<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 2000
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
APPLIED MOLECULAR EVOLUTION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 33-0374014
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
3520 DUNHILL STREET
SAN DIEGO, CA 92121
(858) 597-4990
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM D. HUSE, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
APPLIED MOLECULAR EVOLUTION, INC.
3520 DUNHILL STREET
SAN DIEGO, CA 92121
(858) 597-4990
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS E. SPARKS, JR. JOEL M. BERNSTEIN
JOHN M. DUNN MCDERMOTT, WILL & EMERY
PILLSBURY MADISON & SUTRO LLP 2049 CENTURY PARK EAST
P.O. BOX 7880 LOS ANGELES, CALIFORNIA 90067-3208
SAN FRANCISCO, CALIFORNIA 94120-7880 (310) 277-4110
(415) 983-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value................. $85,000,000 $22,440
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</TABLE>
(1) 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED MAY 12, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SHARES
[APPLIED MOLECULAR EVOLUTION LOGO]
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of Applied Molecular
Evolution, Inc.
We expect that the price to the public in the offering will be between
$ and $ per share. The market price of the shares after the
offering may be higher or lower than the offering price.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "AMEV."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Price to the public.................................. $ $
Underwriting discount................................ $ $
Proceeds to Applied Molecular Evolution.............. $ $
</TABLE>
We have granted an over-allotment option to the underwriters. Under this option,
the underwriters may elect to purchase a maximum of additional
shares from us within 30 days following the date of this prospectus to cover
over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
PAINEWEBBER INCORPORATED
SG COWEN
The date of this Prospectus is , 2000.
<PAGE> 3
[INSIDE FRONT COVER OF PROSPECTUS]
[ARTWORK]
[Graphic depicting the directed evolution technology of AME. The graphic depicts
the basic steps in our AMEsystem directed evolution process. The left side of
the graphic shows the original gene being modified by application of our
DirectAME technology to generate a collection of genes. The middle of the
graphic depicts the next step in the process in which our ExpressAME technology
is used to produce a collection of proteins from the genes produced in the first
step. The final step is displayed on the right side of the page and shows the
improved protein being identified by applying our SelectAME screening
technology.]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 11
Use of Proceeds............................................. 12
Dividend Policy............................................. 12
Capitalization.............................................. 13
Dilution.................................................... 14
Selected Consolidated Financial Data........................ 15
Management's Discussion and Analysis of Financial Condition 16
and Results Of Operations.................................
Business.................................................... 20
Management.................................................. 31
Principal Stockholders...................................... 37
Related Party Transactions.................................. 39
Description of Capital Stock................................ 40
Shares Eligible for Future Sale............................. 43
Underwriting................................................ 45
Legal Matters............................................... 47
Experts..................................................... 47
Where You Can Find More Information......................... 47
Index to Financial Statements............................... F-1
</TABLE>
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<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in the shares. You should read the entire
prospectus carefully.
OVERVIEW
We are a leader in the emerging field of directed evolution, a process for
optimizing genes and proteins for specific commercial purposes. Since our
inception, our principal focus has been on applying our technology to human
biotherapeutics, the largest and most profitable target market for directed
evolution. Biotherapeutics, or biopharmaceuticals, are protein pharmaceuticals
such as antibodies, cytokines, hormones and enzymes. We use our directed
evolution technology to develop novel human therapeutics as well as improved
versions of currently marketed, FDA-approved drugs. We also plan to develop
novel proteins for applications outside of human therapeutics in collaboration
with other companies.
DIRECTED EVOLUTION
The goal of directed evolution is to optimize proteins for commercial purposes.
By "optimize" we mean to systematically and substantially enhance a protein's
function. Protein optimization involves improving the functional characteristics
of a particular protein by changing its amino acid sequence. The sequence of
amino acids in a protein determines the protein's structure and function, and
the sequence of amino acids is specified in a gene. Therefore, a protein can be
optimized by altering the gene that produces it.
There are three fundamental steps in the process of directed evolution. The
first step involves modifying the original gene, which produces the protein of
interest, to create a diverse collection, or library, of genes. The second step
involves producing proteins from all the different genes produced in step one.
The third step entails evaluating, or screening, the collection of proteins
generated in step two to identify improved versions of the original protein.
This process can be repeated until a protein with the desired characteristics is
produced.
OUR APPROACH
Our AMEsystem(TM) directed evolution technology has been developed specifically
for application to human therapeutic proteins. We start by replacing one amino
acid at a time in a selected region of the target protein. We replace each amino
acid in the region of interest with each of the 19 other possible amino acids,
and evaluate the resulting proteins for improved characteristics. We go through
an iterative process, combining positive changes until an optimized protein is
produced.
Our proprietary approach differs from those of our competitors because we
precisely control the locations where we introduce change as well as the amount
of change we introduce. We also test the complete set of possible changes for
each amino acid of interest, thereby minimizing the risk of entirely missing a
possible improvement. Because it is precise and systematic, our approach is
efficient and cost-effective, and generally avoids the need to produce and test
millions of different proteins. We have also developed proprietary methods for
applying our technology to proteins that cannot be produced in bacteria, which
include many important classes of human therapeutic proteins.
We believe that we have a strong intellectual property position in directed
evolution based on our portfolio of fundamental patents, consisting of 16 issued
U.S. patents including the exclusive license to the Kauffman patents, which we
believe cover many directed evolution technologies.
We believe that we have validated our AMEsystem technology by optimizing product
candidates for corporate collaborators, including leading companies such as
MedImmune and Bristol-Myers Squibb. We have applied our directed evolution
technology to achieve the following successes:
- For MedImmune: we increased by 90-fold the affinity for its target of
Vitaxin, an anti-angiogenic monoclonal antibody that attacks tumors by
cutting off their blood supply, and increased its manufacturing yield by
300%.
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<PAGE> 6
- For Bristol-Myers Squibb: we believe that we significantly reduced the risk
that BMS' anti-CD40 antibody, a monoclonal antibody to treat
graft-versus-host disease caused by organ transplant rejection, would cause
serious side effects in patients, and we increased the affinity of this
antibody for its target by 500-fold. We also increased by over 30-fold the
affinity for its target of BR96, a monoclonal antibody that targets solid
tumors, and expanded the range of tumors that it recognizes. BMS has
licensed the improved version, hBR96, to Seattle Genetics for further
development.
OUR STRATEGY
Our goal is to be the leader in applying directed evolution to the development
and commercialization of novel human biotherapeutics. We have selected
biotherapeutics as our primary target market because it is the largest and
highest margin market for directed evolution. Protein pharmaceutical products
represent some of the world's highest revenue pharmaceutical products, with
worldwide sales projected to approach $20.0 billion by 2004.
Our business strategy includes five basic elements:
- We are developing novel human biotherapeutics derived from a wide variety of
sources, including targets from our corporate collaborators and from
academic institutions. We also expect the sequencing of the human genome to
result in many new potential gene targets.
- We are optimizing currently marketed, FDA-approved biopharmaceuticals to
create improved versions of these drugs with broader patent protection.
- We plan to continue to leverage strategic collaborations to expand our
product pipeline. We believe that we can add the greatest value to a project
by applying our AMEsystem technology early in the development process while
relying on our collaborators to further develop and commercialize product
candidates.
- We plan to internally develop a select number of promising projects which
address large market opportunities.
- We plan to further develop our AMEsystem technology by continuing to invest
significantly in research and development while simultaneously protecting
and expanding our strong intellectual property portfolio.
OUR CURRENT DEVELOPMENT PROJECTS
- Corporate Collaborations. We have optimized antibodies for BMS, including a
product candidate they recently licensed to Seattle Genetics. We are
currently optimizing antibodies for MedImmune and Bio-Management. Our
collaboration with MedImmune covers four antibodies, one of which is our
improved, second generation version of Vitaxin. Our collaboration with
Bio-Management also covers four antibodies. These relationships include
research and development reimbursement, milestone payments and potential
royalties on product sales.
- Internal projects. We currently have several internal development projects.
The majority of these relate to improving currently marketed, FDA-approved
drugs. We are also developing a novel therapeutic enzyme for treating
cancer.
OTHER CORPORATE INFORMATION
We were incorporated in Delaware in August 1989 under the name Ixsys, Inc. In
February 2000, we changed our name to Applied Molecular Evolution, Inc. Our
executive offices are located at 3520 Dunhill Street, San Diego, California,
92121, and our telephone number is (858) 597-4990. Our website is located at
AMEvolution.com. We do not consider information contained in our website to be a
part of this prospectus.
Applied Molecular Evolution, AME, AMEsystem, DirectAME, ExpressAME, SelectAME,
AMEvolution and Phase IV Pharmaceuticals are our trademarks. All other product
names, trade names and trademarks included in this prospectus are the property
of their respective owners.
2
<PAGE> 7
THE OFFERING
Common stock offered...................... shares
Common stock to be outstanding after the
offering.................................. shares
Use of proceeds........................... For expansion and enhancement of
our AMEsystem technology, internal
development projects and general
corporate purposes.
Proposed Nasdaq National Market symbol.... AMEV
The number of shares of common stock to be outstanding after the offering in the
table above is based on the number of shares outstanding as of May 3, 2000. The
number excludes:
- 2,613,628 shares of common stock issuable upon exercise of options
outstanding as of May 3, 2000, at a weighted average exercise price of
$0.59 per share
- 66,667 shares of common stock issuable upon the exercise of warrants to
purchase our preferred stock at a weighted average exercise price of
$5.62 per share
- 1,111,111 shares of our Series F preferred stock which will be issued on
June 15, 2000, at $4.50 per share
Unless otherwise stated, all information contained in this prospectus assumes:
- no exercise of the over-allotment option granted to the underwriters
- a for stock split of our common stock
- conversion of all outstanding shares of our preferred stock into shares
of common stock
3
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ----------------------
1997 1998 1999 1999 2000
------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................... $ 3,329 $ 2,590 $ 2,592 $ 147 $ 831
Operating expenses:
Research and development............ 2,992 2,583 4,421 928 671
General and administrative.......... 2,637 1,975 1,370 227 419
Amortization of deferred
compensation..................... -- -- 435 37 788
------- ------- ------- ------- -------
Total operating expenses.............. 5,629 4,558 6,226 1,192 1,878
------- ------- ------- ------- -------
Loss from operations.................. (2,300) (1,968) (3,634) (1,045) (1,047)
Minority interest..................... -- -- 206 -- 194
Interest income, net.................. 79 101 213 31 38
------- ------- ------- ------- -------
Net loss.............................. $(2,221) $(1,867) $(3,215) $(1,014) $ (815)
======= ======= ======= ======= =======
Pro forma net loss per share.......... $ (0.23) $ (0.06)
======= =======
Pro forma weighted average shares
outstanding......................... 14,070 14,217
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments... $2,325 $ 7,425 $
Working capital..................................... 2,900 8,000
Total assets........................................ 5,502 10,602
Long-term obligations............................... 17 17
Minority interest................................... 792 792
Stockholders' equity................................ 3,057 8,157
</TABLE>
The pro forma balance sheet data above reflect the sale of our Series F
preferred stock in May 2000, for proceeds of $5.1 million, and the conversion of
our preferred stock into common stock. We are due to receive an additional $5.0
million from a second closing of our Series F preferred stock which is scheduled
for June 15, 2000, which is not reflected in the pro forma balance sheet data
above.
The pro forma as adjusted balance sheet data above give effect to the pro forma
adjustments above and our sale of shares in the offering at an
assumed initial public offering price of $ per share, less underwriter
discounts and assumed offering expenses.
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<PAGE> 9
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares.
WE HAVE NOT ACHIEVED PROFITABILITY AND MAY NEVER BECOME PROFITABLE.
We are at an early stage of development. We incurred a net loss of $3.2 million
for the year ended December 31, 1999, and our revenue for 1999 was only $2.6
million. Additionally, we have had net losses each year since inception and as
of March 31, 2000, had an accumulated deficit of $28.0 million. We expect to
report a net loss for fiscal year 2000, and we expect to report increasing net
losses for the foreseeable future. We may never achieve profitability. The size
of our net losses will depend, in part, on the rate of growth, if any, in our
contract revenue and on the level of our expenses. To date, we have derived most
of our revenue from collaborations and expect to continue to do so in the
foreseeable future. Revenue from collaborations are uncertain because our
ability to secure future agreements will depend upon our ability to address the
needs of our potential future collaborators. We expect to spend significant
amounts to fund research and development and enhance our core technology. We
expect that our operating expenses will increase significantly in the near term
and, consequently, we will need to generate significant additional revenue to
achieve profitability. Even if we do achieve profitability, we may not be able
to sustain or increase profitability on a quarterly or annual basis.
THE COMMERCIAL UTILITY OF OUR PLATFORM TECHNOLOGY IS UNPROVEN AND MAY NEVER BE
REALIZED.
While we have met with initial success in applying our platform technology, to
prove the commercial value of our technology, we or our collaborators will need
to commercialize biotherapeutics that we have optimized. Successful
commercialization of biotherapeutics requires: preclinical testing, clinical
trials, regulatory approval, and commercial manufacturing. It will take us or
our collaborators many years to complete these steps for any biotherapeutic. If
we or our collaborators do not undertake and successfully complete these
activities, then our platform technology will be of little commercial value, and
our ability to generate revenue will be limited. Currently, there are no
products in clinical trials that have been developed using our technology.
WE HAVE OPTIMIZED ONLY ONE TYPE OF PROTEIN AND MAY NOT BE ABLE TO OPTIMIZE
OTHERS, THEREBY LIMITING OUR MARKET POTENTIAL.
To date we have optimized only antibodies for corporate collaborators. If we are
unable to apply our platform technology to other types of proteins, the scope of
our potential business will be significantly limited.
COMMERCIALIZATION OF POTENTIAL PRODUCTS BASED ON OUR TECHNOLOGY DEPENDS IN PART
ON COLLABORATION WITH OTHERS. IF OUR COLLABORATORS ARE NOT SUCCESSFUL OR IF WE
ARE UNABLE TO FIND COLLABORATORS IN THE FUTURE, OUR REVENUE WOULD BE LIMITED.
Our strategy for developing and commercializing product candidates calls for us
to enter into contractual arrangements with collaborators. We may be
unsuccessful in attracting collaborators to develop and commercialize our
products. Some collaborators may not perform their obligations as we expect, or
we may not derive any revenue from these arrangements. We do not know whether
these collaborators will successfully develop and market any products under
their respective agreements. Moreover, some of our collaborators are also
researching competing technologies and products targeted by our collaborative
programs. Our success depends in part upon the performance by these
collaborators of their responsibilities under these arrangements. We have no
control over the resources that any collaborator may devote to the development
and commercialization of products under these collaborations. Our collaborators
may terminate their agreements with us or otherwise fail to conduct their
collaborative activities successfully and in a timely manner. Our collaborators
may elect not to develop products arising out of our collaborative arrangements
or not to devote sufficient resources to develop, manufacture, market or sell
these products.
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<PAGE> 10
IF CONFLICTS WITH OUR COLLABORATORS ARISE, OUR BUSINESS MAY BE ADVERSELY
IMPACTED.
We may pursue opportunities in fields or with parties that could conflict or
compete with those of our collaborators. Moreover, disagreements with our
collaborators could develop over rights to intellectual property, know-how or
other proprietary rights developed through these collaborations. Any conflict or
competition with our collaborators could negatively impact our relationship with
existing collaborators and hinder our ability to enter into future collaboration
agreements. This could reduce our future revenue and the likelihood that our
product candidates will be successfully commercialized.
POTENTIAL PRODUCT CANDIDATES WHICH ARE OPTIMIZED USING OUR PLATFORM TECHNOLOGY
ARE SUBJECT TO A LENGTHY AND UNCERTAIN REGULATORY PROCESS. IF THESE PRODUCT
CANDIDATES ARE NOT APPROVED, NEITHER WE NOR OUR COLLABORATORS WILL BE ABLE TO
COMMERCIALIZE THESE PRODUCTS.
The U.S. Food and Drug Administration must approve any therapeutic product
before it can be marketed in the United States. The regulatory process is
expensive and time-consuming. Before we or a collaborator can file a new drug
application with the FDA, the product candidate must undergo extensive testing,
including animal studies and human clinical trials that can take many years and
may require substantial expenditures. Data obtained from such testing may be
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. Changes in regulatory policy for product approval may cause
delays or rejections. Because our product candidates will be developed in a
novel way, government regulatory authorities may subject these product
candidates to greater scrutiny than those developed using more conventional
methods.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE. IF ADDITIONAL CAPITAL IS NOT
AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE OPERATIONS.
We may need to raise more money to continue our operations. We may seek
additional funds from public and private stock offerings, corporate
collaborations, borrowings under lease lines of credit or other sources. If we
cannot raise more money, we may have to reduce our capital expenditures, scale
back our development of new products, reduce our workforce or license to others
products that we otherwise would seek to commercialize ourselves. We expect that
our current resources, together with the proceeds from this offering and future
operating revenue, will be sufficient to fund operations for only the next two
years. The amount of money we will need will depend on many factors, including:
- the success of our research and development efforts
- our ability to establish collaborative agreements
- our costs of prosecuting and maintaining patents
- market and competing technological developments
Additional capital may not be available on terms acceptable to us, or at all.
Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may include restrictive covenants.
MANY POTENTIAL COMPETITORS, WHICH HAVE GREATER RESOURCES AND EXPERIENCE THAN WE
DO, MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OURS OBSOLETE.
The biotechnology industry is characterized by rapid technological change. Our
future success will depend in part on our ability to maintain a competitive
position with respect to technological advances. Rapid technological development
by others may result in our technology or products derived from our technology
becoming obsolete.
We face, and will continue to face, intense competition from organizations such
as large pharmaceutical and biotechnology companies, as well as academic and
research institutions and government agencies that are pursuing competing
technologies for optimizing proteins for biotherapeutic and other purposes. Most
of these competitors have greater capital resources, research and development
capabilities, marketing staffs, and experience modifying genes and proteins and
developing products. These organizations may currently have or in the future
develop technologies that are superior to ours. Furthermore, our competitors in
the field of directed evolution may be more successful at
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<PAGE> 11
using their technologies to develop commercial products. They may also develop
and patent competitive products more rapidly than we can, potentially gaining an
advantage by being the first to market with these products.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY, OUR
COMPETITIVE POSITION COULD BE HURT.
Our success will depend in part on obtaining and maintaining meaningful patent
protection on our inventions, technology and discoveries in the United States
and other countries. Our ability to compete effectively will depend in part on
our ability to develop and maintain proprietary aspects of our technology, to
operate without infringing the proprietary rights of others, or to obtain rights
to third-party proprietary rights, if necessary. Our issued or licensed patents
may be challenged, invalidated or circumvented, and the patent rights created
thereunder may not afford us a competitive advantage. Our pending patent
applications may not result in the issuance of patents. Our patent applications
may not have priority over others' applications, and even if issued, our patents
may not offer protection against competitors with similar technologies. The laws
of some foreign countries do not protect proprietary rights to the same extent
as the laws of the United States, and many companies have encountered
significant problems in protecting their proprietary rights in these foreign
countries. These problems can be caused by, for example, a lack of rules and
methods for defending intellectual property rights.
The patent positions of biopharmaceutical and biotechnology companies, including
our patent position, are generally uncertain and involve complex legal and
factual questions. We may be able to protect our proprietary rights from
infringement by third parties only to the extent that our proprietary
technologies are covered by valid and enforceable patents or are effectively
maintained as trade secrets. Any of our patent applications may be challenged
and may not result in issued patents. Our existing patents and patent rights and
any future patents we obtain may not be sufficiently broad to prevent others
from practicing our technology or from developing competing products.
Furthermore, others may independently develop similar or alternative
technologies or design around our patented technologies. In addition, others may
challenge or invalidate our patents or patent rights, or our patents or patent
rights may fail to provide us with any competitive advantages. Litigation or
other proceedings to defend or enforce our intellectual property rights could
require us to spend significant time and money and could disrupt and harm our
business.
We also rely upon trade secrets, technical know-how and continuing inventions to
develop and maintain our competitive position. Others may independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets or disclose our technology, and we may not be
able to meaningfully protect our trade secrets, or be capable of protecting our
rights to our trade secrets. We seek to protect our technology and patents, in
part, by confidentiality agreements with our employees and contractors. Our
employees and contractors may breach their existing proprietary information
agreements, and these agreements may not protect our intellectual property.
LITIGATION, OTHER PROCEEDINGS OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY
INFRINGEMENT COULD ADVERSELY IMPACT OUR BUSINESS.
Our commercial success also depends in part on neither infringing valid,
enforceable patents or proprietary rights of third parties, nor breaching any
licenses that may relate to our technology and products. We are aware of
third-party patents that may relate to our technology. It is possible that we
may unintentionally infringe these patents or other patents or proprietary
rights of third parties. We may in the future receive notices claiming
infringement from third parties as well as invitations to take licenses under
third-party patents. Any legal action taken against us or our collaborative
partners claiming damages and seeking to enjoin commercial activities relating
to our products and processes affected by third-party rights may require us or
our collaborators to obtain licenses in order to continue to manufacture or
market the affected products and processes. In addition, these actions may
subject us to potential liability for damages. We or our collaborators may not
prevail in an action, and any license required under a patent may not be made
available on commercially acceptable terms, or at all.
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<PAGE> 12
There are many U.S. and foreign patents and patent applications held by third
parties in our areas of interest, and we believe that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. Litigation could result in substantial costs and the diversion of
management's efforts, regardless of the result of the litigation. Additionally,
the defense and prosecution of interference proceedings before the U.S. Patent
and Trademark Office, or USPTO, and related administrative proceedings could
result in substantial expense to us and significant diversion of effort by our
technical and management personnel.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP OUR TECHNOLOGY.
We are highly dependent on the principal members of our management and
scientific staff, particularly our President and Chief Executive Officer,
William D. Huse, M.D., Ph.D. If we lose their services we may not achieve our
objectives. In addition, recruiting and retaining qualified scientific personnel
to perform future research and development work will be critical to our success.
We do not have sufficient personnel to fully execute our business plan, and
there is currently a shortage of skilled executives and scientists, which is
likely to continue. As a result, competition for experienced executives and
scientists from numerous companies and academic and other research institutions
may limit our ability to hire or retain personnel on acceptable terms. If we
fail to attract and retain sufficient personnel, we may not be able to develop
or implement our technology.
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH, WHICH COULD INCREASE OUR
LOSSES.
We may experience rapid and substantial growth that may place a strain on our
human and capital resources. If we are unable to manage this growth effectively,
our losses could increase. Our ability to manage our operations and growth
effectively may require us to expend funds to attract and retain sufficient
numbers of talented employees and to improve our operational, financial and
management controls as well as our reporting systems and procedures. If we do
not improve our systems in a timely manner or, if we encounter deficiencies in
them, we may receive inadequate information to manage our day-to-day operations.
PUBLIC PERCEPTION OF ETHICAL AND SOCIAL ISSUES MAY LIMIT THE USE OF OUR
TECHNOLOGY, WHICH COULD REDUCE OUR REVENUE.
Our success will depend upon our ability to develop products through the
application of our directed evolution technology. Governmental authorities
could, for social or other purposes, limit the use of genetic modification or
prohibit the practice of our technology. Ethical and other concerns about the
use of products derived from modified genes could adversely affect their market
acceptance.
WE ARE SUBJECT TO THE UNCERTAINTY RELATED TO REIMBURSEMENT POLICIES AND
HEALTHCARE REFORM MEASURES.
In recent years, there have been numerous proposals to change the healthcare
system in the United States and elsewhere. Some of these proposals have included
measures that would limit or eliminate payments for medical procedures and
treatments or subject pharmaceutical product pricing to government control. In
addition, as a result of the trend toward managed healthcare in the United
States, as well as legislative proposals to reduce government insurance
programs, third-party payors are increasingly attempting to contain healthcare
costs by limiting both the coverage of and the level of reimbursement for new
drug products. Consequently, significant uncertainty exists as to the
reimbursement status of newly-approved healthcare products. If we or any of our
collaborators succeed in bringing one or more of our products to market, we
cannot be certain that third-party payors will establish and maintain price
levels sufficient for us to realize a sufficient return on our investment.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE
MATERIALS COULD BE TIME-CONSUMING AND COSTLY.
We use hazardous materials, including chemicals, and radioactive and biological
materials. Our operations also produce hazardous waste products. We cannot
eliminate the risk of accidental contamination or discharge and any resultant
8
<PAGE> 13
injury from these materials. We could be subject to civil damages in the event
of an improper or unauthorized release of, or exposure of individuals to,
hazardous materials. In addition, claimants may sue us for injury or
contamination that results from the use of these materials. Federal, state and
local laws and regulations govern the use, manufacture, storage, handling and
disposal of these materials. Compliance with environmental laws and regulations
may be expensive, and current or future environmental regulations may impair our
research, development, or production efforts.
WE MAY BE SUED FOR PRODUCT LIABILITY.
We may be sued for product liability and other claims if our technology or
products developed from our technology are alleged to have resulted in adverse
effects. We may not be able to avoid significant liability exposure. We maintain
product liability insurance, but we may not have sufficient coverage. If we are
sued for any injury caused by our products and found liable, our financial
condition may be harmed.
SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD CAUSE
OUR STOCK PRICE TO FALL.
Future sales of common stock by our stockholders under Rule 144 of the
Securities Act of 1933, or the Securities Act, or through the exercise of
outstanding registration rights or otherwise could have an adverse effect on the
price of our common stock. The shares offered in this prospectus
will be eligible for sale in the public market following this offering.
Additionally, shares of common stock will be eligible for sale in
the public market 180 days after the date of this prospectus, upon expiration of
lockup agreements with the underwriters, in reliance on Rule 144(k) or Rule 701
under the Securities Act, without any volume restrictions. At such time,
additional shares will become eligible for sale, subject to the
volume limitations of Rule 144. In addition, beginning 180 days after the date
of this prospectus, upon expiration of lockup agreements, holders of outstanding
vested options to purchase shares will be entitled to sell shares
upon exercise of such options under Rule 701.
We intend to register a total of shares of common stock reserved
for issuance under our stock option plans as soon as practicable following the
date of this prospectus. Some of our existing stockholders have rights to
require us to register their shares for future sale.
OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES
AT OR ABOVE THE INITIAL OFFERING PRICE.
Prior to this offering, there has been no public market for our common stock,
and there can be no assurance that an active trading market will develop or be
sustained. The initial offering price for our common stock will be determined by
negotiations among us and the underwriters and may bear no relationship to the
price at which our common stock will trade after completion of this offering.
