
<PAGE>
(H) At the request of Oculex and the Major Shareholders, the Investors have
agreed to advance to Oculex the remaining sum of US$4,400,000 and this
Agreement sets out the terms and conditions of such advance.
NOW IT IS HEREBY AGREED AS FOLLOWS: -
1. DEFINITIONS AND INTERPRETATION
1.1 All terms and references used in the Amended Loan Agreement and which
are defined or construed in the Amended Loan Agreement but are not
defined or construed in this Agreement shall have the same meaning and
construction In this Agreement.
1.2 References to Clauses, Recitals and Appendices are to clauses, recitals
and appendices of this Agreement.
1.3 Words denoting the singular number only shall include the plural number
and vice versa. Words denoting the masculine gender only shall include
the feminine and neuter genders.
1.4 The Recitals to this Agreement shall be and form an integral part of
this Agreement.
1.5 The headings in this Agreement are inserted for convenience only and
shall be ignored in construing this Agreement.
2. ADVANCES
2.1 At the request of Oculex and the Major Shareholders, the Investors have
agreed to exercise their rights under the Amended Loan Agreement to
advance the remaining sum of US$4,400,000, being the Second Advance and
the Third Advance under the Amended Loan Agreement, to Oculex in the
proportion set out in the Appendix. The terms and conditions governing
such advances shall be as stated in the Amended Loan Agreement.
2.2 Oculex and the Major Shareholders hereby agree that Oculex will accept
such advances when made by the Investors on the terms and conditions set
out in the Amended Loan Agreement.
4
<PAGE>
3. AMENDMENTS TO THE LOAN AGREEMENT
3.1 The Parties agree that with effect from the date hereof, Article 15(B)
of the Amended Loan Agreement shall be amended by deleting the words
"US$2.75 per Preferred B Stock, for the next US$1,000,000 and US$3.00
per Preferred B Stock thereafter" in the fifth and sixth lines thereof
and replacing them with the following:
"AND US$2.75 PER PREFERRED B STOCK THEREAFTER"
3.2 Except to the extent expressly varied or amended by the provisions of
this Agreement, the terms and conditions of the Amended Loan Agreement
are hereby confirmed and shall remain in full force and effect.
4. MISCELLANEOUS
4.1 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
4.2 All notices, requests, demands and other communications under this
Agreement or in connection herewith shall be given to or made upon as
follows: -
<TABLE>
<S> <C> <C>
If to the Investors : TRANSPAC INDUSTRIAL HOLDINGS LIMITED
6 Shenton Way, #20-09 DBS Tower Two,
Singapore 068809
Fax No: (065) 225 5538
TRANSPAC CAPITAL PTE LTD
6 Shenton Way, #20-09 DBS Tower Two,
Singapore 068809
Fax No: (065) 225 5538
REGIONAL INVESTMENT COMPANY LIMITED
6 Shenton Way, #20-09 DBS Tower Two,
Singapore 068809
Fax No: (065) 225 5538
If to the Company : OCULEX PHARMACEUTICALS INC.
639 N. Pastoria Avenue
Sunnyvale, CA 94086-2917
Fax No: (408) 481 0662.
5
<PAGE>
If to JG : DR JERRY GIN
1206 Sargent Drive, Sunnyvale, Ca 94087
United States of America
Fax No: (408) 481 0662
If to VW : DR VERNON WONG
180 Sand Hill Circle, Menlo Park, CA 94025
United States' of America
Fax No: (408) 481 0662
</TABLE>
All notices, requests, demands and other communications given or made in
accordance with the provisions of this Agreement shall be in writing,
and shall be sent by airmail, return receipt requested, or by telecopy
(facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed. Any party may, by written
notice to the other, alter its address or respondent, and such notice
shall be considered to have been given 10 days after the airmailing or
telecopying thereof.
5. COSTS AND EXPENSES
5.1 Oculex shall pay:-
5.1.1 all costs and expenses (including legal fees and stamp and other
documentary taxes) incurred by the Investors in connection with
the preparation, negotiation and entry into of this Agreement
and/or any amendment of, supplement to or waiver in respect of
this Agreement, subject to a maximum of US$2,000; and
5.1.2 on demand, all costs and expenses (including legal fees) incurred
by the Investors in protecting or enforcing or in contemplation
of protecting or enforcing any rights under this Agreement and/or
any such amendment, supplement or waiver.
6. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Parties
pertaining to the subject matter hereof, and any and all other prior
written or oral agreements existing between the Parties are expressly
cancelled.