The market price of our common stock could be subject to significant
fluctuations in response to:
- quarter-to-quarter variations in operating results, particularly from
one-time payments by collaborators that cannot be predicted accurately
- technological innovations by our competitors
- conditions in the biotechnology industry
- commencement of, developments in or outcomes of litigation
- changes in estimates of our performance by securities analysts
- other events or factors
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many
biotechnology companies and that have often been unrelated or disproportionate
to the operating performance of companies. These fluctuations, as well as
general economic and market conditions, may adversely affect the market price of
our common stock. You may not be able to resell your shares at or above the
initial public offering price.
9
<PAGE> 14
INVESTORS WILL INCUR IMMEDIATE DILUTION BECAUSE THE INITIAL PUBLIC OFFERING
PRICE OF A SHARE OF OUR COMMON STOCK WILL EXCEED ITS BOOK VALUE.
The initial public offering price of our common stock is substantially higher
than the book value per share of our outstanding common stock immediately after
this offering. Purchasers of shares of our common stock in this offering will
therefore incur immediate and substantial dilution in net tangible book value
per share.
MANAGEMENT MAY INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
YOU MAY NOT AGREE AND IN WAYS THAT MAY NOT YIELD A SUFFICIENT RETURN.
Management will retain broad discretion over the use of proceeds from this
offering. Stockholders may not deem such uses desirable, and our use of the
proceeds may not yield a significant return or any return at all. Management
intends to use a majority of the proceeds from this offering for research and
development, working capital and other general corporate purposes. Because of
the number and variability of factors that determine our use of the net proceeds
from this offering, we cannot be certain that these uses will not vary
substantially from our currently planned uses.
OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL EXERCISE SIGNIFICANT
CONTROL OVER US.
Our officers and directors and their affiliates will, in the aggregate, own
beneficially approximately % of our outstanding shares of common stock
after this offering. As a result, these stockholders, acting together, would be
able to effectively control most matters requiring approval by our stockholders,
including the election of a majority of the directors.
ANTI-TAKEOVER EFFECT OF SOME OF OUR CHARTER PROVISIONS AND OF DELAWARE LAW COULD
DISCOURAGE A CHANGE IN CONTROL EVEN IF AN ACQUISITION WOULD BENEFIT OUR
STOCKHOLDERS.
Some provisions of our Certificate of Incorporation and Bylaws and of Delaware
law could discourage potential acquisition proposals and could delay or prevent
a change in control of us. These provisions could diminish the opportunities for
a stockholder to participate in tender offers, including tender offers at a
price above the then current market value of our common stock. These provisions
may also inhibit fluctuations in the market price of our common stock that could
result from takeover attempts. In addition, our Board of Directors without
further stockholder approval, may issue preferred stock that could have the
effect of delaying or preventing a change in control of us. The issuance of
preferred stock could also adversely affect the voting power of the holders of
common stock, including the loss of voting control to others.
10
<PAGE> 15
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, the following statements about our plans, objectives, expectations
and intentions and other statements contained in this prospectus that are not
historical facts. You can find these statements under "Prospectus Summary,"
"Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
prospectus.
We typically identify forward-looking statements by using terms such as "may,"
"will," "should," "could," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," "continue" and similar words, although we
express some forward-looking statements differently. You should be aware that
actual events could differ materially from those suggested in the
forward-looking statements due to a number of factors, including:
- failure to enter into additional collaborative agreements
- failure to successfully commercialize products developed with our technology
- competition and technological change
- uncertainty regarding our patents and patent rights (including the risk that
we may be forced to engage in costly litigation to protect patent rights and
the material harm to us if there were an unfavorable outcome of any such
litigation)
- government regulation
- changes in industry practice
- general economic conditions
- one-time events
You should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could cause
our actual results to differ from those set forth in the forward-looking
statements.
11
<PAGE> 16
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering will be approximately $ . "Net Proceeds"
are what we expect to receive after paying the underwriters' discounts and other
expenses of this offering. For the purpose of estimating net proceeds, we are
assuming an initial public offering price of $ per share.
We intend to use the net proceeds of this offering primarily for:
- expansion and enhancement of our AMEsystem technology
- internal development projects, including developing improved versions of
currently marketed, FDA-approved biopharmaceuticals
- additional research and development
- general corporate purposes
The timing and amount of our actual expenditures are subject to:
- the success of our research and development efforts
- our ability to establish collaborative agreements
- our costs of prosecuting and maintaining patents
- market and competing technological developments
We have broad discretion in determining how the proceeds of this offering will
be applied. Until we use the net proceeds of this offering, we intend to invest
the funds in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid 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 any dividends in
the foreseeable future.
12
<PAGE> 17
CAPITALIZATION
The following table shows as of March 31, 2000:
- our actual capitalization
- our pro forma capitalization reflecting:
- the sale of $5.1 million of our Series F preferred stock in a private
placement in May 2000, and the conversion of these shares into 1,133,333
shares of our common stock
- the conversion of 11,640,124 shares of our preferred stock outstanding as
of March 31, 2000 into 11,640,124 shares of our common stock
- our pro forma as adjusted capitalization assuming the pro forma adjustments
described above and the completion of the offering at an assumed initial
public offering price of $ per share
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current portion........... $ 17 $ 17 $ 17
-------- -------- --------
Stockholders' equity:
Preferred stock, $.001 par value: 11,810,666 shares
authorized, 11,640,124 shares outstanding,
actual; 5,000,000 shares authorized, no shares
outstanding, pro forma and pro forma as
adjusted......................................... 12 -- --
Common stock, $.001 par value: 22,450,000 shares
authorized, 2,590,831 shares outstanding, actual;
27,296,832 shares authorized, 15,364,288 shares
outstanding, pro forma; 50,000,000 shares
authorized, shares outstanding, pro
forma as adjusted................................ 3 15
Additional paid-in capital.......................... 34,625 39,725
Accumulated other comprehensive loss................ (6) (6) (6)
Deferred compensation............................... (3,563) (3,563) (3,563)
Accumulated deficit................................. (28,014) (28,014) (28,014)
-------- -------- --------
Total stockholders' equity..................... 3,057 8,157
-------- -------- --------
Total capitalization........................ $ 3,074 $ 8,174 $
======== ======== ========
</TABLE>
The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of March 31, 2000 and excludes:
- 2,613,628 shares of common stock issuable upon exercise of options
outstanding as of May 3, 2000, at a weighted average exercise price of $0.59
per share
- 66,667 shares of common stock issuable upon exercise of warrants to purchase
our preferred stock outstanding at a weighted average exercise price of
$5.62 per share
- 1,111,111 shares of our Series F preferred stock which will be issued on
June 15, 2000, at $4.50 per share
13
<PAGE> 18
DILUTION
Our pro forma net tangible book value on March 31, 2000 was $6,922,575, or
approximately $0.45 per share. Pro forma net tangible book value per share
represents the amount of our stockholders' equity, less intangible assets,
divided by 15,364,288 shares of common stock outstanding assuming:
- the sale of $5.1 million of our Series F preferred stock in a private
placement in May 2000, and the conversion of these shares into 1,133,333
shares of our common stock
- the conversion of 11,640,124 shares of our preferred stock outstanding as
of March 31, 2000, into 11,640,124 shares of our common stock
Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after completion of this offering. After giving effect
to our sale of shares of common stock in this offering and after
deducting the underwriting discounts and offering expenses, our pro forma net
tangible book value as of March 31, 2000, would have been $ per share.
This amount represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution of
$ per share to new investors purchasing shares in this offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
----
Net tangible book value before offering..................... $
Increase attributable to new investors......................
----
Pro forma net tangible book value after giving effect to the
offering..................................................
----
Dilution to new investors................................... $
====
</TABLE>
The following table shows the total consideration paid and the average price per
share paid by the existing stockholders and by new investors, after deducting
underwriting discounts and offering expenses payable by us, at an assumed
initial public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 15,364,288 .% $34,744,710 .% $2.26
New investors...................... . . $
---------- ----- ----------- -----
Total......................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of March 31, 2000, and excludes:
- 2,613,628 shares of common stock issuable upon exercise of options
outstanding as of May 3, 2000, at a weighted average exercise price of $0.59
per share
- 66,667 shares of common stock issuable upon the exercise of warrants to
purchase our preferred stock outstanding at a weighted average exercise
price of $5.62 per share
- 1,111,111 shares of our Series F preferred stock which will be issued on
June 15, 2000, at $4.50 per share
14
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents our selected historical financial data. You should
read the financial statements included in this prospectus, including the notes
to the consolidated financial statements. The selected data in this section are
not intended to replace the consolidated financial statements.
We derived the selected financial data at December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999, from the audited
financial statements included in this prospectus. Ernst & Young LLP, independent
auditors, audited those financial statements. We derived the selected financial
data at December 31, 1997, 1996 and 1995 and for the years ended December 31,
1995 and 1996 from audited financial statements that are not included in this
prospectus. We derived the selected financial data at March 31, 2000, and for
each of the three-month periods ended March 31, 1999 and 2000 from the unaudited
financial statements included in this prospectus. The unaudited financial
statements were prepared on the same basis as the audited financial statements.
Our management believes that the unaudited financial statements contain all
adjustments necessary to present fairly the information included in those
statements and that the adjustments made consist only of normal recurring
adjustments. The results of operations for the three months ended March 31,
2000, are not necessarily indicative of results to be expected for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue.......................... $ 2,097 $ 3,145 $ 3,329 $ 2,590 $ 2,592 $ 147 $ 831
Operating expenses:
Research and development....... 4,416 4,709 2,992 2,583 4,421 928 671
General and administrative..... 1,982 2,614 2,637 1,975 1,370 227 419
Amortization of deferred
compensation................ -- -- -- -- 435 37 788
------- ------- ------- ------- ------- ------- -------
Total operating expenses.... 6,398 7,323 5,629 4,558 6,226 1,192 1,878
------- ------- ------- ------- ------- ------- -------
Loss from operations............. (4,301) (4,178) (2,300) (1,968) (3,634) (1,045) (1,047)
Minority interest................ -- -- -- -- 206 -- 194
Interest income, net............. (22) 4 79 101 213 31 38
------- ------- ------- ------- ------- ------- -------
Net loss......................... $(4,323) $(4,174) $(2,221) $(1,867) $(3,215) $(1,014) $ (815)
======= ======= ======= ======= ======= ======= =======
Net loss per share............... $ (3.63) $ (3.14) $ (1.43) $ (1.13) $ (1.32) $ (0.42) $ (0.32)
======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding.................... 1,191 1,328 1,551 1,659 2,429 2,429 2,577
Pro forma net loss per share..... $ (0.23) $ (0.06)
======= =======
Pro forma weighted average shares
outstanding.................... 14,070 14,217
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ MARCH 31,
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments................................ $3,737 $3,089 $3,920 $ 824 $3,498 $2,325
Working capital.............................. 766 (274) 1,052 313 3,225 2,900
Total assets................................. 6,391 5,384 5,717 2,752 5,938 5,502
Long-term obligations........................ 426 83 17 -- 17 17
Minority interest............................ -- -- -- -- 986 792
Stockholders' equity......................... 2,874 1,741 2,592 725 3,068 3,057
</TABLE>
15
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements and other
financial information included in this prospectus.
OVERVIEW
We are a leader in the emerging field of directed evolution, the process by
which genes and proteins are optimized for specific commercial purposes. We
focus principally on applying our technology to human biotherapeutics, the
largest and most profitable target market for directed evolution.
Since our formation, we have expended considerable resources on the development
of our AMEsystem technology and the development of Vitaxin, a product candidate
engineered from an antibody we in-licensed from The Scripps Research Institute.
Much of our research and development from 1995-1999 was allocated to preclinical
development and initial clinical trials for Vitaxin. In 1999 we licensed Vitaxin
to MedImmune, which is responsible for future clinical development expenses and
commercialization. MedImmune is preparing to initiate clinical trials with an
improved, second generation version of Vitaxin that we enhanced using our
AMEsystem technology.
To date we have generated revenue from research collaborations, product and
technology licenses, and government grants. We have strategic collaborations
with MedImmune, Bristol-Myers Squibb, and Bio-Management. We have licensed
intellectual property to Biosite Diagnostics, Inc. Licensing revenue is
generally recognized at the time of the product or technology transfer. The
licensing revenue from Biosite is being recognized over six years, the estimated
useful lives of the related patents. Our government grants have come from the
National Institutes of Health. Research funding from corporate collaborators and
government grants is recognized as revenue when the services are rendered.
We have incurred losses since our inception. As of March 31, 2000, we had an
accumulated deficit of $28.0 million. These losses and this accumulated deficit
resulted from the significant costs incurred in the development of our
technology platform and the clinical development of Vitaxin. We expect these
losses to increase as we continue to invest in our technology platform and
internal development projects.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenue. Revenue increased to $831,000 in the first three months of 2000 from
$147,000 in the first three months of 1999, an increase of $684,000. This
increase was primarily due to research collaboration revenue from new contracts
entered into with MedImmune in February 1999, and Bio-Management in November
1999.
Research and development. Research and development expenses decreased to
$671,000 in the first three months of 2000 from $928,000 in the first three
months of 1999, a decrease of $257,000. The decrease was related primarily to
the elimination of clinical costs for Vitaxin which were incurred in 1999 and
were not incurred in 2000 as Vitaxin was licensed to MedImmune in February 1999.
We expect research and development expenses to increase for the foreseeable
future as we support our collaborative research programs, expand our technology
platform and invest in product development.
General and administrative. General and administrative expenses increased to
$419,000 in the first three months of 2000 from $227,000 in the first three
months of 1999, an increase of $192,000. The increase was due primarily to
increased management and administrative personnel expenses and legal and
professional fees in connection with expansion of our business development
efforts. We expect general and administrative expenses to increase for the
foreseeable future as we expand our business development, legal
16
<PAGE> 21
and accounting staff, and incur additional costs related to becoming a public
company, including directors' and officers' insurance, investor relations
programs and increased professional fees.
Stock-based compensation. Deferred compensation for options granted is the
difference between the exercise price and the deemed fair value for financial
reporting purposes of our common stock on the date the options were granted. In
connection with our granting stock options to employees, we recorded deferred
stock compensation of $1.1 million in 1999 and $3.7 million in the first quarter
of 2000. In addition, in April 2000, we granted options to purchase an
additional 800,000 shares of common stock at $0.75 per share under our 2000
Stock Plan and recorded additional deferred stock compensation.
Deferred compensation is included as a component of stockholders' equity and is
being amortized in accordance with FASB Interpretation No. 28 over the vesting
periods of the related options, which is generally four years. In connection
with options granted in 1999 and the first quarter of 2000, we recognized an
aggregate of $788,000 of amortization of deferred compensation in the first
quarter of 2000. We will recognize additional compensation expense of $1.7
million in the last three quarters of 2000, $1.2 million in 2001, $551,000 in
2002, $162,000 in 2003 and $2,000 in 2004 related to options granted in 1999 and
the first quarter of 2000.
Deemed dividend on beneficial conversion of Series F preferred stock. On May 3,
2000, we issued 1,133,333 shares of our Series F preferred stock for $5.1
million, which will convert into shares of common stock upon the closing of this
offering. We will record a charge of $5.1 million to earnings applicable to
common stockholders for the beneficial conversion of our Series F preferred
stock. We are due to receive an additional $5.0 million from a second closing of
1,111,111 shares of our Series F preferred stock, which is scheduled for June
15, 2000, and will record an additional charge of $5.0 million to earnings
applicable to common stockholders for the beneficial conversion of the
additional shares of Series F preferred stock.
Interest income, net. Net interest income increased to $38,000 in the first
three months of 2000 from $30,000 in the first three months of 1999, an increase
of $8,000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenue. Revenue was $2.6 million in both 1999 and 1998. Revenue in 1999 was
generated primarily from our collaborations with MedImmune and Bio-Management,
while 1998 revenue was generated primarily from our collaboration with
Bristol-Myers Squibb.
Research and development. Research and development expenses increased to $4.4
million in 1999 from $2.6 million in 1998, an increase of $1.8 million. The
increase was related primarily to an increase in the clinical development and
production costs of Vitaxin incurred in 1999.
General and administrative. General and administrative expenses decreased to
$1.4 million in 1999 from $2.0 million in 1998, a decrease of $600,000. The
decrease was due primarily to a reduction in administrative support personnel.
Stock-based compensation. In connection with our granting stock options to
employees, we recorded deferred stock compensation of $1.1 million during the
year ended December 31, 1999, $435,000 of which was expensed in 1999.
Interest income, net. Net interest income increased to $213,000 in 1999 from
$101,000 in 1998, an increase of $112,000. The increase was due primarily to our
higher average cash and investment balances during 1999 as a result of licensing
Vitaxin and selling common stock to MedImmune in February 1999 and from the
private placement of equity securities of our subsidiary, Novasite
Pharmaceuticals, Inc., in November 1999.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Revenue decreased to $2.6 million in 1998 from $3.3 million in 1997, a
decrease of $700,000. This decrease was due to receiving nine months of funding
in 1998 compared to 12 months of funding in
17
<PAGE> 22
1997 from Bristol-Myers Squibb following our successful completion in September
1998 of the engineering of an antibody under our collaboration with them.
Research and development. Research and development expenses decreased to $2.6
million in 1998 from $3.0 million in 1997, a decrease of $400,000. The decrease
was due primarily to the consolidation of facilities and the timing of
development costs for Vitaxin.
General and administrative. General and administrative expenses decreased to
$2.0 million in 1998 from $2.6 million in 1997, a decrease of $600,000. The
decrease was due primarily to the consolidation of facilities and a
consolidation of administrative support personnel.
Interest income, net. Net interest income increased to $101,000 in 1998 from
$80,000 in 1997, an increase of $21,000. The increase was due primarily to a
decrease in interest expense and lease line obligations.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through private placements of equity
securities, with aggregate net proceeds of approximately $29.6 million through
March 31, 2000, and $15.8 million of cash generated from research collaborations
through March 31, 2000. We also completed a $5.1 million private placement of
Series F preferred stock on May 3, 2000.
As of March 31, 2000, we had approximately $2.3 million in cash, cash
equivalents and short-term investments. On a pro forma basis, reflecting our
sale of Series F preferred stock, we had cash, cash equivalents and short-term
investments of $7.4 million as of March 31, 2000, compared to $3.5 million of
cash, cash equivalents and short-term investments as of December 31, 1999. In
addition, we are due to receive $5.0 million on June 15, 2000, related to a
second closing of our Series F preferred stock.
In 1999, we used cash of approximately $3.2 million in operating activities to
fund our net losses of $3.2 million, offset by non-cash charges for depreciation
and patent amortization totaling $244,000, deferred compensation amortization
totaling $435,000 and decreases in deferred revenue of $237,000. We used
approximately $2.7 million of cash for operations in 1998 and $2.0 million in
1997.
In 1999, we used cash of approximately $1.9 million in investing activities,
compared to cash generated of $2.4 million in 1998 and cash used of $1.6 million
in 1997. Our investing activities consisted primarily of purchases and sales of
short-term investments, and capital expenditures for property and equipment to
be used in our business. We expect to continue to make investments in our
infrastructure, including purchasing property and equipment to support our
operations.
In 1999, we generated $6.3 million of cash from financing activities, primarily
from the net proceeds of sales of common stock, including $1.3 million from the
private placement of equity securities of Novasite. Our financing activities in
1998 used $65,000 in cash, primarily for the payments on long-term equipment
financing. Our financing activities in 1997 generated $2.7 million of cash,
primarily from the net proceeds of sales of preferred stock.
In July 1999, we incorporated Novasite Pharmaceuticals, Inc., our 78% owned
subsidiary, with the remaining 22% owned by Crabtree Ventures, LLC, which
invested $1.3 million in Novasite. Novasite has a proprietary technology
platform for discovering and optimizing small molecule drug candidates.
We expect our cash requirements to increase significantly in 2000 as we continue
our research and development efforts, hire additional personnel, grow our
administrative support activities and expand our facilities. We believe that our
cash, cash equivalents and short-term investments, including the net proceeds
from this offering will be sufficient to fund our operations for 24 months. Our
future capital requirements will depend on many factors, including the
following:
- the success of our research and development efforts
- our ability to establish collaborative agreements
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- our costs of prosecuting and maintaining patents
- market and competing technological developments
Should we require additional financing due to unanticipated developments, such
financing may not be available when needed or may not be available on favorable
terms. We may either delay, scale back or eliminate some or all of our research
and development programs for lack of funds. Furthermore, our ability to operate
as a going concern may be adversely affected by insufficient funds. If
additional funds are raised by issuing equity securities, substantial dilution
to existing stockholders may result.
INCOME TAXES
We incurred net operating losses in 1997, 1998 and 1999, and consequently we did
not pay any federal or state income taxes. At December 31, 1999, we had federal
net operating loss carryforwards of approximately $20.6 million, which begin to
expire in 2005. The net operating loss carryforwards for state tax purposes were
approximately $1.0 million, which began to expire in 1999. We also had federal
and state research and development tax credit carryforwards of $621,000 and
$316,000, respectively, which begin to expire in 2005.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the market
value of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, and government and non government debt securities. The average duration
of all of our investments in 1999 was less than one year. Due to the short-term
nature of these investments, we believe that we have no material exposure to
interest rates arising from our investments. Therefore, no quantitative tabular
disclosure is included in the prospectus.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities", which will be
effective for our fiscal year 2001. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. We believe that
adoption of SFAS 133 will not have a material effect on our financial
statements, since we currently do not hold derivative instruments or engage in
hedging activities.
In December 1999, the Securities and Exchange Commission issued SAB No. 101,
"Revenue Recognition". SAB 101 provides the SEC staff's views in applying
generally accepted accounting principles to various revenue recognition issues.
We must implement the guidance in SAB 101 during the second quarter of 2000. We
believe that we are in compliance with the guidelines provided in SAB 101, and
thus, our management believes that the adoption of SAB 101 will not
significantly affect our results of operations.
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BUSINESS
OVERVIEW
We are a leader in the emerging field of directed evolution, a process for
optimizing genes and proteins for specific commercial purposes. We use our
proprietary AMEsystem technology to rapidly create improvements in proteins that
would be too inefficient and expensive to achieve through conventional methods.
Since our inception, our principal focus has been on applying our technology to
human biotherapeutics, the largest and most profitable target market for
directed evolution. We use our directed evolution technology to develop novel
human biotherapeutics as well as improved versions of currently marketed,
FDA-approved biopharmaceuticals. We also plan to develop novel proteins for
applications outside of human therapeutics in collaboration with other
companies.
BACKGROUND
DNA, Codons, Genes and Proteins
[FIGURE 1]
DNA is a molecule found in all living cells and is responsible for determining
the inherited characteristics of all living organisms. The entire DNA content of
an organism is called its genome. The human genome is organized into 46
chromosomes, and each chromosome contains a DNA molecule. Each DNA molecule
consists of two complementary strands comprised of four different chemical bases
called nucleotides, commonly referred to as A, C, G and T. Each set of three
adjacent nucleotides (e.g. CAG or GAG) is referred to as a codon, and codons are
organized into discrete units called genes. Genes direct the cell to make
proteins, and the sequence of codons within a gene determines the protein that
will be made by the cell.
Scientific evidence amassed to date suggests that the human genome contains over
100,000 genes, with each gene consisting of anywhere from tens to millions of
codons. Genes are critically involved in the regulation of almost all aspects of
human biology and disease because they serve as the blueprints for the
production of proteins that control virtually all of a cell's normal biological
functions. For an organism to be healthy, genes must produce specific proteins
at the right time in the appropriate amounts in the correct cells, a process
known as gene expression. When a gene is expressed, its DNA directs the
production of a specific protein.
Proteins are composed of combinations of 20 different sub-units called amino
acids which are linked together like beads on a string. The specific sequence
and types of amino acids in a protein determine the ultimate structure and
function of the protein. Each codon in a gene specifies a corresponding amino
acid in a protein. Therefore, the specific sequence of codons contained in the
gene determines the amino acid composition and function of the protein. Any
change in any of the three nucleotides in a codon could result in the
incorporation of a different amino acid into the protein. This type of
alteration may lead to the production of a protein with altered biological
properties. Consequently, changes in nucleotides, e.g. if C is replaced by G
within a codon, can have a dramatic impact on the inherited biological
characteristics of an organism.
NATURAL EVOLUTION AND ITS LIMITATIONS
Evolution is the process by which living organisms adapt to their environment.
There are two fundamental steps in the evolutionary process. The first step is
the creation of genetic diversity through random events. The second step is the
natural selection of organisms which possess beneficially adaptive
characteristics that will be passed to the next generation.
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The following critical limitations preclude natural evolution from efficiently
developing proteins optimized for specific purposes:
- It is extremely slow, requiring the passage of thousands and even millions
of years.
- Natural evolution creates only a portion of the possible protein diversity
because it introduces changes at the nucleotide level. Changes in individual
nucleotides within a gene may or may not alter the amino acid sequence of
the resulting protein. Therefore, a change that occurs at the nucleotide
level may not alter the functional characteristics of the protein that is
eventually produced. In contrast, by changing individual codons, it is
possible to explore the full range of possible amino acid changes in a
protein. Consequently, natural evolution is much less efficient at exploring
the full range of protein diversity than a process which introduces change
at the codon level.
- Selection occurs at the level of the whole organism, therefore individual
proteins are not necessarily optimized.
These limitations create an opportunity to improve natural proteins for
commercial purposes.
BIOTECHNOLOGY AND ITS CURRENT LIMITATIONS
The biotechnology industry aims to discover genes from natural sources, and
subsequently develop proteins with important commercial applications from these
genes.
Genomics, which is the study of all the genetic information of a species and its
relationship to disease, is transforming biotechnology. Recent technological
advances in molecular biology and in scientific instrumentation have greatly
increased the ability of researchers to identify genes and subsequently
determine their functions. These developments are ultimately expected to lead to
the identification of all the genes in the human genome. To date, tens of
thousands of genes have already been identified. In spite of these recent
successes, genomics companies have been limited in their ability to develop
commercially successful protein products. As described above, a major reason for
this limitation is that naturally occurring genes produce proteins that have not
evolved for commercial purposes, and typically yield proteins that may be
deficient with respect to characteristics such as potency, stability,
availability in the body, side effect profile and manufacturing cost.
Traditionally, the biotechnology industry has attempted to modify genes for
commercial purposes by employing two different strategies: random mutagenesis
and rational design. Random mutagenesis involves inducing random mutations in
genes in an effort to produce commercially viable proteins. Empiric evidence
suggests that random mutagenesis offers a low probability of improving a
protein, and usually results in detrimental changes to the protein. Rational
design involves deliberately modifying a gene in an effort to change the
structure of the resultant protein. This approach is predicated on the theory
that analyzing the structure and shape of a protein will provide an
understanding of its function. Consequently, once the structure of a protein is
known, it may be possible to modify the underlying gene to improve the function
of the protein. The major drawbacks to rational design are that it is expensive,
time-consuming, and most significantly, imprecise. Moreover, rational design has
rarely been successfully implemented in practice.