6
<PAGE>
7. GOVERNING LAW AND JURISDICTION
7.1 This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
7.2 In relation to any legal action or proceeding arising out of or in
connection with this Agreement ("Proceedings"), each of the parties
hereto hereby irrevocably submits to the jurisdiction of the courts of
the State of California and Singapore and waives any objection to
Proceedings in any such courts on the grounds of venue or on the grounds
that the Proceedings have been brought in an inconvenient forum.
7.3 That submission shall not affect the right of the Investors to take
Proceedings in any other jurisdiction nor shall the taking of
Proceedings in any jurisdiction preclude the Investors from taking
Proceedings in any other jurisdiction.
7.4 Each of the Major Shareholders and the Company hereby irrevocably
appoints Oculex Asia Pharmaceuticals Pte Ltd (of 16 Lynwood Grove,
Singapore 358660) in Singapore from time to time to receive, for it or
him and on its or his behalf, service of process in any Proceedings in
Singapore. Such service shall be deemed completed on delivery to the
process agent (whether or not it is forwarded to and received by the
Company or the Major Shareholders). If for any reason the process agent
ceases to be able to act as such, the Company and the Major Shareholders
irrevocably agree to appoint a substitute process agent acceptable to
the Investors, and to deliver to the Investors a copy of the new agent's
acceptance of that appointment, within 30 days of such acceptance.
7.5 The Company and the Major Shareholders irrevocably consent to any
process in any Proceedings anywhere being served by the mailing of a
copy of the process served by prepaid registered post to them in
accordance with Clause 10. Such service shall become effective 30 days
after mailing.
7.6 The Company and the Major Shareholders irrevocably and generally consent
in respect of any Proceedings anywhere to the giving of any relief or
the issue of any process in connection with those Proceedings including,
without limitation, the making, enforcement or execution against any
assets whatsoever (irrespective of their use or intended use) of any
order or judgment which may be made or given in those Proceedings, and
agrees that any final order or judgment shall be conclusive.
7.7 The parties may, subject to mutual consent, alternatively submit any and
all disputes arising out of or in connection with this Agreement
including its validity, construction and performance to a sole
arbitrator appointed in California, USA, under the ICC rules of
Conciliation and Arbitration.
7
<PAGE>
8. PREVALENCE OF AGREEMENT
In the event of any inconsistency between the provisions of this
Agreement and the Articles of Incorporation or the Bye-laws of the
Company, the provisions of this Agreement shall as between the parties
hereto prevail. Forthwith upon the entry of this Agreement, the parties
hereto shall forthwith cause such alterations as the Investors may
approve to be made to the Articles of Incorporation or the Bye-laws of
the Company, so as to ensure that the provisions of such documents are
consistent with the terms of this Agreement.
IN WITNESS WHEREOF, the parties executed this Agreement as of the date
first above written.
Signed by ) /s/ Jerry Gin
)
for and on behalf of )
)
OCULEX PHARMACEUTICALS, INC. )
)
in the presence of:- ) /s/ Samuel A. McMasters
Signed by )
)
DR JERRY GIN ) /s/ Jerry Gin
)
in the presence of:- ) /s/ Samuel A. McMasters
Signed by )
)
DR VERNON WONG ) /s/ Vernon Wong
)
in the presence of:- ) /s/ Samuel A. McMasters
8
<PAGE>
Signed by )
)
for and on behalf of ) /s/ Stanley Cheong
)
TRANSPAC INDUSTRIAL )
HOLDINGS LIMITED )
)
in the presence of:- ) /s/ Samuel A. McMasters
Signed by )
)
for and on behalf of ) /s/ Stanley Cheong
)
TRANSPAC CAPITAL PTE LTD )
)
in the presence of:- ) /s/ Samuel A. McMasters
Signed by )
)
for and on behalf of ) /s/ Stanley Cheong
)
REGIONAL INVESTMENT )
COMPANY LIMITED )
)
in the presence of:- ) /s/ Samuel A. McMasters
9
<PAGE>
APPENDIX
<TABLE>
<CAPTION>
INVESTOR AMOUNT TO BE ADVANCED
<S> <C>
Transpac Capital US$2,108,039
Transpac Industrial US$1,796,784
Regional Investment US$495,177
---------------------
TOTAL: US$4,400,000
---------------------
</TABLE>
10
<PAGE>
EXHIBIT 10.16
INTERNATIONAL DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of April,___ 1997, by and
between OCULEX PHARMACEUTICALS, INC. (hereinafter referred to as
"Manufacturer"), a corporation having its offices in Sunnyvale, California,
USA, existing under the laws of the State of California, and LABORATORIOS
SOPHIA, S.A. BE C.V., a corporation having its offices in Guadalajara, JAL.,
existing under the laws of the United Mexican States (hereinafter referred to
as "Distributor").