DIRECTED EVOLUTION AND LIMITATIONS OF COMPETING APPROACHES
The goal of directed evolution is to optimize proteins for commercial purposes.
Protein optimization generally involves improving the functional characteristics
of a particular protein by changing its amino acids. For example, a particular
protein may have an initial amino acid sequence that makes it susceptible to
degradation at temperatures approximating that of the human body. Consequently,
its utility as a therapeutic agent would be severely limited. By using directed
evolution, the stability of this protein could be dramatically improved by
introducing changes in the amino acid sequence of the protein, and then
screening for those changes that allow the protein to survive at higher
temperatures while retaining its other important characteristics. Because the
sequence of amino acids in a protein determines the protein's
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structure and function, and the sequence of amino acids is specified in genes,
proteins can be modified by altering the genes that produce them.
There are three fundamental steps in the process of directed evolution. In the
first step, a library, or collection, of genes is created by introducing changes
in the initial gene that produces the protein of interest. Ideally, this library
of genes should contain the optimal amount of genetic diversity. If the process
introduces too much genetic diversity, the efficiency of directed evolution may
be significantly reduced because excessive change in the genes of interest is
likely to destroy the function of most resulting proteins. Conversely, the
creation of an insufficient amount of genetic diversity significantly reduces
the probability of producing a functionally-improved protein. The second step
involves expressing proteins from all the different genes that were produced in
the first step to create a library of diverse proteins. The third step in the
process entails evaluating, or screening, this library to identify those
proteins with improvements in the desired characteristics. The process is then
repeated until a sufficiently improved protein is identified.
We believe that directed evolution potentially offers several advantages over
natural evolution and traditional biotechnology approaches to improve proteins.
The entire process can be rapidly completed, efficiently and cost-effectively
accomplishing in months what it takes traditional methods years to achieve.
Because directed evolution does not require any knowledge of the structure of
the protein being optimized, it is much more rapid than conventional approaches
such as rational design, which are based on time-consuming modeling techniques.
Directed evolution represents a significant step forward in the optimization of
proteins. There are currently a number of different competing approaches for
conducting directed evolution, including gene shuffling. We believe that these
competing approaches do not take full advantage of the potential of directed
evolution to optimize proteins, particularly biotherapeutics, our primary target
market.
Gene Shuffling
This technology involves cleaving a collection of genes into fragments and then
recombining the fragments to create new gene variants. Gene shuffling does not
control the extent or precise location of changes introduced into the gene of
interest nor does it explore the full range of protein diversity. These
shortcomings significantly limit the usefulness of this approach in developing
improved proteins:
- Completeness of Diversity: gene shuffling lacks the ability to substitute
each of the 20 amino acids at a particular location in a protein. For
example, if all the various genes in a gene family begin with the same codon
ATG, they will all produce a protein that begins with the same amino acid.
If this family of genes is then shuffled in an effort to create genetic
diversity, all the gene variants that are produced will still begin with the
same codon ATG. Therefore, in this particular situation, shuffling fails to
introduce any of the other 19 possible amino acids into the beginning of the
protein. If modifying the first amino acid is critical to enhancing the
protein's function, gene shuffling will be unable to produce a
functionally-improved protein.
- Extent of Change: the very nature of gene shuffling requires the cleavage of
a collection of genes in multiple locations. Consequently, the shuffling
process cannot precisely control the number of changes introduced into the
genes. The greater the number of changes, the more likely it is that harmful
changes will be introduced. Furthermore, extensive change requires the
screening of larger libraries, which is more time-consuming and expensive.
- Location of Change: the gene shuffling approach lacks the ability to
precisely control where changes are introduced into a gene. This limitation
severely curtails the application of this technology to developing
biotherapeutics because changing just a single amino acid at an
inappropriate location can adversely impact the efficacy, potency and side
effect profile of a biotherapeutic.
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Extremophile Isolation
This strategy attempts to identify previously undiscovered genetic diversity in
nature by collecting unusual organisms that have adapted through natural
selection to be able to survive in extreme environments. We believe that this
approach has limited application to the biotherapeutic market. It has taken over
two decades to transform mouse proteins, which are closely related to human
proteins, into biotherapeutics that the human immune system will not reject. We
expect it to be even more challenging to convert proteins from organisms that
are extremely different from humans into biotherapeutics which will not be
rejected by the human immune system.
OUR AMESYSTEM TECHNOLOGY
We use our proprietary AMEsystem technology to improve the function of a target
protein in order to enhance its commercial potential. The components of our
AMEsystem are precise and efficient methods for conducting the three fundamental
steps of directed evolution and address the limitations of alternative directed
evolution approaches. There are three components to our AMEsystem technology:
- DirectAME(TM): DirectAME is a patented gene synthesis process that enables
us to rapidly produce a library of diverse genes altered from the initial
gene.
- ExpressAME(TM): ExpressAME consists of several gene expression systems that
efficiently produce proteins from the genes produced using DirectAME.
- SelectAME(TM): SelectAME is a series of tests or screens which facilitate
the selection and identification of proteins with the optimal, desired
commercial properties from the protein libraries generated using ExpressAME.
[FIGURE 2]
Step One: DirectAME
Our patented DirectAME technology addresses the limitations of competing
directed evolution approaches by generating the appropriate amount of genetic
diversity in a rapid and precise fashion, thereby dramatically increasing the
probability of creating and identifying the most functionally-improved proteins.
In contrast to alternative directed evolution approaches, our DirectAME approach
has the following strengths:
- Completeness of diversity. When optimizing the function of a protein by
applying directed evolution technology, it is critical that all 20 possible
amino acids be evaluated at each position of interest in the protein. By
changing codons as opposed to single nucleotides, our patented DirectAME
technology ensures that all 20 possible amino acids are expressed at each
position of interest within the protein. Competing approaches cannot achieve
such complete diversity without producing enormous protein libraries that
are not economically feasible to screen.
- Extent of change. The simultaneous introduction of a large number of amino
acid changes in each protein in a library is undesirable because most amino
acid changes are detrimental to the function of a protein. If multiple
changes are made at once, the majority of the proteins produced will not
possess the desired function, needlessly complicating the subsequent
screening process. We can use our DirectAME technology to create a diverse
library of proteins that differ from the initial target protein by a
specific number of amino acids. In doing so, we significantly increase the
probability of preserving the desired characteristics while keeping the
number of proteins at a level that is efficient to express and screen. As we
proceed iteratively through the process, we introduce additional changes
into the protein and only select those changes that combine to produce a
protein with improved function.
- Location of change. Our DirectAME technology has the ability to change
specific, carefully targeted areas of a gene and ultimately a protein. This
ability to precisely alter a specific region of a target
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protein greatly facilitates the synthesis of more focused libraries,
significantly increasing the likelihood of identifying improved proteins.
The ability to change specific regions of a protein in a deliberate and
precise manner while leaving all other regions unchanged has profound
implications for the development of new biotherapeutics as well as for
improving currently marketed, FDA-approved drugs.
Optimizing monoclonal antibodies demonstrates the importance of having the
ability to change amino acids only at specific locations. While antibodies
are relatively large proteins consisting of hundreds of amino acids, the
crucial sites on an antibody that determine its ability to bind to a
particular target, and ultimately its therapeutic effectiveness, constitute
less than 5% of the overall protein. These sites, known as hypervariable
regions, consist of six different stretches of amino acids that are
separated from one another. Therefore, antibody optimization requires the
ability to precisely confine amino acid changes to the six hypervariable
regions while leaving the remainder of the antibody unchanged.
Step Two: ExpressAME
Our ExpressAME technology encompasses a number of proprietary gene expression
systems that we use to produce protein libraries. A unique feature of our
ExpressAME system is that it enables us to apply our directed evolution
technology to virtually any protein, including those that cannot be produced in
bacteria. A significant shortcoming of competing technologies is that they rely
primarily on bacterial expression systems. However, many currently marketed,
FDA-approved biopharmaceuticals cannot be expressed in their functional,
properly folded states by bacteria, and thus require expression in mammalian
cells.
ExpressAME has been developed specifically to address the technical challenges
of conducting directed evolution in a broad spectrum of host organisms,
including both bacterial and mammalian cells. As a result, we can now rapidly
optimize many biotherapeutics which were previously not amenable to directed
evolution.
Step Three: SelectAME
Our SelectAME technology is a set of broadly applicable proprietary tests or
screens that are highly sensitive and capable of characterizing thousands to
millions of proteins simultaneously. In selecting a screen for use in the
directed evolution process, there is often a trade-off between the speed of
throughput, the rate at which proteins can be screened, and the ability to
predict the functional performance of the protein in the human body. We believe
that using the most predictive screen available, regardless of its throughput,
is essential for identifying the most improved proteins. By using our AMEsystem
technology, we have the flexibility to create libraries of proteins which are
appropriately matched to the particular screen that is being used. If the most
predictive screen that is available is low throughput, we can use DirectAME to
create smaller, more focused libraries containing proteins that have each been
changed at only one or two amino acid positions. Alternatively, when a high
throughput and highly predictive screen is available, DirectAME can be used to
generate larger protein libraries with multiple amino acid substitutions. In
contrast, competing technologies that do not have the control and precision of
DirectAME, and which therefore produce larger, less focused protein libraries,
predominantly rely on high throughput screens, which are often less predictive.
Iteration of the Process
We repeat the process starting with one or more of the improved proteins
produced by our AMEsystem to further improve the function of the target protein.
We can also combine beneficial amino acid changes identified in the initial
protein library as a second strategy to achieve the same objective.
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MARKET OPPORTUNITIES
While virtually any product or process that utilizes or could utilize DNA or
proteins can be improved though the application of our technology, we focus our
efforts on the biotherapeutic market, the largest and most profitable target
market for directed evolution. We believe that the level of technological
sophistication and precision required to develop commercial biotherapeutics as
well as to improve currently marketed, FDA-approved biopharmaceuticals is
significantly greater than that required by other potential target markets for
directed evolution technologies. Since our inception, we have focused on
developing and optimizing our AMEsystem technology to address this multi-billion
dollar market opportunity.
Biotherapeutics
Proteins are essential to all cellular processes and have tremendous commercial
value, particularly in the pharmaceutical industry. The worldwide sales of
therapeutic proteins are projected to approach $20.0 billion by 2004. Protein
pharmaceutical products such as erythropoietin, which had worldwide sales of
approximately $3.8 billion in 1998, represent some of the world's highest
revenue pharmaceutical products. The biotherapeutic market encompasses a wide
variety of compounds, each with tremendous potential to improve human health:
- Antibodies: Antibodies currently represent the fastest growing
biotherapeutic product category in dollar and percentage terms, due to the
application of recently developed, novel approaches for generating,
modifying and manufacturing antibodies. The FDA has approved eight
therapeutic antibodies, six of them in the last three years, with total
sales in 1999 of approximately $1.0 billion. The major obstacles to be
overcome in antibody engineering include unfavorable side effect profile,
inadequate affinity for the target, instability, manufacturing cost and
potency.
As demonstrated through collaborations with our corporate partners, our
proprietary AMEsystem technology enables us to optimize human antibodies
with respect to potency, affinity, side effect profile, stability and
manufacturing cost. To date, we have optimized 10 different antibodies with
commercial potential.
- Cytokines: Cytokines are proteins secreted by cells that regulate the body's
immune system as well as its responses to inflammation. Cytokines have been
implicated in a wide variety of diseases such as rheumatoid arthritis,
sepsis and lupus that afflict millions of individuals. Perhaps the best
known and well-studied cytokine is granulocyte-colony-stimulating factor,
commonly known as G-CSF, which acts on the bone marrow to increase its
production of white blood cells. G-CSF attained worldwide sales of over $1.6
billion in 1998 and is one of the world's highest revenue pharmaceutical
products. Worldwide sales of cytokines totaled almost $8.0 billion in 1997.
- Hormones: Hormones are proteins that are critical to the daily function and
normal growth and development of the human body. Human growth hormone, for
example, is a naturally occurring human protein produced in the pituitary
gland that regulates metabolism and is responsible for growth in children.
Many of the most debilitating and chronic human diseases are due to hormone
deficiencies. Sales of human growth hormone totaled more than $1.5 billion
in 1998.
- Serum Proteins: Serum proteins are proteins that are found in the plasma or
serum portion of human blood. Hemophilia is one example of a disease due to
deficiencies in serum proteins. In this disease, a deficiency in one or more
of the plasma proteins needed to form a blood clot results in a bleeding
disorder. The treatment for hemophilia involves the administration of the
missing serum protein. The total worldwide market for serum proteins for
hemophiliacs in 1999 was approximately $1.0 billion.
- Enzymes: Enzymes constitute the majority of proteins in all cells. These
proteins speed up cellular processes and are therefore critical to the
normal function of cells. Enzymatic deficiencies are often fatal. Gaucher's
disease, for example, is a seriously debilitating, sometimes fatal, genetic
disorder caused by a deficiency in an important enzyme called
glucocerebrosidase. Administration of the
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synthetic form of this enzyme, called Cerezyme(R), is the only treatment
available to these patients. Worldwide sales of Cerezyme totaled
approximately $470 million in 1999.
- Growth Factors: Growth factors represent an emerging class of biotherapeutic
compounds that show great promise in treating a host of different diseases.
For example, vascular endothelial growth factor, commonly known as VEGF, is
a protein that is secreted by oxygen-deprived tissues. It acts by binding to
specific receptors on blood vessels to stimulate the formation of new blood
vessels, a process known as angiogenesis. Patients who suffer from coronary
artery disease and who are not candidates for angioplasty or bypass surgery
may benefit from the administration of this growth factor. This class of
biotherapeutics may have a very large patient population. Given that the
majority of these proteins are still in the very early stages of
development, they represent attractive candidates for optimization using our
AMEsystem technology.
Industrial Enzymes
Industrial enzymes are proteins that are used in a broad spectrum of activities
ranging from food preparation, to detergents, to pulp and paper manufacturing.
Industrial enzymes today represent an over $1.4 billion market.
COMMERCIAL PROBLEMS SOLVED USING OUR AMESYSTEM TECHNOLOGY
By applying our proprietary AMEsystem technology, we have successfully addressed
many significant challenges involved in the biopharmaceutical development
process. We believe that our technology platform has been validated through its
successful application to critical, time-sensitive projects for MedImmune,
Bristol-Myers Squibb, Seattle Genetics and Bio-Management.
Decreased Manufacturing Costs and Increased Potency
MedImmune encountered a significant problem while attempting to commercialize
Vitaxin, an anti-angiogenic monoclonal antibody for the treatment of cancer. A
particular structural feature in the first generation antibody made it
susceptible to significant degradation during the manufacturing process,
resulting in a loss of over 70% of the product yield. By applying our AMEsystem
technology to Vitaxin, we successfully created a second generation version of
the antibody that is significantly more stable than its predecessor. Our
directed evolution technology decreased manufacturing costs by improving the
yield by more than 300% and also increased the affinity of the antibody for its
target by 90-fold. Second generation Vitaxin is scheduled to enter phase I/II
clinical trials with MedImmune in 2000.
Reduced Side Effects and Improved Affinity
Bristol-Myers Squibb's anti-CD40 antibody is a mouse antibody which, if
administered to humans, would cause a significant immune reaction, rendering the
antibody ineffective and potentially causing serious side effects in patients.
Prior to collaborating with us, BMS had attempted unsuccessfully over a two-year
period to improve its anti-CD40 antibody by applying rational design techniques.
Through the application of our AMEsystem technology, we optimized the antibody
in just four months, yielding an antibody with a 500-fold increased affinity for
its target and a significantly reduced risk for causing an immune reaction.
Expanded Therapeutic Potential
Seattle Genetics' BR96 is an antibody in development for treating solid tumors.
The commercial potential of BR96 was limited by its recognition of only a narrow
set of tumors. We optimized this antibody by increasing its affinity and
broadening its ability to recognize tumors. Seattle Genetics is now developing
the improved version, hBR96.
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Enabling the Commercialization of a Discovery Platform Technology
Subtractive immunization is a novel approach to discover antibodies that
recognize unique therapeutic targets. However, this approach usually results in
low-affinity antibodies that are unlikely to be commercially successful. By
applying our AMEsystem technology to this problem, we can increase the affinity
of antibodies produced by this process. For Bio-Management, we are optimizing
HUI77 and HUIV26, anti-angiogenic mouse antibodies discovered using subtractive
immunization, which should enable Bio-Management to pursue the commercialization
of these antibodies.
BUSINESS STRATEGY
Our goal is to be the leader in applying directed evolution to the development
and commercialization of human biotherapeutics. We have selected biotherapeutics
as our primary target industry because we believe that it is the largest and
highest margin market for directed evolution. Our business strategy includes
five basic elements:
- Develop Novel Biotherapeutics. We plan to access and develop novel human
biotherapeutics from a wide variety of sources. We plan to continue our
collaborations with leading pharmaceutical and biotechnology companies that
are facing technical challenges to the development and commercialization of
their therapeutic proteins. We also expect genomics and the sequencing of
the human genome to yield an expanding number of novel proteins to optimize
and commercially develop. Finally, we will continue to in-license additional
biotherapeutic product candidates from leading academic institutions.
- Optimize Currently Marketed Biopharmaceuticals. We are seeking to optimize
FDA-approved biopharmaceuticals to create improved versions of these drugs
with broader patent protection. We are already using our proprietary
AMEsystem technology to significantly improve important characteristics of
established biopharmaceuticals, acting independently or in collaboration
with the initial developers. We believe that focusing on approved products
with known therapeutic profiles and proven markets represents an attractive,
lower risk development strategy.
- Leverage Strategic Collaborations. We plan to continue to leverage strategic
collaborations to expand our product pipeline. Our goal is to combine our
expertise with that of our collaborators. We believe that we can add the
greatest value to a project by applying our AMEsystem technology early on in
the development process while relying on our collaborators to further
develop and commercialize the improved product candidates. Collaborators
provide financial support for research and development, and pay milestones
and royalties on any product sales. We also plan to expand into other areas
outside of biotherapeutics by working with collaborators in other growth
markets such as industrial enzymes.
- Invest in Selected Internal Development Projects. We plan to select a
limited number of promising projects for internal development. We plan to
focus on projects that we believe have lower development risks and target
large, highly profitable markets such as oncology, infectious diseases and
autoimmune diseases.
- Enhance Our AMEsystem Technology. We plan to continue to develop our
AMEsystem technology by investing significantly in research and development
while simultaneously protecting and expanding our strong intellectual
property portfolio. We plan to license and acquire from others technologies
that complement and expand our core capabilities.
DEVELOPMENT PROGRAMS
Since inception, we have entered into numerous corporate collaborations and have
pursued our own development projects. We expect that strategic collaborations
will continue to be an important element of
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our business strategy. The following is a summary of our current development
programs and related corporate collaborations:
MedImmune
In February 1999, we entered into a four antibody strategic collaboration with
MedImmune, a leader in the commercial development of therapeutic antibodies. The
agreement covers the licensing of Vitaxin to MedImmune as well as the
optimization of three additional antibodies. The business terms of the agreement
include $45 million in research and development support, equity and milestone
payments as well as significant potential royalties. We have received $7.1
million from MedImmune to date.
Vitaxin is an anti-angiogenic antibody with potential applications in oncology,
rheumatoid arthritis, diabetic retinopathy, and macular degeneration. We
originally licensed the mouse antibody from which Vitaxin was derived from The
Scripps Research Institute. We then improved Vitaxin to overcome immunogenicity
in humans and licensed it to MedImmune. MedImmune is now focusing on a second
generation version of Vitaxin that we developed using our AMEsystem technology.
This version of the antibody has significantly improved affinity as well as
decreased manufacturing costs. Before the end of 2000, MedImmune plans to
initiate six phase I/II clinical trials with second generation Vitaxin for the
treatment of a variety of cancers.
Bristol-Myers Squibb
We have entered into two separate agreements with Bristol-Myers Squibb, one of
the largest pharmaceutical companies in the world. We have completed our
optimization work under these agreements and have received over $27 million to
date and will potentially receive future milestone payments and royalties.
In June 1993, we entered into the initial strategic collaboration with
Bristol-Myers Squibb to optimize their BR96 anti-solid tumor antibody and to
develop a tumor antigen discovery platform technology program. BMS renewed this
collaboration in 1995. As discussed below, hBR96, our improved version of BR96,
is currently being developed by Seattle Genetics, a private biotechnology
company founded by former BMS scientists. Based on the success of our initial
collaborations, BMS amended our agreement in 1998 to include the optimization of
its anti-CD40 antibody for organ transplant rejection therapy.
Seattle Genetics
Seattle Genetics is in preclinical development with hBR96 for the potential
treatment of breast, lung, ovarian, prostatic, colorectal, and pancreatic
cancers. After we optimized BR96 for BMS, Seattle Genetics licensed this product
from BMS and is continuing to develop this antibody. Under our original
agreement with BMS, we may receive milestones and royalties from this product.
Bio-Management
In November 1999, we entered into a strategic collaboration covering four novel
antibody therapeutics with Bio-Management, a private biotechnology company
developing anti-angiogenic antibodies for the treatment of cancer. Under the
terms of the agreement, we may receive up to $17 million in research funding and
milestone payments as well as royalties. We are currently optimizing the first
two compounds.
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<PAGE> 33
Internal Development Programs
We are using our AMEsystem technology to develop both novel human therapeutics
and improved versions of currently marketed biopharmaceuticals. We have
development projects focused on several currently marketed, FDA-approved drugs
that in their present, unimproved forms are expected to each have sales in
excess of $500 million in 2000. We are also developing a number of product
candidates based on a therapeutic enzyme we licensed from the University of
Nebraska Medical Center in March 2000. We are optimizing these products for
attractive markets including cancer.
We have full commercialization rights to these internal development projects.
INTELLECTUAL PROPERTY
We hold patents within the field of directed evolution with an extensive
portfolio that includes 16 issued U.S. patents related to our proprietary
directed evolution technology. Twenty-eight counterpart patents to these U.S.
patents are issued in other major industrialized countries. We have an
additional 22 pending U.S. patent applications and 33 pending foreign and
international counterpart applications relating to our AMEsystem technology and
the application of this technology to diverse industries including protein
pharmaceuticals and industrial enzymes.
Our intellectual property portfolio includes trade secrets, know-how,
trademarks, patents and patent applications related to DirectAME gene synthesis,
ExpressAME protein expression and SelectAME protein screening as well as the
exclusive license to the Kauffman patents.
- DirectAME: The DirectAME gene synthesis patents are directed to methods for
generating diversity which can be used for conducting directed evolution.
They claim methods for introducing changes at the codon level to generate
genetic diversity.
- ExpressAME: ExpressAME is a system used for conducting directed evolution
in both bacterial and mammalian cells. This patented system enables the
expression of many therapeutic proteins in their functional, properly folded
states, a feature that cannot always be achieved by relying exclusively on
bacterial expression systems.
- SelectAME: We have a number of issued patents and pending patent
applications relating to our SelectAME technologies for screening protein
libraries. The patents and patent applications describe methods for
evaluating protein function.
- The Kauffman patent family comprises six issued U.S. patents with claims
covering methods of stochastically generating proteins, which we believe is
required by many directed evolution technologies. We were granted an
exclusive license to the Kauffman patent family in 1994. The first Kauffman
patent application was filed in 1985, and the first U.S. Kauffman patent
issued in 1998 with a term extending into 2015. Their patent prosecution
history includes a successful defense to an opponent's challenge in Japan.
We are fully committed to investing in the further development and expansion of
our leading intellectual property position in directed evolution.
COMPETITION
We are a leader in the field of directed evolution. We are aware that companies
such as Maxygen, Diversa, and Energy Biosystems have alternative methods for
obtaining genetic diversity. Academic institutions such as Caltech and the
University of Washington are also working in this field. In the future, we
expect the field to become highly competitive and that companies and academic
and research institutions will seek to develop technologies that could be
competitive with our AMEsystem technology. Any products that we may develop
through our AMEsystem technology will compete in highly competitive markets,
especially our improved versions of FDA-approved biopharmaceuticals.
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<PAGE> 34
Many of our potential competitors have substantially greater financial,
technical and personnel resources than we do, and we cannot be certain that they
will not succeed in developing technologies and products that would render our
technology and products or those of our collaborators obsolete or
noncompetitive. In addition, many of those competitors have significantly
greater experience than we do in their respective fields. Our ability to compete
successfully will depend, in part, on:
- our ability to demonstrate the applicability of our technology to optimizing
a broad range of proteins
- the cost-effectiveness of our optimization approach
- our ability to develop products that reach the market first
- our ability to develop products that are technologically superior to other
products in the market
- our ability to obtain and enforce patents covering our technology
EMPLOYEES
As of May 3, 2000, we had 27 full-time employees, 12 of whom hold advanced
degrees. Of these, 17 were engaged in research and development and ten were
engaged in business development, finance and general administration. None of our
employees is represented by labor unions or covered by collective bargaining
agreements. We have not experienced any work stoppages and consider our employee
relations to be good.
FACILITIES
Our executive office and research facilities are currently located in San Diego,
California. We lease approximately 24,100 square feet of space. These facilities
are leased through December 16, 2003. We believe that our existing facilities
and equipment are well maintained and in good working condition. We believe that
our current facilities will provide adequate capacity for the foreseeable
future.
LEGAL PROCEEDINGS
We are not presently a party to any material legal proceedings.
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<PAGE> 35
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our directors, executive officers and key employees, and their ages and
positions as of May 3, 2000, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Costa G. Sevastopoulos, Ph.D.(1)... 57 Chairman of the Board
William D. Huse, M.D., Ph.D........ 46 Chief Executive Officer, President and Director
Lawrence E. Bloch, M.D., J.D....... 35 Chief Financial Officer, Vice President of
Business Development and Secretary
Jeffry D. Watkins, Ph.D............ 38 Vice President of Research
Keith S. Manchester, M.D........... 31 Director of Business Development
Cheryl C. Gabele................... 45 Director of Finance and Administration
James J. Bochnowski(1)(2).......... 57 Director
John G. Morris(1)(2)............... 37 Director
Peter K. Hilal, M.D.(1)(2)......... 35 Director
</TABLE>
- -------------------------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
COSTA G. SEVASTOPOULOS, PH.D. has been our Chairman since 1997 and has served as
a director since 1991. From May 1997 to December 1998, Dr. Sevastopoulos served
as President and Chief Executive Officer. He co-founded Delphi Ventures, a
venture capital partnership which specializes in medical and healthcare
investments, in 1988 and served as a General Partner from 1988 to 1994. Dr.
Sevastopoulos is also Chairman of Idun Pharmaceuticals, Inc., a private
biotechnology company, and a director of CV Therapeutics, Inc., a public
biotechnology company. Dr. Sevastopoulos received an M.S. in electrical
engineering from the California Institute of Technology, an MBA from INSEAD,
France, and a Ph.D. in molecular biology from the University of California at
Berkeley.