WITNESSETH:
In consideration of the mutual covenants and conditions herein
contained, and intending to be legally bound hereby, the parties mutually
agree as follows:
1. PRODUCTS AND TERRITORY.
(a) Manufacturer hereby appoints Distributor on an exclusive basis
as its sole distributor for the sale of the following product during the term
of this Agreement (hereinafter referred to as the "Product"):
(i) Surodex-TM- - an anti-inflammatory therapeutic and Drug
Delivery System (DDS) to control inflammation after cataract
surgery
Distributor shall use its best efforts to promote and sell the
Product to the maximum number of responsible customers in the Territory (as
defined below).
(b) Manufacturer is appointing Distributor hereunder with respect to
the resale of Product to any purchasers whose principal place of business is
located in the following described territory (the "Territory"):
Country of Mexico
(c) Distributor shall not solicit orders from any prospective
purchaser with its principal place of business located outside the Territory
without Manufacturer's written consent. If Distributor receives any order
from a prospective purchaser whose principal place of business is located
outside the Territory, Distributor shall immediately refer that order to
Manufacturer. Distributor shall not accept any such orders, and Distributor
may not deliver or tender (or cause to be delivered or tendered) any Product
outside of the Territory without Manufacturer's written consent.
2. PRICES AND PAYMENT.
(a) Distributor shall order Product from Manufacturer by submitting
a written purchase order identifying the Product ordered, requested delivery
date(s) and any export/import information required to enable Manufacturer to
fill the order. All orders for Product are subject
* Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under
Rule 406.
1
<PAGE>
to acceptance by Dr. Jerry B. Gin, or a person designated by him, it
Manufacturer's office at 639 N. Pastoria Avenue, Sunnyvale, CA 94086.
Manufacturer shall have no liability to Distributor with respect to purchase
orders which are not accepted; PROVIDED, HOWEVER, that Manufacturer will not
unreasonably reject any purchase order.
(b) The prices per unit for Product covered by a purchase order
shall be * for the first *, * for the * and * for the *. Thereafter,
Manufacturer may from time to time change those prices, such change being
effective immediately upon Distributor's receipt of notice thereof; PROVIDED,
HOWEVER, THAT no price change shall affect purchase orders offered by
Distributor and accepted by Manufacturer prior to the date such price change
becomes effective.
(c) Distributor shall be free to establish its own pricing for
Product sold. Distributor shall notify Manufacturer of its pricing, as in
effect from time to time.
(d) The ultimate shipment of orders to Distributor shall be subject
to the right and ability of Manufacturer to make such sales and obtain
required licenses and permits, under all decrees, statutes, roles and
regulations of the government of Mexico and agencies thereof presently in
effect or which may be in effect hereafter.
(e) All Product ordered by Distributor shall be packed for shipment
and storage in accordance with Manufacturer's standard commercial practices.
For the purposes of this Agreement, the Product will be supplied to
Distributor in a foil pouch. Final packaging and labeling in Spanish will be
performed by the Distributor. Reasonable final packaging and labeling
expenses, which shall not exceed ____ per unit, will be deducted from the
amount due and payable under the purchase order. It is Distributor's
obligation to notify Manufacturer of any special packaging requirements
(which shall be at Distributor's expense.) All orders will be Shipped freight
collect F.O.B. (as defined by the International Chamber of Commerce's
Incoterms (1990)) Manufacturer's facility, Singapore or Sunnyvale, CA. Risk
of loss and damage to a Product shall pass to Distributor upon the delivery
of such Product to the common carrier designated by Distributor. Insurance
will be paid by the Distributor. All claims for non-conforming shipments must
be made in writing to Manufacturer within ten days of the passing of risk of
loss and damage, as described above. Any claims not made within such period
shah be deemed waived and released.
(d) Payment shall be made by Distributor to Manufacturer by an
irrevocable, confirmed letter of credit with a thirty (30) day term. All
amounts due and owing to Manufacturer, but not paid by Distributor on the due
date thereof, shall bear interest in U.S. dollars at the rate of one per cent
per annum above the then applicable prime rate as published in the Wall
Street journal, but not to exceed the maximum lawful interest rate permitted
under applicable law. Such interest SHALL accrue on the balance of unpaid
capital amounts from time to time outstanding from the date on which portions
of such amounts become due and owing until payment thereof in full.
(g) In the event of any discrepancy between any purchase order
accepted by Manufacturer and this Agreement, the terms of this Agreement
shall govern.
* Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under
Rule 406.
2
<PAGE>
3. OTHER OBLIGATIONS OF DISTRIBUTOR.
(a) Distributor hereby agrees: (i) to assist Manufacturer in
obtaining any such required licenses or permits by supplying such
documentation or information as may be requested by Manufacturer; (ii) to
comply with such decrees, statutes, rules and regulations of the government
of Mexico and agencies thereof; (iii) to maintain the necessary records to
comply with such decrees, statutes, rules and regulations; (iv) to not
reexport any Product except in compliance with such decrees, statutes, rules
and regulations; (v) to obtain all governmental approvals and licenses
necessary to import the Product into the Territory; (vi)to not sell,
transfer, or otherwise dispose of the Product in violation of the export laws
of Mexico; and (vii) to indemnify and hold harmless Manufacturer from any and
all flues, damages, losses, costs and expenses (including reasonable
attorneys' fees) incurred by Manufacturer as a result of any breach of this
subsection by Distributor or any of Distributor's customers.
(b) If a clinical trial is necessary to comply with health
registration laws, Distributor will identify appropriate investigators,
coordinate with the Manufacturer to design the clinical trial, monitor the
clinical trial and ensure that the clinical trial is conducted correctly and
according to the design protocol. Distributor shall supply the completed
clinical trial data and clinical trial report to the Manufacturer at the
completion of the clinical trial. Manufacturer will bear the cost of
providing clinical trial samples. All other costs related to the trial will
be borne by the Distributor.
(c) Distributor shall file an application with the Health
Authorities of the Territory in order to obtain the registration approval of
the Product. Such Product registration application shall be in the name of
the Manufacturer. All expenses related to the registration of Product will be
borne on a * basis by Distributor and Manufacturer. Distributor shall provide
to Manufacturer a copy of all registration documents submitted to the Health
Authorities and the original final registration approval. Upon the
termination for any reason or expiration of this Agreement, Distributor shall
promptly assign or cause to be assigned to Manufacturer at no cost, every
registration or permit obtained that relate to the Product. In the event
assignment is not permitted by law, Distributor will cooperate in the
cancellation of such registrations and/or permits and in the reissuance of
such registrations and/or permits to Manufacturer or its nominee.
(d) Distributor shall employ competent and experienced personnel to
promote the Product in the Territory.
4. MANUFACTURER'S OBLIGATIONS.
(a) Manufacturer shall provide Distributor with such technical and
marketing assistance as appropriate.
* Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under
Rule 406.
3
<PAGE>
5. RELATIONSHIP OF THE PARTIES.
Distributor shall be considered to be an independent contractor. The
relationship shall not be construed to be that of employer and employee, nor
to constitute a partnership, joint venture or agency of any kind. Distributor
shall have no right to enter into any contracts or commitments in the name
of, or on behalf of, Manufacturer, or to bind Manufacturer in any respect
whatsoever. Distributor shall not obligate or purport to obligate
Manufacturer by issuing or making any affirmations, representations,
warranties or guaranties with respect to the Product to any third party.
6. MINIMUM PURCHASE REQUIREMENTS.
Distributor shall purchase a sufficient amount of Product from
Manufacturer so as to meet or exceed the minimum purchase requirements set
forth below. For the purposes of this provision, a "purchase" of Product
within a specified time period shall mean paying Manufacturer for such
Product on or before the last day of such period. The First Year shall
commence at a date mutually agreed to by each party, but in no event later
than June 1, 1997 unless Manufacturer so agrees in writing.
<TABLE>
<S> <C>
First Year * units
Second Year * units
Third Year * units
</TABLE>
Failure to meet such minimum requirements shall constitute a
material breach of this Agreement for the purposes of Section 12 (Termination
and Term) hereof; PROVIDED, HOWEVER, that in lieu of terminating this
Agreement pursuant to Section 12 (Termination and Term) based on such breach,
Manufacturer may instead opt to reduce the exclusive rights granted to
Distributor under Section 1 (Products and Territory) hereof to non-exclusive
rights, which case Manufacturer shall then have the right to appoint
additional non-exclusive distributors in the Territory and the right to sell
the Product itself in the Territory, either directly (including without
limitation with the assistance of sales representatives) or through one of
its affiliates.
7. REPORTING.
Distributor shall provide Manufacturer with written quarterly
reports which shall keep Manufacturer fully informed of all governmental,
commercial, and other activities which do or reasonably could affect the
Product in the Territory.
8. TRADEMARKS, SERVICE MARKS AND TRADE NAMES.
(a) RIGHT TO USE. Distributor may use Manufacturer's trade names,
trademarks and service marks listed below (hereinafter referred to as the
"Trademarks") on a non-exclusive basis
* Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under
Rule 406.
4
<PAGE>
in the Territory only for the duration of this Agreement and solely for
display or advertising purposes in connection with selling and distributing
the Product in accordance with this Agreement:
Oculex-TM-
Surodex-TM-
Distributor shall not at any time do or permit any act to be done which may
in any way impair the rights of Manufacturer in the Trademarks. Distributor
shall use the Trademarks in compliance with all relevant laws and regulations
and not modify any of the Trademarks in any way and not use any of the
Trademarks on or in connection with any goods or services other than the
Product.