WILLIAM D. HUSE, M.D., PH.D. founded our company in 1989 and has been our Chief
Executive Officer since January 1999. Dr. Huse was affiliated with The Scripps
Research Institute from 1989 to 1990. Prior to joining Scripps, Dr. Huse was
Vice President, Research and Development at Stratagene, Inc., a private
biotechnology company, from 1986 to 1989. Dr. Huse was an Assistant Professor at
Yale University School of Medicine, Section of Molecular Neurobiology, from 1984
to 1986. Dr. Huse received his M.D. and Ph.D. in Neurosciences from the Albert
Einstein School of Medicine. Dr. Huse completed his post-doctoral work at Cold
Spring Harbor Laboratory.
LAWRENCE E. BLOCH, M.D., J.D. has been our Vice President of Business
Development since July 1999, our Chief Financial Officer since March 2000 and
our Secretary since April 2000. From 1998 to 1999, he served as a consultant to
several private biotechnology companies, including U.S. Genomics, Inc. In 1995,
Dr. Bloch co-founded CareCom, Inc., a developer of patient-oriented internet
applications, and served as its President from 1995 to 1999. Dr. Bloch holds a
J.D. from Harvard Law School, an M.D. from Harvard Medical School, and an MBA
from Harvard Business School. Dr. Bloch is also a member of the Board of
Directors of our subsidiary, Novasite Pharmaceuticals, Inc.
JEFFRY D. WATKINS, PH.D. has been our Vice President of Research since June
1998. From 1994 to 1998, Dr. Watkins held a variety of research positions in our
company. From 1993 to 1994, he was a research scientist at Hybritech, Inc., a
public biotechnology company focusing on diagnostics. Dr. Watkins holds a Ph.D.
in biochemistry from Purdue University. He completed his post-doctoral research
at The Scripps Research Institute and at Purdue University. He is also the
recipient of a National Institutes of Health Postdoctoral Fellowship. Dr.
Watkins has authored multiple scientific peer-reviewed articles, was named
inventor on seven directed evolution patents and has been the principal
investigator on multiple federal grants.
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<PAGE> 36
KEITH S. MANCHESTER, M.D. joined us in March 2000 as Director of Business
Development. From 1999 to 2000, he was an associate at Vestar Capital Partners,
a private equity firm specializing in management buyouts. From 1997 to 1999, Dr.
Manchester was an investment banker in the healthcare group at Goldman, Sachs &
Co. He completed his surgical internship at Parkland Medical Hospital in Dallas,
Texas. Dr. Manchester holds an A.B. from Harvard College and an M.D. from
Harvard Medical School.
CHERYL C. GABELE has been our Director of Finance and Administration since May
1999. From 1995 to 1999, Ms. Gabele was Director, Finance and Administration at
Idun Pharmaceuticals, Inc., a private biotechnology company. In the past, she
served as the Chief Financial Officer for Mini-Graphic Systems, Inc., a document
imaging company, and for Sunland Consolidated, Inc., a real estate developer.
Ms. Gabele earned a B.S. in accounting from San Diego State University and has
held a State of California C.P.A. certificate since 1980.
JAMES J. BOCHNOWSKI has served as a director since 1997. Mr. Bochnowski
co-founded Delphi Ventures, a venture capital partnership which specializes in
medical and healthcare investments, in 1998. In 1980, he co-founded Technology
Venture Investors, a private venture capital partnership. Mr. Bochnowski has a
B.S. in aerospace engineering from MIT and an MBA from Harvard Business School.
JOHN G. MORRIS has served as a director since 1998. Since 1997, Mr. Morris has
been a Vice President of HarbourVest Partners, a private equity firm. Prior to
this, he was employed by Abbott Capital Management. He currently serves on the
advisory boards of the private equity partnerships of Bruckmann, Rosser,
Sherrill & Co., Domain Partners, Essex Woodlands Health Ventures, GTCR Capital
Partners, Marquette Venture Partners and Oak Investment Partners. He holds an
MBA in finance from Columbia University.
PETER K. HILAL, M.D. joined our Board of Directors in May 2000. In 1997, Dr.
Hilal founded Hilal Capital Management LLC, an investment management firm
specializing in private and public equity investments in the life-sciences
sector. From 1996 to 1997, he was a Principal at Oracle Management, Inc., an
investment management firm specializing in the healthcare sector. Prior to that,
Dr. Hilal was a senior executive in the marketing, strategic planning, and
research areas at Merck & Co. Dr. Hilal received an A.B. and M.D. from Columbia
University and holds an MBA from Harvard Business School.
SCIENTIFIC ADVISORY BOARD
MICHAEL H. FREEDMAN, PH.D. is a Professor of Mathematics at the University of
California, San Diego. Previously, Dr. Freedman held the position of Professor
at the Institute of Advanced Studies, Princeton, New Jersey. In 1986, Dr.
Freedman was awarded the distinguished Fields Medal in recognition of his
outstanding mathematical achievements. Dr. Freedman's main area of interest lies
in the development of new methods for topological analysis. Dr. Freedman
received a Ph.D. from Princeton University.
STUART A. KAUFFMAN, M.D. serves as an external professor at the Santa Fe
Institute. He co-founded the Bios Group LP, a private developer of business
software, in 1996 and currently serves as its Chief Scientific Officer. His
major areas of research include developmental genetics, theoretical biology,
evolution and the origin of life. He received his M.D. from the University of
California, San Francisco in 1968.
ZAVERIO M. RUGGERI, M.D. is a member of the Department of Molecular and
Experimental Medicine and the Department of Vascular Biology at The Scripps
Research Institute, La Jolla, California. Dr. Ruggeri is Chairman of our
Scientific Advisory Board, and his main area of interest is the study of the
multimeric structure of Factor VIII/von Willebrand Factor. Dr. Ruggeri received
his M.D. from the University of Milan, Italy.
JAMES F. YOUNG, PH.D. has served as Executive Vice President, Research and
Development for MedImmune since March 2000. He joined MedImmune in March 1989 as
Vice President, Research and Development and in 1995 was promoted to Senior Vice
President, Research and Development. He holds a Ph.D. in microbiology and
immunology from Baylor College of Medicine, Houston, Texas.
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<PAGE> 37
BOARD COMPOSITION
We currently have authorized five directors. All directors are elected to hold
office until our next annual meeting of stockholders and until their successors
have been elected. Officers are elected at the first Board of Directors meeting
following the stockholders' meeting at which the directors are elected and serve
at the discretion of the Board of Directors. There are no family relationships
among any of our directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
The audit committee reviews the selection of independent auditors, the results
and scope of the audit and other services provided by our independent auditors
and evaluates our internal accounting procedures.
The compensation committee reviews and approves compensation and benefits for
our executive officers. The compensation committee also administers our
compensation and stock plans and makes recommendations to the Board of Directors
regarding such matters.
DIRECTOR COMPENSATION
Directors do not receive compensation for their services as directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of our Board of Directors or compensation
committee.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation we paid during 1999 to
our Chief Executive Officer and to our two other highest paid executive
officers. These individuals are referred to as the "named executive officers"
here and elsewhere in this prospectus.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES OTHER
--------------------- UNDERLYING ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
--------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
William D. Huse.................... $225,374 -- -- --
Chief Executive Officer
Lawrence E. Bloch.................. 60,000 -- 130,000 $28,516
Chief Financial Officer(1)
Jeffry D. Watkins.................. 119,575 -- -- --
Vice President of Research
</TABLE>
- -------------------------
(1) Dr. Bloch's annual salary represents partial year compensation for the
period July 1999 through December 1999. His other annual compensation
includes $12,891 related to relocation expenses and $15,625 related to
consulting services.
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<PAGE> 38
1999 OPTION GRANTS
The following tables set forth certain information regarding options granted to
each of our named executive officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUALS GRANTS REALIZABLE VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR SHARE(2) DATE(3) 5% 10%
---- ------------- -------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lawrence E. Bloch.... 130,000 62.9% $0.45 07/01/09
</TABLE>
- -------------------------
(1) These incentive stock options are exercisable in full immediately, but are
subject to repurchase by us. Our repurchase right lapses as to 12.5% of the
shares covered by the respective options on the six month anniversary of the
date of grant, and lapses ratably on a daily basis thereafter, with the
repurchase right terminating in full on the fourth anniversary of the date
of grant. Under the terms of the 1992 Stock Plan, the committee designated
by the Board of Directors to administer the 1992 Stock Plan retains the
discretion, subject to certain limitations within the 1992 Stock Plan, to
modify, extend or renew outstanding options and to reprice outstanding
options. Options may be repriced by canceling outstanding options and
reissuing new options with an exercise price equal to the fair market value
on the date of reissue, which may be lower than the original exercise price
of such canceled options.
(2) The exercise price on the date of grant was equal to 100% of the fair market
value on the date of grant.
(3) The options have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(4) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission and do not represent our estimate or
projection of the future common stock price. There can be no assurance that
any of the values reflected in the table will be achieved.
1999 OPTION VALUES
The following table sets forth for the named executive officers, the number and
value of securities underlying options that were held by each executive officer
as of December 31, 1999. There were no options exercised by such individuals in
such period.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31,
AT DECEMBER 31, 1999 1999(1)
----------------------- ---------------------
NAME VESTED UNVESTED VESTED UNVESTED
---- --------- ---------- -------- ---------
<S> <C> <C> <C> <C>
William D. Huse..................................... 282,286 187,714
Lawrence E. Bloch................................... 16,283 113,717
Jeffry D. Watkins................................... 68,512 67,963
</TABLE>
- ---------------------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
EMPLOYEE BENEFIT PLANS
1992 Stock Plan and 2000 Stock Plan
In May 1992, our Board of Directors adopted the 1992 Stock Plan. The 1992 Stock
Plan has been amended three times. A total of 3,100,000 shares of common stock
were reserved for issuance under the 1992 Stock Plan pursuant to the direct
award or sale of shares or the exercise of options granted under the 1992 Stock
Plan. In March 2000, our Board of Directors adopted the 2000 Stock Plan. A total
of 1,600,000 shares of common stock are reserved for issuance under the 2000
Stock Plan. If any option granted under the 1992 Stock Plan or the 2000 Stock
Plan expires, does not vest or terminates for any
34
<PAGE> 39
reason without having been exercised, then the unvested or unpurchased shares
subject to that option will once again be available for additional option
grants.
Under the 1992 Stock Plan and the 2000 Stock Plan, all of our employees and
directors, including those of any subsidiary, and any independent contractor or
advisor who performs services for us or a subsidiary are eligible to purchase
shares of common stock and to receive awards of shares or grants of nonstatutory
options. Employees are also eligible to receive grants of incentive stock
options, or ISOs, intended to qualify under Section 422A of the Internal Revenue
Code of 1986, as amended, or the Code. The 1992 Stock Plan and the 2000 Stock
Plan are administered by a committee of our Board of Directors, which selects
the persons to whom shares will be sold or awarded or options will be granted,
determines the number of shares to be made subject to each sale, award or grant,
and prescribes other terms and conditions, including the type of consideration
to be paid upon sale or exercise and vesting schedules, in connection with each
sale, award or grant.
The exercise price under the nonstatutory options generally must be at least 85%
of the fair value of the common stock on the date of grant. The exercise price
under ISOs cannot be lower than 100% of the fair value of the common stock on
the date of grant and, in the case of ISOs granted to holders of more than 10%
of the voting power of the company, not less than 110% of such fair value. The
term of an option cannot exceed 10 years, and the term of an ISO granted to a
holder of more than 10% of the voting power of the company cannot exceed five
years. Options generally expire not later than 90 days following a termination
of employment or six months following the optionee's death or permanent
disability. The purchase price of shares sold under the 1992 Stock Plan
generally must be at least 85% of the fair value of the common stock and, in the
case of a holder of more than 10% of the voting power of the company, not less
than 110% of such fair value. Options granted pursuant to the 1992 Stock Plan
generally vest ratably over a period of four years.
As of May 3, 2000, under the 1992 Stock Plan we had outstanding options to
purchase an aggregate of 1,813,628 shares of common stock at exercise prices
ranging from $0.20 to $0.75 per share, or a weighted average exercise price per
share of $0.50. A total of 749,256 shares of common stock were available for
future issuance under the 1992 Stock Plan as of such date.
In April 2000, under the 2000 Stock Plan, we issued options to purchase 800,000
shares of common stock to our executive officers and senior managers, all at an
exercise price of $0.75 per share. These options vest over seven years but may
accelerate in the event we are acquired or if we successfully complete this
offering and our value exceeds specified levels. As of May 3, 2000, a total of
800,000 shares of common stock were available for future issuance under the 2000
Stock Plan.
EMPLOYMENT AGREEMENTS
We do not have employment agreements with our executive officers, other than
agreements that we maintain with all of our employees and option agreements
under which we issue incentive and non-qualified stock options to employees.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our Certificate of Incorporation that limit the
liability of our directors for monetary damages for breach of their fiduciary
duty as directors, except for liability that cannot be eliminated under the
Delaware General Corporation Law. The Delaware law provides that directors of a
company will not be personally liable for monetary damages for breach of their
fiduciary duty as directors, except for liability for the following:
- for any breach of their duty of loyalty to us or our stockholders
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
35
<PAGE> 40
- for unlawful payment of dividends or unlawful stock repurchase or
redemption, as provided in Section 174 of the Delaware law
- for any transaction from which the director derived an improper personal
benefit
Any amendment or repeal of these provisions requires the approval of the holders
of shares representing at least 66 2/3% of our capital stock entitled to vote in
the election of directors, voting as one class.
Our Certificate of Incorporation and Bylaws also provide that we shall indemnify
our directors and officers to the fullest extent permitted by the Delaware law.
We have entered into separate indemnification agreements with our directors and
executive officers that could require us, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. We believe that
the limitation of liability provision in our Restated Certificate of
Incorporation and the indemnification agreements will facilitate our ability to
continue to attract and retain qualified individuals to serve as our directors
and executive officers.
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<PAGE> 41
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of our
common stock as of May 3, 2000:
- each person who is known by us to own beneficially more than 5% of our
common stock
- each of our directors
- each of our named executive officers
- all of our directors and executive officers as a group
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission, and generally means that a person has beneficial ownership
of a security and warrants if he or she possesses sole or shared voting or
investment power of that security, and includes options and warrants that are
currently exercisable or exercisable within 60 days. Information with respect to
beneficial ownership has been furnished to us by each director, officer or 5% or
more stockholder, as the case may be. Except as otherwise indicated, we believe
that the beneficial owners of the common stock listed below, based on the
information each of them has given to us, have sole investment and voting power
with respect to their shares, except where community property laws may apply.
This table lists applicable percentage ownership based on 15,364,288 shares of
common stock outstanding as of May 3, 2000, and also lists applicable percentage
ownership based on shares of common stock outstanding after
completion of this offering. Options and warrants to purchase shares of our
common stock that are exercisable within 60 days of May 3, 2000, are deemed to
be beneficially owned by the persons holding these options and warrants for the
purpose of computing percentage ownership of that person, but are not treated as
outstanding for the purpose of computing any other person's ownership
percentage. Shares underlying options and warrants that are deemed beneficially
owned are listed in this table separately in the column labeled "Shares Subject
to Options and Warrants." These shares are included in the number of shares
listed in the column labeled "Total Number."
In March 2000, Alpha Bioventures, LLC, purchased 2,708,572 shares of Series D
and E preferred stock from Bristol-Myers Squibb. Dr. Huse, one of our directors
and our Chief Executive Officer and President, is the manager and a member of
Alpha Bioventures, LLC. Drs. Bloch and Watkins, two of our executive officers,
are both members of Alpha Bioventures, LLC.
Unless otherwise indicated, the address for each person or entity named below is
Applied Molecular Evolution, Inc., 3520 Dunhill Street, San Diego, California
92121.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------------------------
SHARES SUBJECT
TOTAL TO OPTIONS AND PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER NUMBER WARRANTS OFFERING OFFERING
------------------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
William D. Huse, M.D., Ph.D.(1)........ 3,343,139 750,000 20.7%
Alpha Bioventures, LLC(2).............. 2,708,572 -- 17.6%
Entities affiliated with Domain
Partners(3).......................... 1,929,011 -- 12.6%
James J. Bochnowski
Entities affiliated with Delphi
Ventures(4).......................... 1,286,010 -- 8.4%
Attenuon, LLC(5)....................... 1,200,000 -- 7.8%
Peter K. Hilal, M.D.
Entities affiliated with Hilal
Capital Management LLC(6)............ 1,111,111 -- 7.2%
Entities affiliated with Medicus
Venture Partners(7).................. 1,100,738 -- 7.2%
John G. Morris
HarbourVest Partners III L.P.(8)..... 937,500 -- 6.1%
MedImmune, Inc.(9)..................... 907,143 -- 5.9%
</TABLE>
37
<PAGE> 42
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------------------------
SHARES SUBJECT
TOTAL TO OPTIONS AND PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER NUMBER WARRANTS OFFERING OFFERING
------------------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Lawrence E. Bloch, M.D., J.D.(10)...... 759,582 410,000 4.8%
Jeffry D. Watkins, Ph.D.(11)........... 631,267 456,475 4.0%
Costa G. Sevastopoulos, Ph.D........... 250,000 250,000 1.6%
All directors and executive officers as
a group (7 persons).................. 8,318,609 1,866,475 48.3%
</TABLE>
- ---------------------------
(1) Includes 1,608,079 shares held by Alpha Bioventures, LLC. Dr. Huse is a
member and the manager of Alpha Bioventures, LLC.
(2) The address of Alpha Bioventures, LLC is 343 Satterly Road, Ferrisburg, VT
05456.
(3) The address of entities affiliated with Domain Partners is One Palmer
Square, Princeton, NJ 08542.
(4) The address of entities affiliated with Delphi Ventures is 3000 Sand Hill
Road, Building 1, Suite 13, Menlo Park, CA 94025. Mr. Bochnowski, one of
our directors, is a general partner of Delphi Ventures II, L.P.
(5) The address of Attenuon, LLC is c/o DE Shaw & Co., 39th Floor, Tower 45,
120 West Forty-Fifth Street, New York, NY 10036.
(6) The address of entities affiliated with Hilal Capital Management LLC is 60
East Forty-Second Street, Suite 1946, New York, NY 10165. These entities
are obligated to purchase 1,111,111 additional shares of our Series F
preferred stock on June 15, 2000. These shares will convert into our common
stock upon completion of this offering.
(7) The address of entities affiliated with Medicus Venture Partners is 180
Sand Hill Road, Suite 400, Menlo Park, CA 94025.
(8) The address of HarbourVest Partners III L.P. is One Financial Center, 44th
Floor, Boston, MA 02111. Mr. Morris, one of our directors, is a Vice
President of HarbourVest Partners, LLC.
(9) The address of MedImmune, Inc. is 35 West Watkins Mill Road, Gaithersburg,
MD 20878.
(10) Includes 349,582 shares held by Alpha Bioventures, LLC. Dr. Bloch is a
member of Alpha Bioventures, LLC.
(11) Includes 174,792 shares held by Alpha Bioventures, LLC. Dr. Watkins is a
member of Alpha Bioventures, LLC.
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<PAGE> 43
RELATED PARTY TRANSACTIONS
It is our policy only to enter into transactions with our officers, directors,
5% stockholders or their affiliates if such transactions are approved by a
majority of the disinterested directors, are on terms no less favorable to us
than could be obtained from unaffiliated parties, and are reasonably expected to
benefit us.
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<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the closing of this offering, our authorized capital stock, after giving
effect to the conversion of all outstanding preferred stock into common stock
and the amendment of our Certificate of Incorporation, will consist of
50,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
preferred stock, $0.001 par value. As of May 3, 2000, and assuming the
conversion of all outstanding preferred stock into common stock upon the closing
of this offering, there were outstanding:
- 15,364,288 shares of common stock held by 101 stockholders of record
- options to purchase 2,613,628 shares of common stock
- warrants to purchase 66,667 shares of common stock
COMMON STOCK
The holders of common stock are entitled to one vote per share on all matters
submitted to be voted on by the stockholders, including the election of
directors, and do not have cumulative voting rights. Accordingly, the holders of
a majority of the shares of common stock entitled to vote in any election of
directors can elect all of the directors standing for election, if they so
choose. Subject to preferences that may be applicable to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of our common stock will be
entitled to share ratably in the net assets legally available for distribution
to stockholders after the payment of all our debts and other liabilities,
subject to the prior rights of any preferred stock then outstanding. Holders of
common stock have no preemptive, conversion, subscription or other rights, and
there are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and the common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
As of May 3, 2000, assuming the closing of this offering, all outstanding shares
of preferred stock would have been converted into 12,773,457 shares of common
stock. Following the conversion, our Certificate of Incorporation will be
amended and restated to delete all references to such shares of preferred stock.
The Certificate of Incorporation, as restated, gives to the Board of Directors
the authority, without further action by stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges, qualifications and restrictions granted to or imposed
upon such preferred stock, including dividend rights, conversion rights, voting
rights, rights and terms of redemption, liquidation preference and sinking fund
terms, any or all of which may be greater than the rights of the common stock.
The issuance of preferred stock could:
- adversely affect the voting power of holders of common stock and reduce the
likelihood that such holders will receive dividend payments and payments
upon liquidation
- decrease the market price of our common stock
- delay, deter or prevent a change in our control
We have no present plans to issue any shares of preferred stock.
40
<PAGE> 45
WARRANTS
As of April 30, 2000, there were warrants outstanding to purchase 66,667 shares
of Series E preferred stock at an exercise price of $5.625 per share which will
convert to warrants to purchase an equivalent number of shares of common stock
upon completion of this offering. The warrants to purchase 26,667 shares expire
on August 29, 2001, and the warrants to purchase 40,000 shares expire on June
23, 2002. The warrants contain provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrants under certain circumstances, including stock dividends, stock splits,
reorganization, reclassifications, consolidations and certain dilutive issuances
of securities at prices below the then existing exercise price.
REGISTRATION RIGHTS
After this offering, the holders of 907,143 shares of common stock, the
Registrable Shares, and 12,773,457 shares of common stock issued upon conversion
of our Series A preferred stock, Series B preferred stock, Series C preferred
stock, Series D preferred stock, Series E preferred stock and Series F preferred
stock, or the Preferred Registrable Shares, or their permitted transferees, are
entitled to rights with respect to the registration of such shares under the
Securities Act. If we propose to register any of our securities under the Act
for our own account, holders of Registrable Shares and Preferred Registrable
Shares are entitled to notice of such registration and are entitled to include
Registrable Shares and Preferred Registrable Shares therein, provided, among
other conditions, that the underwriters of any such offering have the right to
limit the number of shares included in such registration. In addition,
commencing one year after the effective date of the Registration Statement of
which this prospectus is a part, holders of at least 25% of the Registrable
Shares and 25% of the Preferred Registrable Shares may require us to prepare and
file a registration statement under the Act at our expense covering at least 20%
of the shares entitled to registration rights (or such lesser percentage if the
aggregate offering price is at least $7,500,000), and we are required to use our
best efforts to effect such registration, subject to conditions and limitations.
We are not obligated to effect more than three of these stockholder-initiated
registrations. Further, holders of Registrable Shares and Preferred Registrable
Shares may require us to file additional registration statements on Form S-3,
subject to certain conditions and limitations.
ANTI-TAKEOVER PROVISIONS
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales or
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in our control.
Certificate of Incorporation and Bylaw Provisions
Our Certificate of Incorporation, which will become effective shortly following
the closing of the offering, provides that any action required or permitted to
be taken by our stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. In
addition, our Bylaws provide that special meetings of our stockholders may be
called only by the Chairman of the Board, our Chief Executive Officer, or by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors.
41
<PAGE> 46
Our Certificate of Incorporation also specifies that the authorized number of
directors may be changed only by resolution of the Board of Directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in our Certificate of Incorporation and Bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in our control or change in our management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices) and may limit the ability of stockholders to
remove current management or approve transactions that stockholders may deem to
be in their best interests and, therefore, could adversely affect the price of
our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is EquiServe Trust
Company.
LISTING
We have applied for quotation of the common stock on the Nasdaq National Market
under the symbol "AMEV."
42
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
When the offering is completed, we will have a total of shares of
common stock outstanding. The shares offered by this prospectus will
be freely tradeable unless they are purchased by our "affiliates," as defined in
Rule 144 under the Securities Act. Shares purchased by affiliates may generally
only be sold pursuant to an effective registration statement under the
Securities Act or in compliance with Rule 144. The remaining shares
are "restricted," which means they were originally sold in offerings that were
not subject to a registration statement filed with the Securities and Exchange
Commission. These restricted shares may generally be resold only through
registration under the Securities Act or under an available exemption from
registration, such as provided through Rule 144.
RULE 144
Generally, Rule 144 as currently in effect provides that, beginning 90 days
after the first date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of:
- one percent of the number of shares of common stock then outstanding, which
based on the shares outstanding as of March 31, 2000, will equal
approximately shares or
- the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceding the filing of the notice on
Form 144 with respect to the sale
Rule 144 regulates as the manner of sales and imposes requirements for notice
and the availability of current public information about us.
Under Rule 144(k), a person who has not been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, may sell his or her shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted (including
by a lock-up agreement), a person who has been a non-affiliate for at least two
years may sell his or her shares in the open market.
One hundred eighty days after the date of this prospectus shares of
our common stock will be eligible for sale under Rule 144, including
shares under Rule 144(k), and shares will be eligible for sale under
Rule 701. The remaining shares will be eligible for sale within 180 days
thereafter.
RULE 701
Rule 701 permits any of our employees, officers, directors or consultants who
purchased their shares under a compensatory stock or option plan or other
written agreement prior to the effective date of this offering to sell such
shares under Rule 144 without complying with the holding period, public
information, volume limitation or notice requirements of Rule 144. All holders
of Rule 701 shares may not sell their Rule 701 shares until 90 days after the
date of this prospectus. However, substantially all shares of our common stock
issued under Rule 701 are subject to lock-up agreements described below.
LOCK-UP AGREEMENTS
All of our stockholders have entered into lock-up agreements with us prohibiting
them from offering, selling, pledging or otherwise disposing of their shares for
a period of 180 days after the date of this prospectus. In addition, our
directors, officers and other stockholders who own shares of common stock have
agreed to similar lock-up agreements with the underwriters prohibiting them from
offering, selling, pledging or otherwise disposing of these shares for the same
180-day period. This generally means that the stockholders cannot sell these
shares during the 180 days following the date of this prospectus.
43
<PAGE> 48
STOCK OPTIONS
We intend to file registration statements under the Securities Act covering
approximately shares of common stock reserved for issuance under
the 1992 Stock Plan and the 2000 Stock Plan. These registration statements are
expected to be filed soon after the date of this prospectus and will
automatically become effective upon filing. Accordingly, shares registered under
these registration statements will be available for sale in the open market,
unless such shares are subject to vesting restrictions with us or to the
contractual restrictions described above.