9. COVENANT NOT TO COMPETE.
During the term of this Agreement and for one year thereafter,
Distributor shall not market directly or indirectly in the Territory products
which are competitive with the Product.
10. LIMITED WARRANTY
(a) Manufacturer warrants that the Product will be free from defects
and will substantially conform to the specifications set forth in Exhibit A,
attached hereto and made a part hereof. Under no circumstances shall the
warranty apply to any Product which has been modified, damaged or misused.
(b) THE PROVISIONS OF THE FOREGOING WARRANTIES ARE IN LIEU OF AN
OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL (INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR a PARTICULAR PURPOSE).
MANUFACTURER's LIABILITY ARISING OUT OF THE MANUFACTURE, SALE OR SUPPLYING OF
THE PRODUCT OR THEIR USE OR DISPOSITION, WHETHER BASED UPON WARRANTY,
CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE ACTUAL PURCHASE PRICE PAID
BY DISTRIBUTOR FOR THE PRODUCT. IN NO EVENT SHALL MANUFACTURER BE LIABLE TO
DISTRIBUTOR FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT
NOT LIMITED TO, LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES) ARISING
OUT OF THE MANUFACTURE, SALE OR SUPPLYING OF THE PRODUCT, EVEN IF
MANUFACTURER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES.
DISTRIBUTOR SHALL OBLIGATE OR PURPORT TO OBLIGATE MANUFACTURER BY ISSUING OR
MAKING ANY WARRANTIES OR GUARANTIES WITH RESPECT TO THE PRODUCT TO ANY THIRD
PARTY INASMUCH THAT DISTRIBUTOR SHALL BE LIABLE TOWARDS ANY THIRD PARTY WITH
RESPECT TO THE PRODUCT.
5
<PAGE>
11. INDEMNIFICATION.
Each party hereby agrees to indemnify, defend and hold the other
party harmless from any third party claim, lawsuit, legal proceeding,
settlement or judgment (including attorneys' fees incurred in connection
therewith) resulting from or arising out of any death of or personal injury
to any person due to the negligence, recklessness, or willful misconduct of
the other parry or such other party's officers, employees or agents.
12. TERMINATION.
(a) Upon the occurrence of a material breach or default as to any
obligation hereunder by either party and the failure of the breaching party
to promptly pursue (within thirty (30) days after receiving written notice
thereof from the non-breaching party) a reasonable remedy designed to cure
(in the reasonable judgment of the non-breaching party) such material breach
or default, this Agreement may be terminated by the non-breaching party by
giving written notice of termination to the breaching party, such termination
being immediately effective upon the giving of such notice of termination.
(b) Upon the filing of a petition in bankruptcy, insolvency or
reorganization against or by either party, or either party becoming subject
to a composition for creditors, whether by law or agreement, or either party
going into receivership or otherwise becoming insolvent (such party
hereinafter referred to as the "insolvent party"), this Agreement may be
terminated by the other party by giving written notice of termination to the
insolvent party, such termini immediately effective upon the giving of such
notice of termination.
(c) The term of this Agreement shall begin on the later of the dates
that (i) Manufacturer executes this Agreement and (ii) Distributor executes
this Agreement (the later of such dates being referred to as the "Effective
Date"). The term of this Agreement shah end following a period of three years
from the Effective Dale, unless terminated earlier pursuant to the terms of
this Section.
(d) The term of this Agreement shall automatically be extended for
additional periods of one year each unless one of the parties notifies the
other by registered letter with at least three months notice of its decision
to terminate the Agreement prior to the expiration of the initial or any
renewal term hereof.
(e) In the event of a termination pursuant to any of subsections (a)
or (b) above or upon expiration of this Agreement pursuant to either of
subsections (c) or (d) above, Manufacturer shall not have any obligation to
Distributor, or to any employee of Distributor, for compensation or for
damages of any kind, whether on account of the loss by Distributor or such
employee of present or prospective sales, investments, compensation or
goodwill. Distributor, for itself and on behalf of each of its employees,
hereby waives any rights which may be granted to it or them under the laws
and regulations of the Territory or otherwise which are not granted to it or
them by this Agreement. Distributor hereby indemnifies and holds Manufacturer
harmless from and against any and all claims, costs, damages and liabilities
6
<PAGE>
whatsoever asserted by any employee, agent or representative of Distributor
under any applicable termination, labor, social security or other similar
laws or regulations.