44
<PAGE> 49
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., PaineWebber Incorporated and SG Cowen
Securities Corporation are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC World Markets Corp. ...................................
PaineWebber Incorporated....................................
SG Cowen Securities Corporation.............................
----------
Total..................................................
==========
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The representatives have advised us that
the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to other securities
dealers at such a price less a concession of $ per share. The underwriters
may also allow, and such dealers may reallow, a concession not in excess of
$ per share to other dealers. After the shares are released for sale to the
public, the representatives may change the offering price and other selling
terms at various times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of additional shares from us
to cover over-allotments. If the underwriters exercise all or part of this
option, they will purchase shares covered by the option at the initial public
offering price that appears on the cover page of this prospectus, less the
underwriting discount. If this option is exercised in full, the total price to
the public will be $ , and the total proceeds to us will be $ . The
underwriters have severally agreed that, to the extent the over-allotment option
is exercised, they will each purchase a number of additional shares
proportionate to the underwriter's initial amount reflected in the foregoing
table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us.
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH FULL
EXERCISE OF EXERCISE OF
OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- -------------- ---------------
<S> <C> <C> <C>
Applied Molecular Evolution.............................. $ $ $
</TABLE>
45
<PAGE> 50
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $1,000,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
In addition, we have retained CIBC World Markets Corp. for a twelve month period
to act as a financial advisor to us in connection with capital market financial
transactions. We have agreed to pay CIBC World Markets Corp. a fee of $200,000
for such services and to indemnify CIBC World Markets Corp. against certain
liabilities and expenses in connection with such services.
We, our officers and directors and substantially all other stockholders have
agreed to a 180-day "lock up" with respect to shares of common
stock and other securities that they beneficially own, including securities that
are convertible into shares of common stock and securities that are exchangeable
or exercisable for shares of common stock. This means that for a period of 180
days following the date of this prospectus, we and such persons may not offer,
sell, pledge or otherwise dispose of these securities without the prior written
consent of CIBC World Markets Corp.
The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed five percent of the shares offered by this
prospectus.
The underwriters have reserved for sale up to shares for
employees, directors and other persons associated with us. These reserved shares
will be sold at the initial public offering price that appears on the cover page
of this prospectus. The number of shares available for sale to the general
public in the offering will be reduced to the extent reserved shares are
purchased by such persons. The underwriters will offer to the general public, on
the same terms as other shares offered by this prospectus, any reserved shares
that are not purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by us and the representatives, based on the
following factors:
- estimates of our business potential and earnings prospects
- an assessment of our management
- consideration of the above factors in relation to market valuations of
companies in related businesses
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. The underwriters may, however, engage in the following activities
in accordance with the rules:
- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.
- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
46
<PAGE> 51
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock offered
by this prospectus will be passed upon for Applied Molecular Evolution by
Pillsbury Madison & Sutro LLP, San Francisco, California and for the
underwriters by McDermott, Will & Emery, Los Angeles, California. A partner of
Pillsbury Madison & Sutro LLP owns 70,000 shares of common stock and 121,023
shares of preferred stock.
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.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits and schedules to the
registration statement. Please refer to the registration statement, exhibits and
schedules for further information with respect to Applied Molecular Evolution
and the common stock offered by this prospectus. Statements contained in this
prospectus regarding the contents of any contract or other document are not
necessarily complete. With respect to any contract or document filed as an
exhibit to the registration statement, you should refer to the exhibit for a
copy of the contract or document, and each statement in this prospectus
regarding that contract or document is qualified by reference to the exhibit. A
copy of the registration statement and its exhibits and schedules may be
inspected without charge at the SEC's public reference room, located at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our SEC
filings are also available to the public from the SEC's website at
http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing financial
statements audited by independent certified public accountants and quarterly
reports containing unaudited financial information for the first three quarters
of each fiscal year.
47
<PAGE> 52
APPLIED MOLECULAR EVOLUTION, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and March 31, 2000 (unaudited)............................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999 and the three
months ended March 31, 2000 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Applied Molecular Evolution, Inc.
We have audited the accompanying consolidated balance sheets of Applied
Molecular Evolution, Inc. and its subsidiary as of December 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Applied
Molecular Evolution, Inc. and its subsidiary at December 31, 1998 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
January 27, 2000, except for Note 8,
as to which the date is May 3, 2000
F-2
<PAGE> 54
APPLIED MOLECULAR EVOLUTION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
---------------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 824,077 $ 1,974,466 $ 1,134,423
Short-term investments................... -- 1,523,481 1,190,302
Prepaid expenses and other current
assets................................ 290,201 611,349 1,232,920
------------ ------------ ------------
Total current assets....................... 1,114,278 4,109,296 3,557,645
Property and equipment, net................ 347,763 441,793 514,763
Other assets, net.......................... 1,289,606 1,386,584 1,429,425
------------ ------------ ------------
Total assets............................... $ 2,751,647 $ 5,937,673 $ 5,501,833
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $ 547,122 $ 629,707 $ 466,423
Current portion of deferred revenue...... 236,667 236,667 177,501
Current portion of long-term
obligations........................... 17,092 17,788 13,438
------------ ------------ ------------
Total current liabilities.................. 800,881 884,162 657,362
Deferred revenue........................... 1,104,444 867,777 867,777
Deferred rent.............................. 121,086 114,112 110,656
Long-term obligations, less current
portion.................................. -- 17,249 17,249
Minority interest.......................... -- 986,083 792,074
Commitments (Note 4)
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares -- 11,810,666 actual
and 5,000,000 pro forma
Issued and outstanding
shares -- 11,640,124 actual and none
pro forma
Liquidation value -- $24,551,058
actual and $0 pro forma............. 11,640 11,640 11,640 $ --
Common stock, $.001 par value:
Authorized shares -- 22,450,000 actual
and 50,000,000 pro forma
Issued and outstanding
shares -- 1,659,278, 2,569,846 and
2,590,831 at December 31, 1998 and
1999 and March 31, 2000,
respectively, actual and 14,230,955
pro forma........................... 1,659 2,569 2,590 14,230
Additional paid-in capital............... 24,695,121 30,909,558 34,625,067 34,625,067
Deferred compensation.................... -- (649,077) (3,563,480) (3,563,480)
Accumulated other comprehensive loss..... -- (7,785) (5,592) (5,592)
Accumulated deficit...................... (23,983,184) (27,198,615) (28,013,510) (28,013,510)
------------ ------------ ------------ ------------
Total stockholders' equity................. 725,236 3,068,290 3,056,715 $ 3,056,715
------------ ------------ ------------ ============
Total liabilities and stockholders'
equity................................... $ 2,751,647 $ 5,937,673 $ 5,501,833
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 55
APPLIED MOLECULAR EVOLUTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Contract revenue (from related party in
1997 and 1998)...................... $ 3,250,947 $ 2,437,841 $ 2,008,462 $ 87,821 $ 721,674
Other revenue.......................... 77,686 152,229 583,852 59,167 109,687
----------- ----------- ----------- ----------- -----------
Total revenue............................ 3,328,633 2,590,070 2,592,314 146,988 831,361
Operating expenses:
Research and development............... 2,992,391 2,583,179 4,421,167 927,664 671,001
General and administrative............. 2,636,455 1,974,504 1,369,709 226,891 419,117
Amortization of deferred
compensation........................ -- -- 435,150 37,014 788,435
----------- ----------- ----------- ----------- -----------
Total operating expenses................. 5,628,846 4,557,683 6,226,026 1,191,569 1,878,553
----------- ----------- ----------- ----------- -----------
Loss from operations..................... (2,300,213) (1,967,613) (3,633,712) (1,044,581) (1,047,192)
Minority interest........................ -- -- 205,353 -- 194,009
Interest income, net..................... 79,544 100,816 212,928 30,312 38,288
----------- ----------- ----------- ----------- -----------
Net loss................................. $(2,220,669) $(1,866,797) $(3,215,431) $(1,014,269) $ (814,895)
=========== =========== =========== =========== ===========
Net loss per share, basic and diluted.... $ (1.43) $ (1.13) $ (1.32) $ (0.42) $ (0.32)
=========== =========== =========== =========== ===========
Weighted average shares outstanding,
basic and diluted...................... 1,550,932 1,659,446 2,429,456 2,428,861 2,576,608
Pro forma net loss per share, basic and
diluted................................ $ (0.23) $ (0.06)
=========== ===========
Pro forma weighted average shares
outstanding, basic and diluted......... 14,069,580 14,216,732
</TABLE>
See accompanying notes.
F-4
<PAGE> 56
APPLIED MOLECULAR EVOLUTION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------- --------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..................... 11,106,791 $11,107 1,410,149 $1,410 $21,623,830 $ --
Exercise of stock options for cash............. -- -- 249,079 249 71,799 --
Issuance of Series E preferred stock........... 533,333 533 -- -- 2,999,467 --
Net loss and comprehensive loss................ -- -- -- -- -- --
---------- ------- --------- ------ ----------- -----------
Balance at December 31, 1997..................... 11,640,124 11,640 1,659,228 1,659 24,695,096 --
Issuance of common stock....................... -- -- 250 -- 25 --
Net loss and comprehensive loss................ -- -- -- -- -- --
---------- ------- --------- ------ ----------- -----------
Balance at December 31, 1998..................... 11,640,124 11,640 1,659,478 1,659 24,695,121 --
Issuance of common stock, net.................. -- -- 907,143 907 5,109,158 --
Exercise of stock options for cash............. -- -- 3,225 3 1,073 --
Deferred compensation.......................... -- -- -- -- 1,080,518 (1,080,518)
Amortization of deferred compensation.......... -- -- -- -- -- 435,150
Issuance of stock options to consultants....... -- -- -- -- 23,688 (23,688)
Compensation related to consultant stock
options...................................... -- -- -- -- -- 19,979
Unrealized loss on short-term investments...... -- -- -- -- -- --
Net loss....................................... -- -- -- -- -- --
Comprehensive loss............................. -- -- -- -- -- --
---------- ------- --------- ------ ----------- -----------
Balance at December 31, 1999..................... 11,640,124 11,640 2,569,846 2,569 30,909,558 (649,077)
Exercise of stock options for cash
(unaudited).................................. -- -- 20,985 21 8,817 --
Deferred compensation (unaudited).............. -- -- -- -- 3,703,092 (3,703,092)
Amortization of deferred compensation
(unaudited).................................. -- -- -- -- -- 788,435
Issuance of stock options to consultants
(unaudited).................................. -- -- -- -- 3,600 (3,600)
Compensation related to consultant stock
options (unaudited).......................... -- -- -- -- -- 3,854
Unrealized gain on short-term investments
(unaudited).................................. -- -- -- -- -- --
Net loss (unaudited)........................... -- -- -- -- -- --
Comprehensive loss (unaudited)................. -- -- -- -- -- --
---------- ------- --------- ------ ----------- -----------
Balance at March 31, 2000 (unaudited)............ 11,640,124 $11,640 2,590,831 $2,590 $34,625,067 $(3,563,480)
========== ======= ========= ====== =========== ===========
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
LOSS DEFICIT EQUITY
------------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1996..................... $ -- $(19,895,718) $ 1,740,629
Exercise of stock options for cash............. -- -- 72,048
Issuance of Series E preferred stock........... -- -- 3,000,000
Net loss and comprehensive loss................ -- (2,220,669) (2,220,669)
------- ------------ -----------
Balance at December 31, 1997..................... -- (22,116,387) 2,592,008
Issuance of common stock....................... -- -- 25
Net loss and comprehensive loss................ -- (1,866,797) (1,866,797)
------- ------------ -----------
Balance at December 31, 1998..................... -- (23,983,184) 725,236
Issuance of common stock, net.................. -- -- 5,110,065
Exercise of stock options for cash............. -- -- 1,076
Deferred compensation.......................... -- -- --
Amortization of deferred compensation.......... -- -- 435,150
Issuance of stock options to consultants....... -- -- --
Compensation related to consultant stock
options...................................... -- -- 19,979
Unrealized loss on short-term investments...... (7,785) -- (7,785)
Net loss....................................... -- (3,215,431) (3,215,431)
-----------
Comprehensive loss............................. -- -- (3,223,216)
------- ------------ -----------
Balance at December 31, 1999..................... (7,785) (27,198,615) 3,068,290
Exercise of stock options for cash
(unaudited).................................. -- -- 8,838
Deferred compensation (unaudited).............. -- -- --
Amortization of deferred compensation
(unaudited).................................. -- -- 788,435
Issuance of stock options to consultants
(unaudited).................................. -- -- --
Compensation related to consultant stock
options (unaudited).......................... -- -- 3,854
Unrealized gain on short-term investments
(unaudited).................................. 2,193 -- 2,193
Net loss (unaudited)........................... -- (814,895) (814,895)
-----------
Comprehensive loss (unaudited)................. -- -- (812,702)
------- ------------ -----------
Balance at March 31, 2000 (unaudited)............ $(5,592) $(28,013,510) $ 3,056,715
======= ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 57
APPLIED MOLECULAR EVOLUTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... $(2,220,669) $(1,866,797) $(3,215,431) $(1,047,131) $ (814,895)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of deferred compensation........ -- -- 435,150 37,014 788,435
Depreciation and amortization................ 394,013 397,614 244,213 64,667 57,941
Compensation related to consultant stock
options.................................... -- -- 19,979 -- 3,854
Deferred revenue............................. 36,029 (1,096,730) (236,667) 1,140,833 (59,166)
Deferred rent................................ 18,579 (327) (6,974) (1,744) (3,456)
Minority interest............................ -- -- (205,353) -- (194,009)
Write-off of abandoned patents............... -- -- 3,017 -- --
Changes in operating assets and liabilities:
Prepaid expenses and other current
assets.................................. (23,152) (171,934) (321,148) (94,316) (621,571)
Accounts payable and accrued expenses...... (181,546) 63,390 82,585 (118,709) (163,284)
----------- ----------- ----------- ----------- -----------
Net cash flows provided by (used in)
operations................................... (1,976,746) (2,674,784) (3,200,629) 13,476 (1,006,151)
INVESTING ACTIVITIES
Purchase of property and equipment............. (69,773) (9,064) (181,679) (10,794) (103,911)
Proceeds from disposal of property and
equipment.................................... 14,857 159 -- -- --
Purchase of short-term investments............. (2,686,079) -- (3,906,569) (3,684,614) --
Proceeds from sale of short-term investments... 936,868 2,740,449 2,375,303 -- 335,372
Other assets................................... 182,028 (347,097) (211,619) (46,172) (69,841)
----------- ----------- ----------- ----------- -----------
Net cash flows provided by (used in) investing
activities................................... (1,622,099) 2,384,447 (1,924,564) (3,741,580) 161,620
FINANCING ACTIVITIES
Payments on long-term obligations.............. (390,999) (65,489) (26,995) (4,437) (4,350)
Proceeds from line of credit................... 1,500,000 -- -- -- --
Repayments on line of credit................... (1,500,000) -- -- -- --
Issuance of preferred stock, net............... 3,000,000 -- -- -- --
Issuance of common stock, net.................. 72,048 25 5,111,141 5,110,367 8,838
Investment in subsidiary by minority investor,
net.......................................... -- -- 1,191,436 -- --
----------- ----------- ----------- ----------- -----------
Net cash flows provided by (used in) financing
activities................................... 2,681,049 (65,464) 6,275,582 5,105,930 4,488
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents.................................. (917,796) (355,801) 1,150,389 1,377,826 (840,043)
Cash and cash equivalents at the beginning of
the period................................... 2,097,674 1,179,878 824,077 824,077 1,974,466
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at the end of the
period....................................... $ 1,179,878 $ 824,077 $ 1,974,466 $ 2,201,903 $ 1,134,423
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest......................... $ 73,466 $ 6,405 $ 2,462 $ 564 $ 495
=========== =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Capital lease obligations entered into for
equipment.................................... $ -- $ -- $ 44,940 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 58
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Applied Molecular Evolution, Inc. (the "Company" or "AME"), a Delaware
corporation, was incorporated on August 14, 1989, as Ixsys, Inc., and changed
its name to Applied Molecular Evolution, Inc., in February 2000. The Company has
a broad technology platform termed AMEsystem, which the Company's management
believes will provide AME with a valuable and efficient solution to optimizing
proteins with commercial potential. To date, the Company has successfully
utilized its proprietary technology to optimize monoclonal antibodies for
pharmaceutical and biotechnology companies.
In February 1999, the Company formed a collaboration with MedImmune, Inc.
("MedImmune") (Note 3) to develop four monoclonal antibodies. Vitaxin, AME's
angiogenesis inhibitor, was exclusively licensed to MedImmune in return for an
equity investment, milestone payments and royalties. Under the agreement,
MedImmune is responsible for all future clinical development, manufacturing and
commercialization of Vitaxin. MedImmune will provide three additional antibody
targets to be optimized by AME using the Company's AMEsystem technology.
MedImmune made a $5.15 million equity investment in AME in February 1999, and
pursuant to the terms of the agreement, will provide research funding over the
next two years for the optimization of the three additional antibody targets and
will pay milestones and royalties related to the development and
commercialization of any resulting products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
Novasite Pharmaceuticals, Inc. ("Novasite"), which is 78% owned by AME and which
was incorporated in 1999. All significant intercompany accounts and transactions
have been eliminated. Minority interest at March 31, 2000, represents the
minority stockholders' proportionate share of the net assets of Novasite at such
date. The minority investor contributed $1,250,000 gross cash proceeds, which
represents all of the tangible assets of Novasite. Therefore, the entire net
loss of Novasite ($205,353 in 1999 and $194,009 in the three months ended March
31, 2000) is allocated to the minority interest.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist primarily of highly liquid investments with
original maturities of 90 days or less when purchased. Short-term investments
consist of debt securities with maturities in excess of 90 days when purchased.
In accordance with Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in
Debt and Equity Securities, management determines the appropriate classification
of short-term investment securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Securities classified as
available-for-sale are carried at fair value, with unrealized gains and losses,
if any, reported in comprehensive loss.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts payable and accrued liabilities, are carried
at cost, which management believes approximates fair value due to the short-term
maturity of these instruments. Short-term
F-7
<PAGE> 59
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
investments are carried at fair value. The difference between fair value and
cost is reported as unrealized loss on short-term investments in the
consolidated balance sheets.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents. The Company limits
its exposure to credit loss by placing its cash with high credit quality
financial institutions.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated over the estimated
useful lives of the assets (3 to 10 years) using the straight-line method.
Leasehold improvements and assets under capital leases are stated at cost and
amortized on a straight-line basis over the shorter of the estimated useful
lives of the assets or the lease term.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, if indicators of impairment
exist, the Company assesses the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through the undiscounted future operating cash flows. If impairment is
indicated, the Company measures the amount of such impairment by comparing the
carrying value of the asset to the present value of the expected future cash
flows associated with the use of the asset. While the Company's current and
historical operating and cash flow losses are indicators of impairment, the
Company believes the future cash flows to be received from the long-lived assets
will exceed the assets' carrying value, and accordingly the Company has not
recognized any impairment losses through December 31, 1999.
PATENT COSTS
Legal costs incurred in filing patent applications have been capitalized and,
upon patent issuance, are amortized over the estimated useful lives of the
patents ranging from 6 to 17 years. Costs related to abandoned patent
applications are expensed at the time of abandonment.
INCOME TAXES
In accordance with SFAS No. 109, Accounting for Income Taxes, a deferred tax
asset or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse. The Company
provides a valuation allowance against net deferred tax assets unless, based
upon the available evidence, it is more likely than not that the deferred tax
assets will be realized.
DEFERRED RENT
Rent expense is recorded on a straight-line basis over the term of the lease.
The difference between rent expense and amounts paid under the lease agreements
is recorded as deferred rent in the accompanying consolidated balance sheets.
F-8
<PAGE> 60
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
COMPREHENSIVE LOSS
In accordance with SFAS No. 130, Reporting Comprehensive Income, all components
of comprehensive income or loss, including net income or loss, are reported in
the financial statements in the period in which they are recognized.
Comprehensive income or loss is defined as the change in equity during a period
from transactions and other events and circumstances from non-owner sources. Net
income or loss and other comprehensive income or loss, including foreign
currency translation adjustments and unrealized gains and losses on investments,
shall be reported, net of their related tax effect, to arrive at comprehensive
income or loss.
INTERIM FINANCIAL INFORMATION
The consolidated balance sheet at March 31, 2000, the consolidated statements of
operations and cash flows for the three months ended March 31, 1999 and 2000,
and the consolidated statement of stockholders' equity for the three months
ended March 31, 2000, are unaudited. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, include all adjustments,
consisting of only normal recurring adjustments, necessary to state fairly
therein, in accordance with generally accepted accounting principles.
NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in conformity with
SFAS No. 128, Earnings per Share, and Staff Accounting Bulletin 98 issued by the
Staff of the Securities and Exchange Commission (SAB 98), for all periods
presented. Under the provisions of SAB 98, common stock and preferred stock that
has been issued or granted for nominal consideration prior to the anticipated
effective date of the initial public offering must be included in the
calculation of basic and diluted net loss per common share as if these shares
had been outstanding for all periods presented. To date, the Company has not
issued or granted shares for nominal consideration.
In accordance with SFAS No. 128, basic and diluted net loss per share has been
computed using the weighted average number of shares of common stock outstanding
during the period, less shares subject to repurchase. Pro forma basic and
diluted net loss per common share, as presented in the statements of operations,
has been computed for the year ended December 31, 1999, and the three month
period ended March 31, 2000, as described above, and also gives effect to the
assumed conversion of preferred stock which will automatically convert to common
stock immediately prior to the completion of the Company's initial public
offering (using the "as if converted" method) from the original date of
issuance.
The following table presents the calculation of net loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss................ $(2,220,669) $(1,866,797) $(3,215,431) $(1,014,269) $ (814,895)
=========== =========== =========== =========== ===========
Net loss per share,
basic and diluted..... $ (1.43) $ (1.13) $ (1.32) $ (0.42) $ (0.32)
=========== =========== =========== =========== ===========
</TABLE>
F-9
<PAGE> 61
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- ---------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares
used in computing net
loss per share, basic
and diluted........... 1,550,932 1,659,446 2,429,456 2,428,861 2,576,608
Pro forma net loss per
share, basic and
diluted (unaudited)... $ (0.23) $ (0.06)
=========== ===========
Shares used to compute
pro forma net loss per
share:
Weighted average shares
used in computing net
loss per share, basic
and diluted........... 2,429,456 2,576,608
Pro forma adjustment to
reflect weighted
average effect of
assumed conversion of
preferred stock
(unaudited)........... 11,640,124 11,640,124
----------- -----------
Shares used in computing
pro forma net loss per
share, basic and
diluted (unaudited)... 14,069,580 14,216,732
</TABLE>
The Company has excluded all preferred stock, outstanding stock options and
warrants, and shares subject to repurchase from the calculation of diluted loss
per common share because all such securities are antidilutive for all periods
presented. The total number of shares excluded from the calculation of diluted
net loss per share, prior to application of the treasury stock method for
options and warrants, was 12,376,499, 12,928,966 and 13,008,863 for the years
ended December 31, 1997, 1998 and 1999, and 12,951,566 and 13,505,419 for the
three months ended March 31, 1999 and 2000, respectively. Such securities, had
they been dilutive, would have been included in the computation of diluted net
loss per share.
REVENUE RECOGNITION
Revenue from the license of Vitaxin to MedImmune (Note 3) is included in
contract revenue in 1999, and was recorded upon the shipment of the specified
quantity of Vitaxin and the acceptance of the product by MedImmune, which
occurred in August 1999. Contract revenue in 1997 and 1998 from related party
consists of amounts received under collaborative agreements with Bristol-Myers
Squibb (Note 6), and was recognized as services were performed under the
contract. Contract revenue from unrelated parties in 1999 also includes amounts
received under collaborative agreements with MedImmune and Bio-Management (Note
6), and is recognized either (i) ratably over the term of the agreement, which
approximates the performance of services, for contracts specifying payment for
services over a given period, or (ii) as
F-10
<PAGE> 62
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
services are performed under the agreement, for contracts specifying payment on
a per-FTE basis. Other revenue consists principally of the license of patent
rights to Biosite (Note 7) and research grants. Revenue from the license of
patent rights is recognized ratably over the estimated useful lives of the
patents. Grant revenue is recognized as the research expenses related to the
grants are incurred. All amounts received under the collaborative research
agreements or research grants are not refundable, regardless of the success of
the underlying research. Amounts received in excess of revenue recognized are
recorded as deferred revenue. Revenue from milestones will be recognized upon
achievement of the milestone, unless the amounts received are creditable against
royalties or other possible future payments due to the Company.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations,
in accounting for its employee and director stock options. Under APB 25, when
the purchase price of restricted stock or the exercise price of the Company's
employee stock options equals or exceeds the fair value of the underlying stock
on the date of issuance or grant, no compensation expense is recognized.
Options or stock awards issued to non-employees are recorded at their fair value
as determined in accordance with SFAS No. 123 and EITF 96-18 and recognized over
the related service period.
SEGMENT REPORTING
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, requires the use of a management approach in identifying segments
of an enterprise. Management has determined that the Company operates in one
business segment, which is scientific research and development activities.
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 of recorded assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the recorded amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which the Company will adopt
effective January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
F-11
<PAGE> 63
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Management does not
believe the adoption of SFAS No. 133 will impact the financial statements as the
Company currently does not invest in derivative instruments or engage in hedging
activities.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulleting No. 101, Revenue Recognition (SAB 101). SAB 101 provides
the SEC Staff's views in applying generally accepted accounting principles to
various revenue recognition issues. The Company must implement the guidance in
SAB 101 during the second quarter of 2000. Management believes the Company's
revenue recognition policies are in compliance with the guidelines provided in
SAB 101, and therefore, the adoption of SAB 101 will not significantly affect
the Company's results of operations.
2. BALANCE SHEET DETAILS
SHORT-TERM INVESTMENTS
At December 31, 1999, short-term investments consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE GAIN (LOSS)
---------- ---------- -----------
<S> <C> <C> <C>
Obligations of U.S. government agencies........ $1,194,129 $1,186,101 $(8,028)
Corporate debt securities...................... 337,137 337,380 243
---------- ---------- -------
$1,531,266 $1,523,481 $(7,785)
========== ========== =======
</TABLE>
At March 31, 2000, short-term investments consisted of the following:
<TABLE>
<CAPTION>
AMORTIZED MARKET UNREALIZED
COST VALUE LOSS
---------- ---------- ----------
<S> <C> <C> <C>
Obligations of U.S. government agencies......... $1,195,894 $1,190,302 $(5,592)
---------- ---------- -------
$1,195,894 $1,190,302 $(5,592)
========== ========== =======
</TABLE>
All of the short-term investments mature in 2000.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1998 1999 2000
-------- -------- ----------
<S> <C> <C> <C>
Contract research receivable...................... $ -- $374,538 $1,001,380
Other............................................. 290,210 236,811 231,540
-------- -------- ----------
$290,201 $611,349 $1,232,920
======== ======== ==========
</TABLE>
F-12
<PAGE> 64
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Laboratory equipment........................ $ 1,622,386 $ 1,677,682 $ 1,778,724
Office furniture and equipment.............. 419,387 580,465 581,109
Leasehold improvements...................... 458,379 468,624 470,849
----------- ----------- -----------
2,500,152 2,726,771 2,830,682
Accumulated depreciation.................... (2,152,389) (2,284,978) (2,315,919)
----------- ----------- -----------
$ 347,763 $ 441,793 $ 514,763
=========== =========== ===========
</TABLE>
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Patent costs................................... $1,335,346 $1,540,754 $1,609,524
Deposits....................................... 55,466 42,432 43,503
---------- ---------- ----------
1,390,812 1,583,186 1,653,027
Accumulated amortization -- patents............ (101,206) (196,602) (223,602)
---------- ---------- ----------
$1,289,606 $1,386,584 $1,429,425
========== ========== ==========
</TABLE>
3. STOCKHOLDERS' EQUITY
PREFERRED STOCK
A summary of preferred stock issued and outstanding at December 31, 1998 and
1999 and at March 31, 2000 is as follows:
<TABLE>
<CAPTION>
SHARES
ISSUED AND LIQUIDATION
OUTSTANDING PAR VALUE VALUE
----------- --------- -----------
<S> <C> <C> <C>
Convertible Preferred........................... 500,000 $ 500 $ 258,750
Series A........................................ 1,062,802 1,063 550,000
Series B........................................ 3,097,625 3,097 3,252,506
Series C........................................ 4,271,125 4,271 6,833,800
Series D........................................ 1,108,572 1,109 4,656,002
Series E........................................ 1,600,000 1,600 9,000,000
---------- ------- -----------
11,640,124 $11,640 $24,551,058
========== ======= ===========
</TABLE>
The Convertible Preferred Stock and Series A, B, C, D and E preferred stock are
convertible at the option of the holders into a total of 11,640,124 shares of
common stock, subject to certain antidilution provisions. In addition, all of
the shares of preferred stock will automatically convert into common shares upon
the
F-13
<PAGE> 65
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
closing of an underwritten public offering of equity securities which results in
gross offering proceeds of at least $10,000,000, at a per share price of not
less than $5.00. The holder of each share of preferred stock is entitled to one
vote for each share of common stock into which it would convert.
Upon the approval of the holders of at least 66 2/3% of the then outstanding
shares of Convertible Preferred Stock and Series A, B, C, D and E preferred
stock, such shares may be redeemed, at the option of the Board of Directors, for
$0.5693, $0.65, $1.05, $1.60, $4.20 and $5.625, respectively, per share plus any
declared but unpaid dividends.
The holders of Convertible Preferred Stock and Series A, B, C, D and E preferred
stock are entitled to annual dividends of $0.04, $0.04, $0.08, $0.13, $0.34 and
$0.45 per share, respectively, per share, payable whenever funds are legally
available, when, and if, declared by the Board of Directors.
WARRANTS
During 1996 and 1997, in connection with a short-term loan and security
agreements, the Company issued warrants to purchase 26,667 shares and 40,000
shares, respectively, of Series E preferred stock at an exercise price of $5.625
per share, exercisable upon the earlier of August 29, 2001 and June 23, 2002,
respectively, or two years after the date of an initial public offering of the
Company's common stock.
STOCK OPTION PLAN
The Company's 1992 Stock Plan has authorized the grant of options for up to
3,100,000 shares of common stock to employees, directors and consultants. All
options granted have 10 year terms and generally vest ratably over four years of
continued employment. In April 2000, the Company adopted the 2000 Stock Plan and
authorized the issuance of 1,600,000 stock options under terms comparable to the
1992 Stock Plan.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires use of option valuation models which the
Company believes were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma net loss information is required to be disclosed by SFAS No. 123 and
has been determined as if the Company has accounted for its employee stock
options under the fair value method prescribed in that Statement. Option
valuation models require the input of highly subjective assumptions. The minimum
value pricing model, which is specified for use by non-publicly owned companies
by SFAS 123, is similar to the Black-Scholes option valuation model, which was
developed for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable, except that it excludes the
factor for volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
The fair value of these options was estimated at the date of grant using the
minimum value pricing model with the following weighted average assumptions for
1997, 1998 and 1999 and the three months ended March 31, 1999 and 2000:
Risk-free interest rate of 6%; dividend yield of 0%; and a weighted-average life
F-14
<PAGE> 66
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
of the option of four years for 1997 and 1998, two years for 1999 and the three
months ended March 31, 1999, and one year for the three months ended March 31,
2000.
The stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance at December 31, 1996........................ 1,593,156 $0.10
Granted........................................... 118,325 $0.45
Canceled.......................................... (730,027) $0.40
Exercised......................................... (249,079) $0.29
---------
Balance at December 31, 1997........................ 732,375 $0.37
Granted........................................... 641,300 $0.45
Canceled.......................................... (151,250) $0.44
Exercised......................................... (250) $0.10
---------
Balance at December 31, 1998........................ 1,222,175 $0.37
Granted........................................... 206,600 $0.45
Canceled.......................................... (123,478) $0.45
Exercised......................................... (3,225) $0.33
---------
Balance at December 31, 1999........................ 1,302,072 $0.41
Granted (unaudited)............................... 607,500 $0.75
Canceled (unaudited).............................. (89,959) $0.45
Exercised (unaudited)............................. (20,985) $0.42
---------
Balance at March 31, 2000 (unaudited)............... 1,798,628 $0.50
=========
</TABLE>
Exercise prices for options outstanding as of December 31, 1999, were $0.20 to
$0.45 ($0.20 to $0.75 at March 31, 2000.) The weighted average contractual life
of these options is eight years at December 31, 1999 (7.8 years at March 31,
2000).
At December 31, 1999, 1,266,797 shares were available for future option grants
(749,256 at March 31, 2000) and 1,302,072 shares of Common Stock were reserved
for issuance upon exercise of outstanding options (1,798,628 at March 31, 2000).
The weighted average fair value of options granted in 1997, 1998 and 1999 and
for the three-month periods ended March 31, 1999 and 2000 were $0.12, $0.11,
$0.03, $0.03, and $0.04, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Actual net loss.......... $(2,220,669) $(1,866,797) $(3,215,431) $(1,014,269) $(814,895)
Pro forma net loss....... $(2,224,044) $(1,872,671) $(3,246,331) $(1,021,810) $(820,553)
Actual net loss per
share.................. $ (1.43) $ (1.13) $ (1.32) $ (0.42) $ (0.32)
Pro forma net loss per
share.................. $ (1.43) $ (1.13) $ (1.34) $ (0.42) $ (0.32)
</TABLE>
During the year ended December 31, 1999, and the three months ended March 31,
2000, in connection with the grant of certain stock options to employees, the
Company recorded deferred stock compensation totaling approximately $1.1 million
and $3.7 million, respectively, representing the difference between the exercise
price and the deemed fair value of the Company's common stock as estimated by
the Company's
F-15
<PAGE> 67
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
management for financial reporting purposes on the date such stock options were
granted. Deferred compensation is included as a reduction of stockholders'
equity and is being amortized to expense over the vesting period of the options
in accordance with FASB Interpretation No. 28, which permits an accelerated
amortization methodology. During the year ended December 31, 1999, and the three
months ended March 31, 2000, the Company recorded amortization of deferred stock
compensation expense of approximately $435,000 and $800,000, respectively.
COMMON STOCK SOLD TO MEDIMMUNE
In conjunction with a collaborative research and development agreement entered
into with MedImmune Inc. ("MedImmune") in February 1999, MedImmune paid the
Company an aggregate of $6,350,001, before expenses of $39,936, for (i) 907,143
shares of common stock, (ii) a specified quantity of Vitaxin, and (iii) an
exclusive license to Vitaxin. While the Company believes a significant portion
of the proceeds related to the value of the license to Vitaxin, the agreement
did not allocate the total proceeds among the three elements of the agreement.
However, $1,200,000 was refundable if the Company did not deliver the specified
quantity of Vitaxin. Accordingly, the Company allocated such amount to the
specified quantity of Vitaxin and recognized it as revenue in August 1999 when
the Vitaxin was delivered to and accepted by MedImmune. Due to the lack of
objective evidence as to the fair value of the other two elements of the
agreement, the Company allocated the entire remaining proceeds ($5,110,065) to
the common stock.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
At December 31, 1999, a total of 11,640,124 common shares have been reserved for
the conversion of preferred stock into common stock. In addition, 1,302,072 and
66,667 common shares have been reserved for issuance upon the exercise of stock
options and warrants, respectively.
4. LONG-TERM OBLIGATIONS AND LEASE COMMITMENTS
The Company leases its facilities under an operating lease which expires in
2003. The lease provides for escalating rent payments during the term. For
financial reporting purposes, rent expense is recognized on a straight-line
basis over the term of the lease. Accordingly, rent expense recognized in excess
of rent paid is reflected as deferred rent. Under the lease agreement, the
Company is required to pay a percentage of operating expenses relating to the
building.
Rent expense was $472,156, $415,400, $415,400, and $83,100 for the years ended
December 31, 1997, 1998 and 1999 and for the three months ended March 31, 2000,
respectively. Equipment recorded under equipment notes payable totaled
approximately $1,441,000 at December 31, 1998 and 1999, less accumulated
amortization of $1,430,355 and $1,441,000 at December 31, 1998 and 1999,
respectively. At March 31, 2000, equipment recorded under capital leases totaled
$44,940 less accumulated amortization of $4,494 and $6,741, respectively.
F-16
<PAGE> 68
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
Annual future minimum lease payments as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- -------
<S> <C> <C>
2000.................................................. $ 449,224 $19,376
2001.................................................. 315,794 17,761
2002.................................................. 274,700 --
2003.................................................. 282,341 --
2004.................................................. 6,659 --
---------- -------
Total minimum lease payments..................... $1,328,718 37,137
==========
Less amount representing interest..................... 2,100
-------
Present value of capital lease obligations............ 35,037
Less current portion.................................. 17,788
-------
Capital lease obligations, non-current................ $17,249
=======
</TABLE>
5. INCOME TAXES
At December 31, 1999, the Company had federal and California tax net operating
loss carryforwards of approximately $20,591,000 and $1,044,000, respectively.
The difference between the tax loss carryforwards for federal and California
purposes is primarily attributable to the capitalization of research and
development expenses for California and the 50% limitation of California loss
carryforwards. The federal tax loss carryforwards will begin expiring in 2005,
unless previously utilized. Approximately $65,000 of the California tax loss
carryforward expired during 1999, and the related deferred tax asset and tax
loss carryforward amounts have been reduced accordingly. The remaining
California tax loss carryforward will begin expiring in 2000 unless previously
utilized. The Company also has federal and California research and development
tax credit carryforwards totaling $621,000 and $316,000, respectively, which
will expire beginning in 2005 unless previously utilized.
Pursuant to Internal Revenue Code Section 382 and 383, use of the Company's net
operating loss and tax credit carryforwards will be limited as a result of
certain cumulative changes in the Company's stock ownership which occurred
during 1993. However, the Company believes that the limitation will not have a
material impact on the utilization of the carryforwards.
Significant components of the Company's deferred tax assets as of December 31,
1998 and 1999 are shown below. A valuation allowance of $9,248,000, of which
$9,902,000 relates to 1998, has been recognized to offset the deferred tax
assets as realization of such assets is uncertain.
F-17
<PAGE> 69
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 7,879,000 $ 7,267,000
Research and development credits................ 562,000 826,000
Capitalized research expense.................... 1,044,000 969,000
Deferred revenue................................ 546,000 450,000
Other........................................... 374,000 273,000
----------- -----------
Total deferred tax assets.................... 10,405,000 9,785,000
Valuation allowance for deferred tax assets....... (9,902,000) (9,248,000)
----------- -----------
Net deferred tax assets........................... 503,000 537,000
Deferred tax liabilities:
Patent expenses................................. (503,000) (537,000)
----------- -----------
Net deferred tax liabilities...................... $ -- $ --
=========== ===========
</TABLE>
6. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
Bristol-Myers Squibb
During 1993 and 1995, the Company entered into two collaborative agreements with
Bristol-Myers Squibb to discover and develop certain antibodies for use in human
cancer therapy. The Company was required to provide a specified level of
scientific research through September 1998. Included in the statements of
operations are contract revenues from a related party related to this agreement
of $3,250,947 and $2,437,841 for the years ended December 31, 1997 and 1998,
respectively. As of December 31, 1998, the Company had received all contract
revenue payments specified under the agreement and had completed all its
performance obligations. The Company does not anticipate any future contract
revenue under this agreement.
MedImmune
On February 24, 1999, the Company entered into a six-month collaboration
agreement with MedImmune, with an option to extend for up to 24 months, to
produce optimized antibodies. Pursuant to the terms of the agreement, MedImmune
agreed to fund research for a stated number of full-time employees dedicated to
the specified research. In addition, MedImmune will pay royalties to AME on net
sales of products developed. The agreement also provides that MedImmune will
make additional payments to the Company upon the achievement of certain
milestones.
F-18
<PAGE> 70
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
Bio-Management
On November 29, 1999, the Company entered into a seven-month collaboration
agreement with Bio-Management, Inc. ("Bio-Management"), with an option to extend
for an equal period, to humanize and optimize candidate molecules and to perform
some preclinical development. Pursuant to the terms of the agreement,
Bio-Management will pay AME in equal quarterly installments for the humanization
and optimization of each of the two candidate molecules. In addition,
Bio-Management shall make milestone payments to AME for each enhanced antibody.
The agreement also provides that Bio-Management will make additional payments to
the Company upon the achievement of certain milestones and pay royalties on its
net sales of products developed. As of December 31, 1999 and for the three
months ended March 31, 2000, the Company had recorded revenue of $166,667 and
$500,000 related to research activities performed under the agreement.
7. LICENSE AGREEMENTS
Biosite
During 1998, the Company entered into a License Agreement with Biosite
Diagnostics, Inc. ("Biosite"). The Company granted Biosite non-exclusive rights
to certain AME patent technology in exchange for $1,475,000. The Company is
recognizing the license revenue over the estimated lives of the related patents.
As of December 31, 1998 and 1999 and for the three months ended March 31, 2000,
$1,341,111, $1,104,444 and $1,045,278, respectively, of the amount originally
received is included in deferred revenue.
TSRI
During 1994, the Company entered into a license agreement with The Scripps
Research Institute of California ("TSRI"). TSRI granted the Company exclusive
rights to certain technology relating to a murine monoclonal antibody and the
use of the antibody as an inhibitor of angiogenesis. In exchange, the Company
paid TSRI $100,000 and issued TSRI 20,000 shares of AME common stock. The
Company also agreed to provide TSRI additional payments based on the completion
of certain clinical and approval milestones. In addition, the Company has agreed
to reimburse TSRI for a portion of its past and future patent costs related to
the licensed technology and pay royalties to TSRI on net sales of each licensed
product. The exclusive license will expire 10 years after the date of the first
commercial sale of such licensed product.
Hoechst
During 1994, the Company entered into a license agreement with Hoechst Japan
Ltd. ("Hoechst"). Hoechst granted the Company an exclusive license to
technology, know-how and a family of monoclonal antibodies. In exchange, the
Company paid Hoechst $100,000 and issued Hoechst 25,000 shares of AME common
stock. The Company also agreed to provide Hoechst additional payments up to $2.9
million based on completion of certain clinical and approval milestones and pay
royalties to Hoechst on net sales of each licensed product. The Company may
terminate the agreement at its sole discretion upon 30 days prior written notice
to Hoechst.
F-19
<PAGE> 71
APPLIED MOLECULAR EVOLUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information pertaining to March 31, 2000 and the three months ended
March 31, 1999 and 2000 is unaudited)
8. SUBSEQUENT EVENT
PRIVATE PLACEMENT OF SERIES F PREFERRED STOCK
On May 3, 2000, the Company sold 1,133,333 shares of our Series F preferred
stock at $4.50 per share for proceeds of $5.1 million. An additional $5.0
million is due in a second closing of 1,111,111 shares on June 15, 2000. The
Series F preferred stock has similar rights and terms to the Company's other
outstanding series of preferred stock, but has a liquidation and redemption
value of $4.50 per share and dividend rights of $0.36 per share. The Series F
preferred stock was sold primarily to the affiliates of an independent
accredited investor, however the price was substantially below the anticipated
initial public offering price contemplated by this prospectus. Accordingly,
pursuant to EITF 98-5, Accounting for Convertible Securities with Beneficial
Conversion Features, the Company will record a deemed dividend on the Series F
preferred stock equal to the lesser of (i) the difference between the initial
public offering price and the Series F sale price, or (ii) the aggregate Series
F sale price.
INITIAL PUBLIC OFFERING
In April 2000, the Board of Directors authorized management of the Company to
file a Registration Statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
initial public offering is closed under the terms presently anticipated, all of
the preferred stock outstanding will automatically convert into shares of common
stock on a one-to-one basis.
F-20
<PAGE> 72
- --------------------------------------------------------------------------------
[APPLIED MOLECULAR EVOLUTION LOGO]
APPLIED MOLECULAR
EVOLUTION, INC.
SHARES
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
May , 2000
CIBC WORLD MARKETS
PAINEWEBBER INCORPORATED
SG COWEN
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred by
us in connection with the sale and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the NASD filing fee and the Nasdaq National Market Listing Fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $22,440
National Association of Securities Dealers, Inc. filing
fee....................................................... 9,000
Nasdaq National Market Listing Fee..........................
Blue Sky fees and expenses..................................
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing and engraving expenses.............................
Registrar and Transfer Agent's fees.........................
Miscellaneous fees and expenses.............................
-------
Total.................................................. $
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our Restated Certificate of Incorporation and Bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. We have also entered into agreements with our directors and officers that
will require us, among other things, to indemnify them against some liabilities
that may arise by reason of their status or service as directors or officers to
the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
underwriters of us, our directors and officers, and by us of the underwriters,
for some liabilities, including liabilities arising under the Act, and affords
some rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the last three years, and through May 3, 2000, we have issued and sold
the following unregistered securities:
(a) On various dates between January 1, 1997 and March 31, 2000, we issued
273,539 shares of our common stock pursuant to the exercise of options granted
under our 1992 Stock Plan. The exercise prices per share ranged from $0.03 to
$0.45. We relied on the exemption provided by Rule 701 under the Act.
(b) In September 1997, we issued 533,333 shares of our Series E preferred stock
to one accredited investor. The price per share was $5.625, for an aggregate
consideration of approximately $3,000,000. We relied on the exemption provided
by Section 4(2) of the Act.
(c) In February 1999, we issued 907,143 shares of our common stock to one
accredited investor. The price per share was approximately $5.678, for an
aggregate consideration of $5,150,000. We relied on the exemption provided by
Section 4(2) of the Act.
II-1
<PAGE> 74
(d) In May 2000 we sold 1,133,333 shares of our Series F preferred stock to the
affiliates of one independent accredited investor and to one additional
accredited investor. The affiliates of one accredited investor are obligated to
purchase an additional 1,111,111 shares of our Series F preferred stock on June
15, 2000. We relied on the exemption provided by Section 4(2) of the Act.
The recipients of the above-described securities represented their intention to
acquire the securities for investment only and not with a view to distribution
thereof. Appropriate legends were affixed to the stock certificates issued in
such transactions. All recipients had adequate access, through employment or
other relationships, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3(i).1 Restated Certificate of Incorporation, as amended.
3(i).2* Form of Restated Certificate of Incorporation to be filed
immediately subsequent to the closing date of the offering.
3(ii).1 Bylaws, as amended.
3(ii).2* Bylaws to be effective immediately subsequent to the closing
date of the offering.
4.1* Form of Common Stock Certificate.
4.2 Stock Purchase Agreement with MedImmune, Inc. dated as of
February 24, 1999.
4.3 Stock Purchase Agreement with each of Hilal Capital
Management LLC and Keith Manchester dated as of May 3, 2000.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1.1 1992 Stock Plan.
10.1.2 Form of Incentive Stock Option Agreement under the 1992
Stock Plan.
10.1.3 Form of Nonstatutory Stock Option Agreement under the 1992
Stock Plan.
10.2.1 2000 Stock Plan.
10.2.2 Form of Stock Option Agreement under the 2000 Stock Plan.
10.3 + License Agreement with Stuart A. Kauffman, M.D. dated as of
November 3, 1994.
10.4 + License Agreement with MedImmune, Inc. dated as of February
24, 1999.
10.5 + Research and Assignment and License Agreement with
MedImmune, Inc. dated as of February 24, 1999.
10.6 + Selection Agreement with MedImmune, Inc. dated as of
February 24, 1999.
10.7 + License Agreement with The Scripps Research Institute dated
as of May 20, 1994.
10.8 + Collaboration Agreement with Bio-Management Inc. dated as of
November 29, 1999.
10.9 Lease Agreement for 3520 Dunhill Street, San Diego,
California dated as of June 1, 1993, as amended.
10.10* Form of Indemnification Agreement with executive officers
and directors.
10.11 Warrants issued August 30, 1996.
10.12 Warrants issued June 23, 1997.
22.1 Subsidiaries of Applied Molecular Evolution, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in its
opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 Power of Attorney (see page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
II-2
<PAGE> 75
(b) FINANCIAL STATEMENT SCHEDULES
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) 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-3
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Diego, State of
California, on the third day of May, 2000.
APPLIED MOLECULAR EVOLUTION, INC.
/s/ WILLIAM D. HUSE, M.D., PH.D.
--------------------------------------
William D. Huse, M.D., Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William D. Huse, M.D., Ph.D. and Lawrence E. Bloch,
M.D., J.D., and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration Statement,
and any registration statement relating to the offering covered by this
Registration Statement and filed pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents 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 below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ WILLIAM D. HUSE, M.D., PH.D. President and Chief Executive May 3, 2000
- ----------------------------------------------------- Officer (Principal Executive
William D. Huse, M.D., Ph.D. Officer)
and Director
/s/ LAWRENCE E. BLOCH, M.D., J.D. Chief Financial Officer May 3, 2000
- ----------------------------------------------------- (Principal Financial and
Lawrence E. Bloch, M.D., J.D. Accounting Officer)
/s/ COSTA G. SEVASTOPOULOS, PH.D. Chairman of the Board May 3, 2000
- -----------------------------------------------------
Costa G. Sevastopoulos, Ph.D.
/s/ JAMES J. BOCHNOWSKI Director May 3, 2000
- -----------------------------------------------------
James J. Bochnowski
/s/ PETER K. HILAL, M.D. Director May 3, 2000
- -----------------------------------------------------
Peter K. Hilal, M.D.
/s/ JOHN G. MORRIS Director May 3, 2000
- -----------------------------------------------------
John G. Morris
</TABLE>
II-4
<PAGE> 77
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3(i).1 Restated Certificate of Incorporation, as amended.
3(i).2* Form of Restated Certificate of Incorporation to be filed
immediately subsequent to the closing date of the offering.
3(ii).1 Bylaws, as amended.
3(ii).2* Bylaws to be effective immediately subsequent to the closing
date of the offering.
4.1* Form of Common Stock Certificate.
4.2 Stock Purchase Agreement with MedImmune, Inc. dated as of
February 24, 1999.
4.3 Stock Purchase Agreement with each of Hilal Capital
Management LLC and Keith Manchester dated as of May 3, 2000.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1.1 1992 Stock Plan.
10.1.2 Form of Incentive Stock Option Agreement under the 1992
Stock Plan.
10.1.3 Form of Nonstatutory Stock Option Agreement under the 1992
Stock Plan.
10.2.1 2000 Stock Plan.
10.2.2 Form of Stock Option Agreement under the 2000 Stock Plan.
10.3 + License Agreement with Stuart A. Kauffman, M.D. dated as of
November 3, 1994.
10.4 + License Agreement with MedImmune, Inc. dated as of February
24, 1999.
10.5 + Research and Assignment and License Agreement with
MedImmune, Inc. dated as of February 24, 1999.
10.6 + Selection Agreement with MedImmune, Inc. dated as of
February 24, 1999.
10.7 + License Agreement with The Scripps Research Institute dated
as of May 20, 1994.
10.8 + Collaboration Agreement with Bio-Management Inc. dated as of
November 29, 1999.
10.9 Lease Agreement for 3520 Dunhill Street, San Diego,
California dated as of June 1, 1993, as amended.
10.10* Form of Indemnification Agreement with executive officers
and directors.
10.11 Warrants issued August 30, 1996.
10.12 Warrants issued June 23, 1997.
22.1 Subsidiaries of Applied Molecular Evolution, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in its
opinion filed as Exhibit 5.1 to this Registration
Statement).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
<PAGE> 1
EXHIBIT 3(i).1
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"APPLIED MOLECULAR EVOLUTION, INC.", FILED IN THIS OFFICE ON THE TWENTY-EIGHTH
DAY OF APRIL, A.D. 2000, AT 5 O'CLOCK P.M.
2204958 8100 [Logo] /s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
001219570 AUTHENTICATION: 0410567
DATE: 05-01-00
<PAGE> 2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
APPLIED MOLECULAR EVOLUTION, INC.
Applied Molecular Evolution, Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
FIRST. The name of the corporation is Applied Molecular Evolution, Inc.
SECOND. The date of filing of its original Certificate of Incorporation
with the Secretary of State of Delaware was August 14, 1989, under the name
"Ixsys, Inc."
THIRD. On February 2, 2000, Ixsys, Inc. filed an Amendment to Restated
Certificate of Incorporation with the Secretary of State of Delaware to amend
its Certificate of Incorporation, which amendment changed the name of the
corporation to "Applied Molecular Evolution, Inc."
FOURTH. The Certificate of Incorporation of said corporation shall be
amended and restated to read in full as follows:
ARTICLE I
The name of the corporation is Applied Molecular Evolution, Inc.
ARTICLE II
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, Delaware 19801. The name of its registered agent at such address
is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. Classes of Stock. The total number of shares of all classes of
capital stock which the corporation shall have authority to issue is forty-one
million three hundred fifty-one thousand nine hundred forty-two (41,351,942) of
which twenty-seven million two hundred ninety-six thousand eight hundred
thirty-two (27,296,832) shares of the par value of one-tenth of one cent ($.001)
each shall be Common Stock (the "Common Stock") and fourteen million fifty-five
thousand one hundred ten (14,055,110) shares of the par value of one-tenth of
one cent ($.001) each shall be Preferred Stock (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or more
series. Except for the Convertible Preferred Stock, the Series A Preferred
Stock, Series B Preferred Stock, Series C
-1-
<PAGE> 3
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, the Board of Directors is authorized to fix the number of
shares of any series of Preferred Stock and to determine the designation of any
such shares. The Board of Directors is also authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issue of shares of
that series unless a vote of the holders of such series is required pursuant to
the certificate or certificates establishing the series of Preferred Stock.