(f) Termination of this Agreement shall not affect the obligation of
Distributor to pay Manufacturer all amounts owing or to become owing as a
result of Product tendered or delivered to Distributor on or before the date
of such termination, as well as interest thereon to the extent any such
amounts are paid after the date they became or will become due pursuant to
this Agreement.
(g) Notwithstanding anything else in this Agreement to the contrary,
the parties agree that Sections 1, 2, 3, 4, 8, 9, 11, 19 and 20 shall survive
the termination or expiration of this Agreement, as the case may be, to the
extent required thereby for the full observation and performance by any or
all of the parties hereto.
13. SELLING OFF OF INVENTORY.
Distributor shall have the right to sell-off its remaining inventory
of Product after termination or expiration of this Agreement; PROVIDED,
HOWEVER, that Distributor shall comply with all terms and conditions of this
Agreement restricting such reselling activities in effect immediately prior
to such termination or expiration.
14. MODIFICATION.
No modification or change may be made in this Agreement except by
written instrument duly signed by Distributor and by a duly authorized
representative of Manufacturer.
15. ASSIGNMENT.
This Agreement and the rights and obligations hereunder may not be
assigned, delegated or transferred by either party without the prior written
consent of the other party; PROVIDED, HOWEVER, that Distributor's consent
shall not be required with respect to any assignment, delegation or transfer
by Manufacturer to another division of Manufacturer or to any affiliate of
Manufacturer or any division of such affiliate. This Agreement shall inure to
the benefit of the successors and assigns of Manufacturer.
16. NOTICE.
All notices given under this Agreement shall be in writing and shall
be addressed to the parties at their respective addresses set forth below:
7
<PAGE>
IF TO DISTRIBUTOR:
Laboratorios SOPHIA, S.A. DE C.V.
Street: Av. Hidalgo 737 S.H.
City: Guadalajara
State or Province: Jalisco
Zip or Postal Code: C.P. 44290
Country: Mexico
Telecopy Number: (3) 613-22-28
Attention: General Director
IF TO MANUFACTURER:
OCULEX PHARMACEUTICALS, INC.
Street: 639 N. Pastoria Avenue
City: Sunnyvale
State or Province: California
Zip or Postal Code: 94086
Country: USA
Telecopy Number: (408) 481-0662 Attention: President
Either party may change its address or its telecopy number for purposes of
this Agreement by giving the other party written notice, by registered or
certified mail, of its new address or telecopy number.
17. WAIVER.
None of the conditions or provisions of this Agreement shall be held
to have been waived by any act or knowledge on the part of either party,
except by an instrument in writing signed by a duly authorized officer or
representative of the parties. Further, the waiver by either party of any
right hereunder or the failure to enforce at any time any of the provisions
of this Agreement, or any rights with respect thereto, shall not be deemed to
be a waiver of any other rights hereunder or any breach or failure of
performance of the other party.
18. VALIDITY.
Manufacturer warrants that this Agreement is lawful and may be
performed in accordance with its terms under all laws in force in the United
States at the time of execution of this Agreement. Distributor warrants that
this Agreement is lawful and may be performed in accordance with its terms
under all laws in force in Mexico at the time of execution of this Agreement.
Manufacturer and Distributor covenant and warrant that they will each advise
the other of any changes in the respective laws which might or will impair
the validity of all or any part of this Agreement.
8
<PAGE>
19. CONSTRUCTION OF AGREEMENT AND RESOLUTION OF DISPUTES.
(a) This Agreement, which is in English, shall be interpreted in
accordance with the commonly understood meaning of the words and phrases
hereof in the United States of America, and it and performance of the parties
hereto shall be construed and governed according to the laws of the State of
California applicable to contracts made and to be fully performed therein,
excluding the United Nations Convention on Contracts for the International
Sale of Goods.
(b) Any dispute, controversy or claim arising out of or relating to
this Agreement or to a breach hereof, including its interpretation,
performance or termination, shall be finally resolved by arbitration. The
arbitration shall be conducted by three (3) arbitrators, one to be appointed
by Manufacturer, one to be appointed by Distributor and a third being
nominated by the two arbitrators so selected or, if they cannot agree on a
third arbitrator, by the President of the International Chamber of Commerce
("ICE"). In the event any such dispute, controversy or claim involves a claim
of damages for $50,000.00 or less, the arbitration shall be conducted by one
(1) arbitrator appointed by Manufacturer and Distributor or, if they cannot
agree on an arbitrator, by the President of the ICC.