B. Rights, Preferences and Restrictions of the Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock, Series F Preferred
Stock. The Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock shall consist of 500,000 shares,
1,062,802 shares, 3,097,625 shares, 4,375,000 shares 1,108,572 shares, 1,666,667
shares and 2,244,444 each with a par value of $.001 per share, respectively. The
Convertible Preferred Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock shall have the voting power, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, as follows:
1. Dividend Provisions. The holders of shares of Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock of this corporation) on the Common
Stock or any other junior equity security of this corporation, at the rate of
$.0414 per share of Convertible Preferred Stock per annum, $.0414 per share of
Series A Preferred Stock per annum, $.084 per share of Series B Preferred Stock
per annum, $.128 per share of Series C Preferred Stock per annum, $.336 per
share of Series D Preferred Stock per annum, $.45 per share of Series E
Preferred Stock per annum and $.36 per share of Series F Preferred Stock per
annum or, if greater (as determined on an as converted basis for the Preferred
Stock), an amount equal to that paid on outstanding shares of Common Stock of
this corporation whenever funds are legally available therefor, payable
quarterly when, as and if declared by the Board of Directors. Dividends, if
declared, must be declared and paid with respect to all series of Preferred
Stock contemporaneously, and if less than full dividends are declared, the same
percentage of the dividend rate will be payable to each series of Preferred
Stock.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, the holders of Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock or
-2-
<PAGE> 4
other junior equity security by reason of their ownership thereof, an amount per
share equal to the sum of (i) $.5175 for each outstanding share of Convertible
Preferred Stock (the "Original Convertible Preferred Issue Price"), $.5175 for
each outstanding share of Series A Preferred Stock (the "Original Series A Issue
Price"), $1.05 for each outstanding share of Series B Preferred Stock (the
"Original Series B Issue Price"), $1.60 for each outstanding share of Series C
Preferred Stock (the "Original Series C Issue Price"), $4.20 for each
outstanding share of Series D Preferred Stock (the "Original Series D Issue
Price"), $5.625 for each outstanding share of Series E Preferred Stock (the
"Original Series E Issue Price"), and $4.50 for each outstanding share of Series
F Preferred Stock (the "Original Series F Issue Price") and (ii) an amount equal
to all declared but unpaid dividends on each such share. If upon the occurrence
of such event, the assets and funds thus distributed among the holders of the
Convertible Preferred Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amounts, then the entire assets and
funds of this corporation legally available for distribution shall be
distributed, ratably among the holders of the Convertible Preferred Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
in proportion to the product of the liquidation preference of each such share
and the number of such shares owned by each such holder.
(b) Upon the completion of the distribution required by subsection 2(a)
above, if assets remain in this corporation, the holders of Common Stock shall
receive an amount equal to $.01 per share (adjusted to reflect any stock splits,
stock dividends or other recapitalization).
(c) After the distributions described in subsections 2(a) and (b) above
have been paid, the remaining assets of this corporation available for
distribution to stockholders shall be distributed, among the holders of
Convertible Preferred Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock,
Series F Preferred Stock and Common Stock pro rata based on the number of shares
of Common Stock held by each (assuming conversion of all such Preferred Stock).
3. Redemption.
(a) The Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock, respectively, shall be redeemable
as provided in this Section 3.
The Convertible Preferred Redemption Price shall be the total amount
equal to $.5693 per share of Convertible Preferred Stock to be redeemed together
with any declared but unpaid dividends on such shares to the Redemption Date (as
such term is hereinafter defined).
The Series A Redemption Price shall be the total amount equal to $.65
per share of Series A Preferred Stock to be redeemed together with any declared
but unpaid dividends on such shares to the Redemption Date.
-3-
<PAGE> 5
The Series B Redemption Price shall be the total amount equal to $1.05
per share of Series B Preferred Stock to be redeemed together with any declared
but unpaid dividends on such shares to the Redemption Date.
The Series C Redemption Price shall be the total amount equal to $1.60
per share of Series C Preferred Stock to be redeemed together with any declared
but unpaid dividends on such shares to the Redemption Date.
The Series D Redemption Price shall be the total amount equal to $4.20
per share of Series D Preferred Stock to be redeemed together with any declared
but unpaid dividends on such shares to the Redemption Date.
The Series E Redemption Price shall be the total amount equal to $5.625
per share of Series E Preferred Stock to be redeemed together with any declared
but unpaid dividends on such shares to the Redemption Date.
The Series F Redemption Price shall be the total amount equal to $4.50
per share of Series F Preferred Stock to be redeemed together with any declared
but unpaid dividends on such shares to the Redemption Date.
(b) This corporation shall not have any right to redeem shares of the
Convertible Preferred Stock prior to April 15, 2002. On or at any time after
April 15, 2002, this corporation may at any time it may lawfully do so, at the
option of the Board of Directors, redeem in whole or in part the Convertible
Preferred Stock, by paying in cash therefor the Convertible Preferred Redemption
Price. On or at any time after the receipt by this corporation from the holders
of 66-2/3% of the then outstanding shares of Convertible Preferred Stock of
their written consent to redemption hereunder of their respective shares, this
corporation may at any time it may lawfully do so, at the option of the Board of
Directors, redeem in whole or in part the Convertible Preferred Stock by paying
in cash therefor a sum equal to the Convertible Preferred Redemption Price.
On or any time after April 15, 2004, upon receipt by this corporation by
February 15 of such year from a holder or holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series
F Preferred Stock, as the case may be, of a written request for redemption
("Redemption Request") of such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock, as the case may be, this corporation may at
any time it may lawfully do so, at the option of the Board of Directors, redeem
all of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock, as the case may be, by paying in cash therefor a sum equal to
the Series A Redemption Price, Series B Redemption Price, Series C Redemption
Price, Series D Redemption Price, Series E Redemption Price or Series F
Redemption Price, as the case may be. Within 10 days of receipt of the
Redemption Request, the corporation shall give written notice to each holder of
Preferred Stock (other than the holders of the series of the Preferred Stock to
be redeemed) with the information to be set forth in the Redemption Notice (as
defined in
-4-
<PAGE> 6
Section 3(c)(ii) hereof) to provide such holders the opportunity to make their
own Redemption Request.
(c) (i) In the event of any redemption of only a part of the then
outstanding Convertible Preferred Stock, this corporation shall effect
such redemption pro rata among the outstanding shares of Convertible
Preferred Stock according to the number of shares held by each holder
thereof.
(ii) At least 30, but no more than 60 days prior to the date
fixed for any redemption of the Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock (a "Redemption Date"), written notice shall be mailed, first class
postage prepaid, to each holder of record (at the close of business on
the business day next preceding the day on which notice is given) of
such series of Preferred Stock to be redeemed, at the address last shown
on the records of this corporation for such holder or given by the
holder to this corporation for the purpose of notice or, if no such
address appears or is given, at the place where the principal executive
office of this corporation is located, notifying such holder of the
redemption to be effected, specifying the number of shares to be
redeemed from such holder, the Redemption Date, the Convertible
Preferred Redemption Price, Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock, as the case may be, the
place at which payment may be obtained and the date on which such
holder's Conversion Rights (as hereinafter defined) as to such shares
terminate and calling upon such holder to surrender to this corporation,
in the manner and at the place designated, such holder's certificate or
certificates representing the shares to be redeemed (the "Redemption
Notice"). Except as provided in subsection 3(c)(iii), on or after the
Redemption Date, each holder of Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock to be redeemed shall surrender to this corporation the
certificate or certificates representing such shares, in the manner and
at the place designated in the Redemption Notice, and thereupon the
Convertible Preferred Redemption Price, Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock, as the case may
be, of such shares shall be payable to the order of the person whose
name appears on such certificate or certificates as the owner thereof
and each surrendered certificate shall be canceled. In the event less
than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless there shall have
been a default in payment of the Convertible Preferred Redemption Price,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock, as the case may be, all rights of the holders of such
shares as holders of such series of
-5-
<PAGE> 7
Preferred Stock (except the right to receive the Convertible Preferred
Redemption Price, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock, as the case may be, without interest
upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of this corporation
legally available for redemption of shares of Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Convertible Preferred Stock, Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock to be redeemed on such date, those funds which are legally
available will be used, to redeem, first, the maximum possible number of
such shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock among the holders of such shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock to be redeemed in proportion to the product of the
liquidation preference of each such share and the number of such shares
owned by each such holder and, thereafter if there are funds remaining,
to redeem the maximum possible number of shares of Convertible Preferred
Stock ratably among the holders of such shares to be redeemed. The
shares of Convertible Preferred Stock, Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock not redeemed shall
remain outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter when additional funds of this
corporation are legally available for the redemption of shares of
Preferred Stock, such funds shall immediately be used to redeem the
balance of the shares which this corporation has become obligated to
redeem on any Redemption Date but which it has not redeemed.
(iv) Three days prior to the Redemption Date, this corporation
shall deposit the Convertible Preferred Redemption Price, Series A
Redemption Price, Series B Redemption Price, Series C Redemption Price,
Series D Redemption Price, Series E Redemption Price or Series F
Redemption Price, as the case may be, of all outstanding shares of such
series of Preferred Stock designated for redemption in the Redemption
Notice, and not yet redeemed or converted, with a bank or trust company
having aggregate capital and surplus in excess of $50,000,000 as a trust
fund for the benefit of the respective holders of the shares designated
for redemption and not yet redeemed. Simultaneously, this corporation
shall deposit irrevocable instruction and authority to such bank or
trust company to pay, on and after the date fixed for redemption or
prior thereto, the Convertible Preferred Redemption Price, Series A
Redemption Price, Series B Redemption Price, Series C Redemption Price,
Series D Redemption Price, Series E Redemption Price or Series F
Redemption Price, as the case may be, to
-6-
<PAGE> 8
the holders thereof upon surrender of their certificates. Any monies
deposited by this corporation pursuant to this subsection 3(c)(iv) for
the redemption of shares which are thereafter converted into shares of
Common Stock pursuant to Section 4 hereof no later than the close of
business on the Redemption Date shall be returned to this corporation
forthwith upon such conversion. The balance of any monies deposited by
this corporation pursuant to this subsection 3(c)(iv) remaining
unclaimed at the expiration of two years following the Redemption Date
shall thereafter be returned to this corporation, provided that the
stockholder to which such monies would be payable hereunder shall be
entitled, upon proof of its ownership of the Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Redemption Price, as the case may be, and payment of any bond
requested by this corporation, to receive such monies but without
interest from the Redemption Date.
4. Conversion. The holders of Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
(i) Subject to subsection 4(c), each share of Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such
share, at the office of this corporation or any transfer agent for such
series of Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the
Original Convertible Preferred Issue Price, Original Series A Issue
Price, Original Series B Issue Price, Original Series C Issue Price,
Original Series D Issue Price, Original Series E Issue Price, or
Original Series F Issue Price as the case may be, by the Conversion
Price at the time in effect for such series. The initial Conversion
Price per share for shares of Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be the Original Convertible Preferred Issue Price,
the Original Series A Issue Price, the Original Series B Issue Price,
the Original Series C Issue Price, the Original Series D Issue Price,
Original Series E Issue Price and Original Series F Issue Price,
respectively; provided, however, that the Conversion Price for the
Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock shall be subject
to adjustment as set forth in subsection 4(c).
(ii) (A) Each share of Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall
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<PAGE> 9
automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such series immediately upon the
consummation of this corporation's sale of its Common Stock in a bona
fide firm commitment underwriting pursuant to a registration statement
on Form S-1 under the Securities Act of 1933, as amended, which results
in gross offering proceeds to this corporation of at least $25,000,000,
the public offering price of which was not less than $7.50 per share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalization).
(B) Each share of Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect for such series immediately upon the
approval at least 66-2/3% of the outstanding shares of Preferred Stock
(excluding the vote of the Series F Preferred Stock), voting together in
accordance with Section 6 hereof.
(C) Each share of Series F Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion
Price at the time in effect immediately upon the approval of at least
66-2/3% of the outstanding shares of Series F Preferred Stock.
(b) Mechanics of Conversion. Before any holder of Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of this corporation or of any transfer agent for such series of
Preferred Stock, and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of such series of Preferred Stock, or to the nominee or nominees of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of such series of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offer of securities registered
pursuant to the Securities Act of 1933, as amended, the conversion may, at the
option of any holder tendering shares of such series of Preferred Stock for
conversion, be conditioned upon the closing with the underwriter of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of shares of such series
of Preferred Stock shall not be deemed to have converted such shares of such
series of Preferred Stock until immediately prior to the closing of such sale of
securities.
-8-
<PAGE> 10
(c) Conversion Price Adjustments of Convertible Preferred Stock, Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock. The
Conversion Price of the Convertible Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) (A) If this corporation shall issue any Additional Stock
(as defined below) without consideration or for a consideration per
share less than the Conversion Price for the Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock, as the case may be, in effect immediately
prior to the issuance of such Additional Stock, the new Conversion Price
shall be determined by multiplying the Conversion Price for such series
of Preferred Stock in effect immediately prior to the issuance of
Additional Stock by a fraction:
(x) the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance (for
purposes of this calculation only, including the number of shares of
Common Stock then issuable upon the conversion of all outstanding shares
of Preferred Stock at the Conversion Price for such shares in effect
immediately prior to such issuance of Additional Stock) plus the number
of shares of Common Stock equivalents which the aggregate consideration
received by this corporation for the shares of such Additional Stock so
issued would purchase at the Conversion Price for the shares of the
series of Preferred Stock with respect to which the adjustment is being
made; and
(y) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issuance (for
purposes of this calculation only, including the number of shares of
Common Stock then issuable upon the conversion of all outstanding shares
of Preferred Stock at the Conversion Price, for such shares in effect
immediately prior to such issuance of Additional Stock) plus the number
of such shares of Additional Stock so issued.
Any series of issuances of Additional Stock consisting of
Common Stock or the same series of Preferred Stock, issued at the same
price and occurring within a six-month period, shall be treated as one
issuance of Additional Stock for the purposes of this calculation.
(B) No adjustment of the Conversion Price for such series
of Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made
by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three
years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three years from the
date of the event giving rise to the adjustment being carried forward.
Except
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to the limited extent provided for in subsections 4(c)(E)(3) and
(c)(E)(4), no adjustment of such Conversion Price for such series of
Preferred Stock pursuant to this subsection 4(c)(i) shall have the
effect of increasing the Conversion Price for such series of Preferred
Stock above the Conversion Price for such series in effect immediately
prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors irrespective of any accounting
treatment.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase
or rights to subscribe for such convertible or exchangeable securities
(which are not excluded from the definition of Additional Stock), the
following provisions shall apply:
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued
at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the
manner provided in subsections 4(c)(i)(C) and (c)(i)(D)), if any,
received by the corporation upon the issuance of such options or
rights plus the minimum purchase price provided in such options
or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received
by this corporation for any such securities and related options
or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional
consideration, if any, to be received by this corporation upon
the conversion or exchange of such securities or the exercise of
any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 4(c)(i)(C)
and (c)(i)(D)).
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(3) In the event of any change in the number of shares of
Common Stock deliverable or any increase in the consideration
payable to this corporation upon exercise of such options or
rights or upon conversion of or in exchange for such convertible
or exchangeable securities, including, but not limited to, a
change resulting from the anti-dilution provisions thereof, the
Conversion Price of the Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock, as the case may be, obtained with
respect to the adjustment which was made upon the issuance of
such options, rights or securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion
or exchange of such securities; provided, however, that this
section shall not have any effect on any conversion of such
series of Preferred Stock prior to such change or increase.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible
or exchangeable securities, the Conversion Price of the
Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock or Series F Preferred Stock, as
the case may be, obtained with respect to the adjustment which
was made upon the issuance of such options, rights or securities
or options or rights related to such securities, and any
subsequent adjustments based thereon, shall be recomputed to
reflect the issuance of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights upon
the conversion or exchange of such securities or upon the
exercise of the options or rights related to such securities;
provided however that this section shall not have any effect on
any conversion of such series of Preferred Stock prior to such
expiration or termination.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection 4(c)(i)(E))
by this corporation after March 7, 1990, other than
(A) Common Stock issued pursuant to a transaction
described in subsection 4(c)(iii) hereof,
(B) 4,700,000 shares of Common Stock, net of repurchases
and the cancellation or expiration of options, issued or issuable to
employees, directors, consultants or advisors under stock option and
restricted stock purchase agreements approved by the Board of Directors
of this Corporation and such other number of shares of Common Stock as
may be fixed from time to time by the
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unanimous consent of the Board of Directors of this corporation,
issuable or issued to employees, directors, consultants or advisors of
this corporation directly or pursuant to stock option or restricted
stock purchase agreements approved by the directors of this corporation,
(C) Common Stock issued or issuable upon conversion of the
Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock,
(D) Common Stock issued or issuable upon conversion of
securities issued in connection with research and development
partnerships, licensing or collaborative arrangements between this
corporation and other institutions or entities,
(E) With respect to the Series D Preferred Stock and
calculation of the Series D Conversion Price, securities issued for a
consideration per share of at least $3.00 (adjusted to reflect
subsequent stock dividends, stock splits or recapitalization),
(F) With respect to the Series E Preferred Stock and
calculation of the Series E Conversion Price, securities issued for a
consideration per share of at least $4.20 (adjusted to reflect
subsequent stock dividends, stock splits or recapitalization), or
(G) With respect to the Series F Preferred Stock and
calculation of the Series F Conversion Price, securities issued for a
consideration per share of at least $4.50 (adjusted to reflect
subsequent stock dividends, stock splits or recapitalization).
(iii) In the event this corporation should at any time or from
time to time after the effective date hereof fix a record date for the
effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common
Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable
upon conversion or exercise thereof), then as of such record date (or
the date of such dividend distribution split or subdivision if no record
date is fixed), the Conversion Price of the Convertible Preferred Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, as the case may be, shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each
share of such
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<PAGE> 14
series shall be increased in proportion to such increase of outstanding
shares determined in accordance with subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the effective date hereof is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date
of such combination, the Conversion Price for the Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock, as the case may be, shall be appropriately
increased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be decreased in proportion
to such decrease in outstanding shares.
(v) Notwithstanding anything herein to the contrary, the
operation of, and any adjustment of the Conversion Prices pursuant to,
subsection 4(c)(i) may be waived with respect to any specific share or
shares of Preferred Stock, either prospectively or retroactively and
either generally or in a particular instance by a writing executed by
the registered holder of such share or shares. Any waiver pursuant to
this subsection 4(c)(v) shall bind all future holders of the shares of
Preferred Stock for which rights have been waived. In the event that a
waiver of adjustment of Conversion Price under this subsection 4(c)(v)
results in different Conversion Prices for shares of a series of
Preferred Stock, the Secretary of the corporation shall maintain a
written ledger identifying the Conversion Price for each share of such
series of Preferred Stock. Such information shall be made available to
any person upon request.
(d) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(c)(iii), then, in each such
case for the purpose of this subsection 4(d), the holders of Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of this corporation into which their shares of Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock, as the case may be, are convertible as of the record date fixed for the
determination of the holders of Common Stock of this corporation entitled to
receive such distribution.
(e) Recapitalization. If at any time or from time to time there shall be
a recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this Section 4 or
Section 5) provision shall be made so that the holders of Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock shall thereafter be entitled to receive upon conversion of such series of
Preferred Stock the number of shares of stock or other securities or property of
this corporation or otherwise, to which a holder of Common Stock deliverable
upon conversion
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<PAGE> 15
would have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of such series of Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of such series of Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock against
impairment.
(g) Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of the
Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock and the number of
shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of
shares of such series of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Convertible Preferred Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
pursuant to this Section 4, this corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of such series of
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. This corporation shall, upon the written
request at any time of any holder of such series of Preferred Stock
furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion
Price at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of such series of Preferred
Stock.
(h) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who
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<PAGE> 16
are entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, this corporation shall mail to each holder of Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of such series of Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of such series of
Preferred Stock, in addition to such other remedies as shall be available to the
holder of such series of Preferred Stock, this corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section 4 to
be given to the holders of shares of Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of this corporation.
5. Merger, Consolidation.
(a) If at any time after the effective date hereof, there is a merger,
consolidation or other corporate reorganization in which stockholders of this
corporation immediately prior to such transaction own less than 50% of the
voting securities of the surviving or controlling entity immediately after the
transaction, or sale of all or substantially all of the assets of this
corporation (hereinafter, an "Acquisition"), then, as a part of such
Acquisition, provision shall be made so that the holders of the Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be entitled to receive, prior to any distribution to
holders of Common Stock or other junior equity security of the corporation, the
number of shares of stock or other securities or property to be issued to this
corporation or its stockholders resulting from such Acquisition in an amount per
share equal to the Original Convertible Preferred Issue Price, Original Series A
Issue Price, Original Series B Issue Price, Original Series C Issue Price,
Original Series D Issue Price, $5.00 and Original Series F Issue Price,
respectively, plus, in each case, a further amount equal to any dividends
declared but unpaid on such shares. The holders of Common Stock shall thereafter
be entitled to receive, pro rata, the remainder of the number of
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<PAGE> 17
shares of stock or other securities or property to be issued to this corporation
or its stockholders resulting from such Acquisition.
(b) Any securities to be delivered to the holders of Preferred Stock and
Common Stock pursuant to subsection 5(a) above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three days prior to the closing;
(B) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the 30-day
period ending three days prior to the closing; and
(C) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the
corporation and the holders of not less than a majority of the then
outstanding shares of Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in
subsections 5(b)(i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined by this corporation and the
holders of a majority of the then outstanding shares of Preferred Stock.
(c) In the event the requirements of subsection 5(a) are not complied
with, this corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 5 have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of the
first notice referred to in subsection 5(d) hereof.
(d) This corporation shall give each holder of record of Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock written notice of such impending transaction not later than 20
days prior to the stockholders' meeting called to approve such transaction, or
20 days prior to the closing of such transaction, whichever is earlier, and
shall also notify such holders in writing of the final approval of such
transaction. The first of such
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<PAGE> 18
notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section 5, and this corporation shall
thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place earlier than 20 days after the
corporation has given the first notice provided for herein or earlier than ten
days after the corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the written
consent of the holders of a majority of the shares of the Preferred Stock then
outstanding.
(e) The provisions of this Section 5 are in addition to the protective
provisions of Section 7 hereof.
6. Voting Rights. The holder of each share of Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Preferred Stock could be converted on the record date for the vote or
written consent of stockholders. In all cases any fractional share, determined
on an aggregate conversion basis, shall be rounded to the nearest whole share.
With respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
7. Protective Provisions. In addition to any approvals required by law,
so long as shares of Convertible Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock are outstanding, this
corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Convertible Preferred Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock (voting, as one class, in
accordance with Section 6):
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) in
which this corporation is not the surviving corporation or effect any
transaction or series of related transactions in which more than 50% of the
voting power of this corporation is disposed of (provided, however, if the price
per share of the corporation pursuant to such transaction is less than $6.50,
such transaction will require the approval (by the vote or written consent, as
provided by law) of the holders of a majority of Series F Preferred Stock voting
as a separate class); or
(b) increase the authorized number of shares of Preferred Stock; or
(c) create (by reclassification or otherwise) any new class or series of
stock (i) having a preference over, or being on a parity with, the Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock with respect to voting, dividends or upon
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<PAGE> 19
liquidation, or (ii) having rights equal or superior to any of the rights of the
Convertible Preferred Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock under this Section 7; or
(d) pay or declare any dividend on its Common Stock or any other junior
equity security other than a dividend in Common Stock of this corporation; or
(e) do any act or thing which would result in taxation of the holders of
shares of Preferred Stock under section 305(b) of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
Notwithstanding the foregoing, the corporation shall not alter or change
the rights, preferences or privileges of the shares of Convertible Preferred
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock so as to affect adversely the shares of such series of Preferred Stock
without obtaining the approval (by vote or written consent, as required by law)
of the holders of a majority of the series of Preferred Stock so affected.
8. Status of Converted Stock. In the event any shares of Convertible
Preferred Stock, Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Series F
Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section
4 hereof, the shares so redeemed or converted shall be canceled and shall not be
issuable by the corporation, and the Restated Certificate of Incorporation of
this corporation shall be appropriately amended to effect the corresponding
reduction in this corporation's authorized capital stock.
9. No Preemptive Rights. The holders of the Convertible Preferred Stock,
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
shall not have any preemptive rights.
C. Common Stock.
1. Relative Rights of Preferred Stock and Common Stock. All preferences,
voting powers, relative, participating optional or other special rights and
privileges, and qualifications, limitations, or restrictions of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this Restated
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by such holder of record on the books of the
corporation for the election of directors and on all matters submitted to a vote
of stockholders of the corporation.
3. Dividends. Subject to the preferential rights of the Preferred Stock,
the holders of shares of Common Stock shall be entitled to receive, when and if
declared by the board of directors, out of the assets of the corporation which
are by law available therefor, dividends payable either in cash, in property or
in shares of capital stock.
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<PAGE> 20
4. Dissolution, Liquidation or Winding Up. In the event of any
dissolution, liquidation or winding up of the affairs of the corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of Common Stock shall be
entitled to participate in any distribution of the assets of the corporation in
accordance with Section 2 of Article IV, Division B hereof.
ARTICLE V
The corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware:
A. The board of directors of the corporation is expressly authorized to
adopt, amend or repeal the bylaws of the corporation; provided, however, that
the bylaws may only be amended in accordance with the provisions thereof.
B. Elections of directors need not be by written ballot unless the
bylaws of the corporation shall so provide.
C. The books of the corporation may be kept at such place within or
without the State of Delaware as the bylaws of the corporation may provide or as
may be designated from time to time by the board of directors of the
corporation.
ARTICLE VII
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
ARTICLE VIII
The corporation reserves the right to amend or repeal any provision
contained in this Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
FIFTH. This Restated Certificate of Incorporation was duly adopted by
the Board of Directors of this corporation.
SIXTH. This Restated Certificate of Incorporation was duly adopted by
written consent of the stockholders in accordance with sections 228, 245 and 242
of the General Corporation Law of the State of Delaware and written notice of
such action has been given as provided in section 228.
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IN WITNESS WHEREOF, said Applied Molecular Evolution, Inc. has caused
this certificate to be signed by its President and Chief Executive Officer,
William D. Huse, and its Secretary, Lawrence E. Bloch, this 28th day of April,
2000.
APPLIED MOLECULAR EVOLUTION, INC.