The arbitration shall be conducted in English and in accordance with the
rules of the ICE, which shall administer the arbitration and act as
appointing authority. The arbitration, including the rendering of the award,
shall take place in Santa Clara County, California, and shall be the
exclusive forum for resolving such dispute, controversy or claim. For the
purposes of this arbitration, the provisions of this Agreement and all rights
and obligations thereunder shall be governed and construed in accordance with
the laws of the State of California. The decision of the arbitrators shall be
binding upon the parties hereto, and the expense of the arbitration
(including without limitation the award of attorneys' fees to the prevailing
party) shall be paid as the arbitrators determine. The decision of the
arbitrators shall be executory, and judgment thereon may be entered by any
court of competent jurisdiction.
(c) Notwithstanding anything contained in Section 19 (b) to the
contrary, each party shall have the right to institute judicial proceedings
against the other party or anyone acting by, through or under such other
party, IN order to enforce the instituting party's rights hereunder through
reformation of contract, specific performance, injunction or similar
equitable relief.
20. CONFIDENTIALITY MAINTAINED.
Each party agrees that it will treat all verbal and written
communications from the other party which are designated, or which should
reasonably be regarded from a commercial view, as constituting business
secrets or proprietary information ("Proprietary Information"). Each party
agrees to refrain from disclosing or making available to any third party any
of the other party's Proprietary Information without the other party's
written consent and to impose upon its employees and agents the same
obligations with respect to the other party's Proprietary Information as it
employs with respect to its own confidential information. No such obligation
of confidentiality will extend to information which is (i) publicly
available; (ii) is independently
9
<PAGE>
developed by the receiving party; (iii) is already in the receiving party's
possession; or (iv) is rightfully received from a third party.
21. ENTIRE AGREEMENT
This Agreement supersedes and cancels any previous agreements or
understandings, whether oral, written or implied, heretofore in effect and
sets forth the entire agreement between Manufacturer and Distributor with
respect to the subject matter hereof.
22. NO RIGHTS BY IMPLICATION.
No rights or licenses with respect to the Product or the Trademarks
are granted or deemed granted hereunder or in connection herewith, other than
those rights expressly granted in this Agreement.
23. RESPONSIBILITY FOR TAXES.
Taxes, whether in Mexico or any other country, now or hereafter
imposed with respect to the transactions contemplated hereunder (with the
exception of income taxes or other taxes imposed upon Manufacturer and
measured by the gross or net income of Manufacturer) shall be the
responsibility of Distributor, and if paid or required to be paid by
Manufacturer, the amount thereof shall be added to and become a part of the
amounts payable by Distributor hereunder.
24. MODIFICATION OF PRODUCT.
Distributor may not modify or have modified any Product unless it
obtains the prior written consent of Manufacturer, which consent may be
withheld in the sole discretion of Manufacturer. Any unauthorized
modification of any Product by Distributor or any third party shall relieve
Manufacturer from any obligation it would otherwise have had with respect to
such Product under the limited warranty described in Section 10.
25. FORCE MAJEURE.
(a) Neither Manufacturer nor Distributor shall be liable in damages,
or shall be subject to termination of this Agreement by the other party, for
any delay or default in performing any obligation hereunder if that delay or
default is due to any cause beyond the reasonable control and without fault
or negligence of that party. For the purposes of this Section, a "cause
beyond the reasonable control" of a party shall include, without limiting the
generality of the phrase, any act of God, act of any government or other
authority or statutory undertaking, industrial dispute, fire, explosion,
accident, power failure, flood, riot or war (declared or undeclared).
26. COMPLIANCE WITH LAWS.
Each of Distributor and Manufacturer covenants that all of its
activities under or pursuant to this Agreement shall comply with all
applicable laws, rules and regulations. In particular,
10
<PAGE>
but without limitation, Distributor shall be responsible for obtaining all
licenses, permits and approvals which are necessary or advisable for sales of
the Product in the Territory and for the performance of its duties hereunder.
27. SEVERABILITY.
If any provision of this Agreement is declared invalid or
unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Agreement shall endure except for the part declared invalid or
unenforceable by order of such court. The parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
28. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
29. DEFINITION OF AFFILIATES.
For the purposes of this Agreement, "affiliates" shall mean all
companies; natural persons, partnerships and other business entities
controlled by, under common control with or controlling either party to this
Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement.
DISTRIBUTOR: Laboratorios SOPHIA, S.A. DE C.V.
By: /s/ Fernando Sanchez
---------------------------------
Name: Mr. Fernando Sanchez
Title: General Director
MANUFACTURER OCULEX PHARMACEUTICALS, INC.
By: /s/ Jerry B. Gin
---------------------------------
Name: Dr. Jerry B. Gin
Title: President
12
<PAGE>
EXHIBIT A
PRODUCT SPECIFICATIONS
Surodex, a sustained release intraocular dexamethasone for cataract surgery,
shall be supplied as follows:
(i) Packaging: In plastic vial placed in a foil pouch
(ii) Sterile
<PAGE>
ADDENDUM TO DISTRIBUTION AGREEMENT
DATED APRIL, 1997
Oculex Pharmaceuticals, Inc. and Laboratorios Sophia S.A. de C.V. wish to add
this Addendum to the Distribution Agreement signed in April, 1997.
1. PRODUCTS
The Agreement shall be expanded to include Suroquin-TM-, an antibiotic Drug
Delivery System (DDS-TM-) for use in the anterior segment following
cataract surgery.
2. TERRITORY
The Territory for both Surodex and Suroquin shall be expanded to include:
Mexico
CENTRAL AMERICA
Guatemala
E1 Salvador
Honduras
Nicaragua
Costa Rica
Panama
Dominican Republic
Belice
Haiti
SOUTH AMERICA
Brazil
Argentina
Columbia
Venezuela
Uruguay
Paraguay
Chile
Ecuador
Peru
Boliva
<PAGE>
3. PRICES
Transfer price shall be based on sales price for both Surodex and
Suroquin. Oculex Pharmaceuticals will receive * and Laboratorios Sophia
will receive * of sales price. Product would be sold at a minimum
transfer price of * each for Surodex and Suroquin, with the resulting
difference between * of selling price and minimum transfer price being
paid to Oculex on a monthly basis.
4. MINIMUMS
Minimum purchase requirements are to be established for each country and
are to be agreed upon by both parties. For the countries listed, minimums
for the first, second and third years are as follows:
5. SALES AND MARKETING PLAN
Laboratorios Sophia and Oculex Pharmaceuticals will work together and agree
upon the sales and marketing plan to be executed by Laboratorios Sophia.
The plans shall include launch schedule, distribution mechanisms, pricing,
volume of sales, and promotions. If Oculex Pharmaceuticals and Laboratorios
Sophia cannot agree upon Terms, then Oculex has the right to withdraw from
the Territory list those countries where questions arise.
6. PRODUCT REGISTRATION AND APPROVAL
It is the responsibility of Laboratorios Sophia to obtain registration and
approval of Surodex and Suroquin in the Territories listed under the name
of Oculex Pharmaceuticals, Inc.. If registration and approval does not
occur in a timely manner, Oculex Pharmaceuticals reserves the right to
terminate the marketing rights in the countries where approval has not been
obtained. In this context, "timely manner" shall mean "within 1.5 years of
signing of this Addendum". At such time as termination of marketing rights,
Laboratorios Sophia shall turn over any registration/clinical trial
documents to Oculex-
7. FURTHER DISCUSSION
It is understood that there will be further discussion of items 3, 4 and 6
to achieve mutual agreement with both parties.
8. TRADEMARKS
Distributor may use the additional trademarks related with the
product and technology listed in Section 1 of this Addendum (Suroquin-TM- and
DDS-TM-) only for the purposed described in Section 8 of the Distribution
Agreement.
* Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under
Rule 406.
<PAGE>
9. OTHER TERMS
Other terms shall be as described in the April, 1997 Agreement.
February 18, 1999
/s/ Jerry Gin
- ---------------------------------
Oculex Pharmaceuticals, Inc.
Jerry Gin, President
/s/ Gregorio Cuevas
- ---------------------------------
Laboratorios Sophia S.A. de C.V
Gregorio Cuevas
/s/ Arturo Tarnez
- ---------------------------------
Laboratorios Sophia S.A. de C.V
Arturo Tarnez
/s/ Fernando Sanchez
- ---------------------------------
Laboratorios Sophia S.A. de C.V
Fernando Sanchez
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY LOCATION OF OPERATIONS
- ------------------ ----------------------
<S> <C>
Oculex Asia Pharmaceuticals PTE Ltd. Singapore
Oculex China Pharmaceuticals, Inc. China
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" and
"Selected consolidated financial data" and to the use of our report dated
March 12, 2000 (except for Note 9, as to which the date is April , 2000), in
the Registration Statement (Form S-1 No. ) and related Prospectus of
Oculex Pharmaceuticals, Inc. for the registration of shares of its common stock.
San Jose, California
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
the reincorporation and other matters described in Note 9 to the consolidated
financial statements.
/s/ ERNST & YOUNG LLP
San Jose, California
April 5, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,723,858
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,953,461
<PP&E> 2,279,990
<DEPRECIATION> 1,090,278
<TOTAL-ASSETS> 4,539,374
<CURRENT-LIABILITIES> 3,544,590
<BONDS> 0
0
20,998,936
<COMMON> 1,714,388
<OTHER-SE> (1,093,706)
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<EPS-BASIC> (1.82)
<EPS-DILUTED> (1.82)
</TABLE>