By /S/ WILLIAM D. HUSE
------------------------------------
William D. Huse
President and Chief Executive Officer
Attest:
/S/ LAWRENCE E. BLOCH
- -----------------------------------
Lawrence E. Bloch
Secretary
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<PAGE> 1
EXHIBIT 3.(ii).1
As adopted September 21, 1989
BYLAWS
OF
IXSYS INC.
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at such place within or without the State of Delaware as may be fixed from
time to time by the board of directors or the chief executive officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be held
on the second Tuesday in April in each year if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 A.M., or at such
other date and time as shall be designated from time to time by the board of
directors or the chief executive officer, at which meeting the stockholders
shall elect by a plurality vote a board of directors and shall transact such
other business as may properly be brought before the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the board of
directors shall cause the meeting to be held as soon thereafter as convenient,
which meeting shall be designated a special meeting in lieu of annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the board of directors or the chief
executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning ten percent of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten nor more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 5. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or town where
the meeting is to be held, which place shall be
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specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these bylaws.
Section 7. Adjournments. Any meeting of stockholders may be adjourned
from time to time to any other time and to any other place at which a meeting of
stockholders may be held under these bylaws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote, though less than a
quorum, or, if no stockholder is present or represented by proxy, by any officer
entitled to preside at or to act as secretary of such meeting, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 8. Action at Meetings. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock present in person or
represented by proxy and entitled to vote on the question shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of law, the certificate of incorporation or these bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 9. Voting and Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period.
Section 10. Action Without Meeting. Any action required to be taken at
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
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ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
directors which shall constitute the whole board shall not be less than one nor
more than five. Within such limit, the number of directors shall be determined
by resolution of the board of directors or by the stockholders at the annual
meeting or at any special meeting of stockholders. The directors shall be
elected at the annual meeting or at any special meeting of the stockholders,
except as provided in Section 3 of this Article, and each director elected shall
hold office until his successor is elected and qualified, unless sooner
displaced. Directors need not be stockholders.
Section 2. Enlargement. The number of the board of directors may be
increased at any time by vote of a majority of the directors then in office.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. In the
event of a vacancy in the board of directors, the remaining directors, except as
otherwise provided by law or these bylaws, may exercise the powers of the full
board until the vacancy is filled.
Section 4. Resignation and Removal. Any director may resign at any time
upon written notice to the corporation at its principal place of business or to
the chief executive officer or the secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event. Any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors, unless otherwise
specified by law or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the corporation
shall be managed by its board of directors, which may exercise all powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these bylaws directed or required to be
exercised or done by the stockholders.
Section 6. Chairman of the Board. If the board of directors appoints a
chairman of the board, he shall, when present, preside at all meetings of the
stockholders and the board of directors. He shall perform such duties and
possess such powers as are customarily vested in the office of the chairman of
the board or as may be vested in him by the board of directors.
Section 7. Place of Meetings. The board of directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 8. Regular Meetings. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board; provided that any director who is absent when
such a determination is made shall be given prompt notice of such determination.
A regular meeting of the board of directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
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Section 9. Special Meetings. Special meetings of the board may be called
by the chief executive officer, secretary, or on the written request of two or
more directors, or by one director in the event that there is only one director
in office. Two days notice to each director, either personally or by telegram,
cable, telecopy, commercial delivery service, telex or similar means sent to his
business or home address, or three days notice by written notice deposited in
the mail, shall be given to each director by the secretary or by the officer or
one of the directors calling the meeting. A notice or waiver of notice of a
meeting of the board of directors need not specify the purposes of the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of
the board, a majority of directors then in office, but in no event less than one
third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these bylaws; provided, however, that if less
than all the number so fixed of directors were elected, the "entire board" shall
mean the greatest number of directors so elected to hold office at any one time
pursuant to such authorization. If a quorum shall not be present at any meeting
of the board of directors, a majority of the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution designating such committee or the certificate of
incorporation expressly so provide, no such committee shall have the power or
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authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and make such reports to the board of
directors as the board of directors may request. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these bylaws for the conduct of its business by the board of
directors.
Section 14. Compensation. Unless otherwise restricted by the certificate
of incorporation or these bylaws, the board of directors shall have the
authority to fix from time to time the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the board
of directors and the performance of their responsibilities as directors and may
be paid a fixed sum for attendance at each meeting of the board of directors
and/or a stated salary as director. No such payment shall preclude any director
from serving the corporation or its parent or subsidiary corporations in any
other capacity and receiving compensation therefor. The board of directors may
also allow compensation for members of special or standing committees for
service on such committees.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
by the board of directors and shall be a president, a secretary and a treasurer
and such other officers with such titles, terms of office and duties as the
board of directors may from time to time determine, including a chairman of the
board, one or more vice-presidents, and one or more assistant secretaries and
assistant treasurers. If authorized by resolution of the board of directors, the
chief executive officer may be empowered to appoint from time to time assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the certificate of incorporation or these bylaws otherwise
provide.
Section 2. Election. The board of directors at its first meeting after
each annual meeting of stockholders shall choose a president, a secretary and a
treasurer. Other officers may be appointed by the board of directors at such
meeting, at any other meeting, or by written consent.
Section 3. Tenure. The officers of the corporation shall hold office
until their successors are chosen and qualify, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal. Any officer elected or appointed by the board of
directors or by the chief executive officer may be removed at any time by the
affirmative vote of a majority of the board of directors or a committee duly
authorized to do so, except that any officer appointed by the chief executive
officer may also be removed at any time by the chief executive officer. Any
vacancy occurring in any office of the corporation may be filled by the board of
directors, at its discretion. Any officer may resign by delivering his written
resignation to the corporation at its principal place of business or to the
chief executive officer or the secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event.
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Section 4. President. The president shall be the chief operating officer
of the corporation. He shall also be the chief executive officer unless the
board of directors otherwise provides. The president shall, unless the board of
directors provides otherwise in a specific instance or generally, preside at all
meetings of the stockholders and the board of directors, have general and active
management of the business of the corporation and see that all orders and
resolutions of the board of directors are carried into effect. The president
shall execute bonds, mortgages, and other contracts requiring a seal, under the
seal of the corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be expressly delegated by the board of directors to some other officer or
agent of the corporation.
Section 5. Vice-Presidents. In the absence of the president or in the
event of his inability or refusal to act, the vice-president, or if there be
more than one vice-president, the vice-presidents in the order designated by the
board of directors or the chief executive officer (or in the absence of any
designation, then in the order determined by their tenure in office) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The
vice-presidents shall perform such other duties and have such other powers as
the board of directors or the chief executive officer may from time to time
prescribe.
Section 6. Secretary. The secretary shall have such powers and perform
such duties as are incident to the office of secretary. He shall maintain a
stock ledger and prepare lists of stockholders and their addresses as required
and shall be the custodian of corporate records. The secretary shall attend all
meetings of the board of directors and all meetings of the stockholders and
record all the proceedings of the meetings of the corporation and of the board
of directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the board of
directors, and shall perform such other duties as may be from time to time
prescribed by the board of directors or chief executive officer, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he, or an assistant secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 7. Assistant Secretaries. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the board
of directors, the chief executive officer or the secretary (or if there be no
such determination, then in the order determined by their tenure in office),
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors, the chief executive officer or the secretary may from time to time
prescribe. In the absence of the secretary or any assistant secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary or acting secretary to keep a record of the meeting.
Section 8. Treasurer. The treasurer shall perform such duties and shall
have such powers as may be assigned to him by the board of directors or the
chief executive officer. In addition, the treasurer shall perform such duties
and have such powers as are incident to the office of treasurer. The treasurer
shall have the custody of the corporate funds and securities and shall
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keep full and accurate accounts of receipts and disbursements in books belonging
to the corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the corporation in such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, taking proper vouchers
for such disbursements, and shall render to the chief executive officer and the
board of directors, when the chief executive officer or board of directors so
requires, an account of all his transactions as treasurer and of the financial
condition of the corporation.
Section 9. Assistant Treasurers. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors, the chief executive officer or the treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors, the chief executive officer or the treasurer may from time to time
prescribe.
Section 10. Bond. If required by the board of directors, any officer
shall give the corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the board of
directors, including without limitation a bond for the faithful performance of
the duties of his office and for the restoration to the corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of the
certificate of incorporation or these bylaws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Unless written notice by mail is required by law, written notice
may also be given by telegram, cable, telecopy, commercial delivery service,
telex or similar means, addressed to such director or stockholder at his address
as it appears on the records of the corporation, in which case such notice shall
be deemed to be given when delivered into the control of the persons charged
with effecting such transmission, the transmission charge to be paid by the
corporation or the person sending such notice and not by the addressee. Oral
notice or other in-hand delivery (in person or by telephone) shall be deemed
given at the time it is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of law or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
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ARTICLE V
INDEMNIFICATION
Section 1. Actions Other than by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Actions by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery of the State
of Delaware or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person
described in Section 1 or 2 of this Article V has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in said
Sections, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 4. Specific Authorization. Any indemnification under Section 1
or 2 of this Article V (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of any person described in said Sections
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is proper in the circumstances because he has met the applicable standard of
conduct set forth in said Sections. Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders of the corporation.
Section 5. Advance Payment. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized by the
board of directors in the manner provided for in Section 4 of this Article V
upon receipt of an undertaking by or on behalf of any person described in said
Section to repay such amount unless it shall ultimately be determined that he is
entitled to indemnification by the corporation as authorized in this Article V.
Section 6. Non-Exclusivity. The indemnification provided by this Article
V shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be director, officer, employee or
agent of the corporation and shall inure to the benefit of the heirs, executors
and administrators of such a person.
Section 7. Insurance. The board of directors may authorize, by a vote of
the majority of the full board, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
Section 8. Severability. If any word, clause or provision of this
Article V or any award made hereunder shall for any reason be determined to be
invalid, the provisions hereof shall not otherwise be affected thereby but shall
remain in full force and effect.
Section 9. Intent of Article. The intent of this Article V is to provide
for indemnification to the fullest extent permitted by section 145 of the
General Corporation Law of Delaware. To the extent that such Section or any
successor section may be amended or supplemented from time to time, this Article
V shall be amended automatically and construed so as to permit indemnification
to the fullest extent from time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice-chairman of the board of directors,
or the president or a vice-president and the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation. Any or all of
the signatures on the certificate
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may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Certificates may be issued for partly paid shares and in such case upon the face
or back of the certificates issued to represent any such partly paid shares, the
total amount of the consideration to be paid therefor, and the amount paid
thereon shall be specified.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to give
reasonable evidence of such loss, theft or destruction, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and proper evidence of compliance with other conditions to rightful
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty days nor less then ten days before the date
of such meeting, nor more than sixty days prior to any other action to which
such record date relates. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting. If no record date is fixed, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day before the day on
which notice is given, or, if notice is waived, at the close of business on the
day before the day on which the meeting is held. The record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the board of directors is necessary, shall be
the day on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating to
such purpose.
Section 5. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to
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or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the board or committee thereof which
authorizes the contract or transaction or solely because his or their votes are
counted for such purpose, if:
(a) the material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the board
of directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the board of
directors, a committee thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, if any, may be declared by the board of directors at any regular or
special meeting or by written consent, pursuant to law. Dividends may be paid in
cash, in property, or in shares of the capital stock, subject to the provisions
of the certificate of incorporation.
Section 2. Reserves. The directors may set apart out of any funds of the
corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
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Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 5. Seal. The board of directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
otherwise reproduced. The seal may be altered from time to time by the board of
directors.
ARTICLE IX
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new bylaws be
contained in the notice of such meeting.
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Amendment to the Bylaws of Ixsys, Inc.
As adopted by the resolution of the Board of Directors on May 26, 1992.
RESOLVED, that the first sentence of Section 1. of Article II of the
By-Laws of the corporation is hereby amended to read in full as follows:
The number of directors which shall constitute the whole
board shall be as fixed from time to time by resolution of
the Board of Directors or by the stockholders at the annual
meeting or at any special meeting of stockholders.
<PAGE> 1
EXHIBIT 4.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 24th
day of February, 1999 by and between IXSYS, INC, a Delaware corporation (the
"Company"), and MedImmune, Inc. ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and Purchaser have entered into a License Agreement
dated as of even date herewith (the "License Agreement") pursuant to which the
Company has granted the Purchaser a license to certain technology; and
WHEREAS, pursuant to Section 6.13 of the License Agreement, the
Purchaser has agreed to purchase the Common Stock described in this Agreement on
the terms and conditions set forth herein:
NOW, THEREFORE, the parties hereby agree as follows:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Common Stock. Subject to the terms and
conditions of this Agreement, Purchaser agrees to purchase and the Company
agrees to sell and issue to Purchaser 907,143 shares of the Company's Common
Stock at the Closing for a purchase price (the "Purchase Price") of $7.00 per
share.
1.2 Closing. The purchase and sale of the Common Stock shall take place
at the offices of the Company at 3520 Dunhill Street, San Diego, California, at
10:00 A.M. on February 24, 1999 (the "Closing"). At the Closing the Company
shall deliver to Purchaser a certificate representing the Common Stock which
Purchaser is purchasing against delivery to the Company by Purchaser of a bank
wire in the amount of $6,350,001.00 payable to the Company's order.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser that:
2.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted and is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which
qualification is necessary under applicable law, except where the failure to be
so qualified would not have a material adverse effect on its business.
2.2 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and
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the authorization, issuance and delivery of the Common Stock being sold
hereunder, to the extent that the foregoing requires performance on or prior to
the Closing, has been taken or will be taken on or prior to the Closing, and
this Agreement constitutes a valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms.
2.3 Valid Issuance of Common Stock. The Common Stock which is being
purchased by Purchaser hereunder, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable.
2.4 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for any post-sale filings pursuant to
applicable state securities laws, which filings will be effected within the
applicable time periods.
2.5 No Conflicts. Neither the execution, delivery and performance of
this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby will result in the breach or violation of any
of the terms and provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company or any of its
properties, (ii) any agreement or instrument to which the Company is a party or
by which the Company is bound or to which any of the properties of the Company
is subject or (iii) the certificate of incorporation or by-laws or other
organizational documents of the Company, which breach or violation would be
materially adverse to the Company.
2.6 Capitalization. At the Closing, the authorized capital stock of the
Company will be (i) 22,450,000 shares of Common Stock and (ii) 11,810,666 shares
of Preferred Stock. Immediately prior to the Closing, 1,660,978 shares of common
stock and 11,640,124 shares of preferred stock (convertible as of the Closing
into 11,640,124 shares of Common Stock) were issued and outstanding.
3. Representations, Warranties and Covenants of Purchaser. Purchaser
hereby represents, warrants and covenants that:
3.1 Authorization. This Agreement constitutes its valid and legally
binding obligation.
3.2 No Conflicts. Neither the execution, delivery and performance of
this Agreement by Purchaser nor the consummation by Purchaser of the
transactions contemplated hereby will result
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in the breach or violation of any of the terms and provisions of, or constitute
a default under, any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic or foreign, having jurisdiction over
Purchaser or any of its properties, (ii) any agreement or instrument to which
Purchaser is a party or by which Purchaser is a party or by which Purchaser is
bound or to which any of the properties of Purchaser is subject or (iii) the
certificate of incorporation or by-laws or other organizational documents of
Purchaser, which breach or violation would be materially adverse to Purchaser.
3.3 Purchase Entirely for Own Account. This Agreement is made with
Purchaser in reliance upon Purchaser's representation to the Company, which by
Purchaser's execution of this Agreement Purchaser hereby confirms, that the
Common Stock will be acquired for investment for Purchaser's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that Purchaser has no present intention of selling, granting
any participation in, or otherwise distributing the same. By executing this
Agreement, Purchaser further represents that Purchaser does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Common Stock. Purchaser represents that it has full power
and authority to enter into this Agreement.
3.4 Investment Experience. Purchaser acknowledges that it is able to
fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of the investment in the Common Stock.
3.5 Restricted Common Stock. Purchaser understands that the shares of
Common Stock it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act of 1933, as amended (the "Securities Act"), only in certain
limited circumstances. In this connection Purchaser represents that it is
familiar with Securities and Exchange Commission (the "SEC") Rule 144, as
presently in effect, and understands the resale limitations imposed thereby and
by the Securities Act.
3.6 Accredited Investor. Purchaser is an accredited investor as defined
in Rule 501(a) of Regulation D of the SEC under the Securities Act.
3.7 Confidentiality. Purchaser hereby represents, warrants and covenants
that it shall maintain in confidence, and shall not use or disclose without the
prior written consent of the Company, any information identified as
confidential that is furnished to it by the Company in connection with this
Agreement (as opposed to information furnished pursuant to the License
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<PAGE> 4
Agreement or other agreements between the parties). This obligation of
confidentiality shall not apply, however, to any information (a) in the public
domain through no unauthorized act or failure to act by Purchaser, (b) lawfully
disclosed to Purchaser by a third party who possessed such information without
any obligation of confidentiality, (c) known previously by Purchaser or lawfully
developed by Purchaser independent of any disclosure by the Company or (d)
required to be disclosed by applicable law, regulation or bona fide legal
process provided Purchaser takes reasonable steps to restrict and maintain the
confidentiality of such disclosure and provides reasonable prior notice to the
Company. Purchaser further covenants that Purchaser shall return to the Company
all tangible materials containing such information upon request by the Company.
This confidentiality covenant shall expire, as to any particular disclosure,
five years after such disclosure.
3.8 Right of First Offer in Favor of the Company. Before any shares of
the Common Stock purchased hereunder may be sold or transferred, such shares
shall first be offered to the Company as follows:
(a) Purchaser shall promptly deliver a notice to the Company
stating (i) its bona fide intention to sell or transfer such shares, (ii) the
number of such shares to be sold or transferred, and the basic terms and
conditions of such sale or transfer, (iii) the price for which it proposes to
sell or transfer such shares, and (iv) proof satisfactory to the Company that
the proposed sale or transfer will not violate any applicable federal or state
securities laws. The notice shall be signed by Purchaser and state that
Purchaser has a binding commitment to sell the number of shares specified in
such notice to a third party on the terms stated in such notice.
(b) Within 30 days after the receipt of the notice (the "Notice
Period"), the Company may elect to purchase all or a portion of the shares to
which such notice refers, at the price per share specified in the notice. The
election to purchase shall be made by written notice to Purchaser. If the
Company elects not to purchase all such shares, the Company may assign its
rights to purchase any shares not purchased by the Company.
(c) If all of the shares to which the notice refers are not
elected to be purchased, as provided in subparagraph 3.8(b) hereof, Purchaser
may sell the shares to the purchaser or transferee disclosed to the Company as
provided below at a price not less than the price specified in the notice,
provided that (i) Purchaser has disclosed to the Company the identity of the
proposed purchaser or transferee within five (5) business days of expiration of
the Notice Period and prior to consummation of the sale or transfer, (ii) such
sale or transfer is consummated within three months of the date of said notice
to the Company, and (iii) any such sale is made in compliance with applicable
federal and state securities laws and not in violation of any other contractual
restrictions to which Purchaser is bound. The
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<PAGE> 5
third-party purchaser shall acquire the shares of stock subject to the Company's
rights of first offer and shall require compliance with the procedures described
in this Section 3.8.
(d) Any proposed transfer on terms and conditions different from
those set forth in the notice, as well as any subsequent proposed transfer shall
again be subject to the Company's rights of first offer and shall
require compliance with the procedures described in this Section 3.8.
(e) Notwithstanding anything to the contrary contained in this
Agreement, this Section 3.8 shall be terminated and shall have no further force
and effect six (6) months after the effective date of the Company's registration
of its common equity securities pursuant to Section 12 of the Securities
Exchange Act of 1934 (the "34 Act Registration").
3.9 Further Limitations on Disposition. Without in any way limiting the
representations set forth above and notwithstanding the provisions of Section
3.8, Purchaser further agrees that:
(a) Purchaser shall not directly or indirectly sell, offer to
sell, contract to sell, grant any option to purchase or otherwise transfer or
dispose of all or any portion of the Common Stock purchased hereunder, in
violation of the Securities Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or the rules of the Commission promulgated thereunder,
including Rule 144 under the Securities Act. If reasonably requested by the
Company, Purchaser shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company and its counsel, that any permitted
transfer or 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, as currently in existence,
except in unusual circumstances.
(b) During the period commencing as of the Closing until three
months following the conclusion of the last research and development program
conducted pursuant to the Research and Assignment and License Agreements entered
into between Purchaser and the Company simultaneously herewith or which may
later be entered into pursuant to the Selection Agreement entered into between
Purchaser and the Company simultaneously herewith the number of shares of Common
Stock of the Company purchased hereunder which Purchaser may, directly or
indirectly, sell, offer to sell, contract to sell, grant any option to purchase
or otherwise transfer or dispose of during the preceding one hundred eighty
(180) days shall not exceed six percent (6%) of the Company's outstanding Common
Stock or Common Stock into which outstanding Preferred Stock of the Company is
then convertible.
(c) During the period commencing as of the effective date of the
Company's 34 Act Registration until two hundred
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seventy (270) days thereafter Purchaser shall not, directly or indirectly sell,
offer to sell, contract to sell, grant any option to purchase or otherwise
transfer or dispose of (i) any of the Common Stock purchased hereunder pursuant
to this Agreement at any time during the first one hundred eighty (180) day(s)
of such period and (ii) not more than ninety (90) day(s) of the Common Stock
purchased hereunder at any time during the succeeding fifty percent (50%) of
such period.
(d) Prior to Purchaser entering into any agreement or commitment
to sell, grant options to purchase or otherwise transfer or dispose of any
shares of Common Stock purchased hereunder, Purchaser agrees to provide the
Board of Directors or President of the Company at least fourteen (14) days prior
written notice of Purchaser's intent to transfer or dispose of such shares and
to discuss with the Company in good faith a plan for transferring or disposing
of the shares in any orderly fashion.
(e) Without limiting the foregoing, prior to the effective date
of the Company's 34 Act Registration, Purchaser shall not, without the prior
written consent of the Company, directly or indirectly sell, offer to sell,
grant an option to purchase or otherwise transfer or dispose of any of the
Common Stock to any person engaged in any business directly competitive with the
Company. For purposes of this subsection 3.9(d) "directly competitive" shall
mean the field of protein engineering, or such other technology field in which
at least twenty-five percent (25%) of the Company's work force (on a full time
equivalent basis) is engaged at the time of the proposed transfer.
3.10 Standstill Provisions. Commencing as of the Closing and until the
first anniversary of the effective date of the Company's 34 Act Registration,
Purchaser (including all affiliates or agents of Purchaser) shall not acquire
beneficial ownership of any shares of common stock of the Company, any
securities convertible into or exchangeable for common stock, or any other right
to acquire common stock, except by way of stock dividends or other distributions
to Purchaser as a holder of the Common Stock generally, from the Company or any
other person or entity, without the prior written consent of the Company, which
consent may be withheld in the Company's sole discretion, if such acquisition
should cause Purchaser (including all affiliates of Purchaser) to beneficially
own more than ten percent (10%) of the Company's outstanding voting stock
(assuming the full conversion of all convertible securities of the Company held
by Purchaser and its affiliates); provided, however, that in no event shall (i)
the original purchase of the Common Stock pursuant to this Agreement, (ii) the
purchase of additional shares of Common Stock in lieu of milestone payments
payable pursuant to the License Agreement or (iii) any reduction in the
outstanding shares of the Company's capital stock (or rights or options), cause
a violation of this Section 3.10. In order to facilitate Purchaser's compliance
with this Section 3.10, upon the written request of Purchaser the Company shall
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inform Purchaser of the number of outstanding shares of the Company's voting
stock, and Purchaser may rely on such information in any purchase it makes
within 30 days of the receipt of such information.
3.11 Voting Agreement. Purchaser agrees that it shall, so long as it
holds shares of the Company's Common Stock, vote such shares with respect to any
proposed sale of all or substantially all of the assets, merger, combination or
reorganization of the Company in the same manner as stockholders holding a
majority of the voting securities of the Company and who are not themselves a
party to any such sale, merger, combination or reorganization. This Section 3.11
shall terminate and shall have no further force and effect twelve (12) months
after the effective date of the Company's 34 Act Registration.
3.12 Legends. It is understood that the certificates evidencing the
Common Stock may bear one or all of the following legends:
(a) "The securities represented by this certificate have not been
registered under the Securities Act of 1933. They may not be sold, offered for
sale, pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of counsel
satisfactory to the Company that such registration is not required or unless
sold pursuant to Rule 144 of such Act."
(b) "The securities represented by this certificate are subject
to certain rights of first offer and repurchase and certain restrictions on
resale set forth in the Stock Purchase Agreement dated February 24, 1999 between
the Company and MedImmune, Inc. A copy of such restrictions and rights of first
offer and repurchase may be obtained from the Company upon request."
(c) Any legend required by the laws of the State of California or
other jurisdiction.
3.13 Stop-Transfer Instructions. In order to enforce the provisions of
Sections 3.8 and 3.9 hereof, the Company may impose stop-transfer instructions
with respect to the shares of the Common Stock held by Purchaser (and the shares
or securities of every other person subject to the foregoing restrictions).
3.14 Transfers to Affiliates. Notwithstanding the provisions of Sections
3.8 and 3.9(b) and (c) hereof, Purchaser may transfer the Common Stock to any
affiliate of Purchaser who agrees to be bound by the terms of this Agreement.
For purposes of this Section 3.14, "affiliate" shall mean any entity which
controls or is controlled by Purchaser, and "control" shall mean ownership of at
least fifty percent (50%) of the voting stock or other ownership interest.
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4. California Commissioner of Corporations.
4. 1 Corporate Securities Law. THE SALE OF THE COMMON STOCK WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH COMMON STOCK OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF COMMON STOCK IS EXEMPT FROM
QUALIFICATIONS BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Covenants.
5.1 Delivery of Financial Statements. The Company shall deliver to
Purchaser such financial statements of the Company which the Company from time
to time distributes to other holders of the Company's Common Stock, concurrently
with such distribution.
5.2 Registration Rights. Purchaser shall have such registration rights
with respect to the Common Stock as are set forth on EXHIBIT A attached hereto;
provided, however, that Purchaser shall agree to be bound by the provisions of
such EXHIBIT A as a condition precedent to the enjoyment of any such rights and,
at the written request of the Company in connection with any request by
Purchaser to exercise such rights, Purchaser shall execute a specific
acknowledgment and agreement to be so bound (or else Purchaser shall be deemed
to have forfeited such rights).
6. Miscellaneous
6.1 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
6.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California (irrespective of its choice of law
principles).
6.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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<PAGE> 9
6.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified (or upon the date of
attempted delivery where delivery is refused) or, if sent by telecopier, telex,
telegram, or other facsimile means, upon receipt of appropriate confirmation of
receipt, or upon deposit with the United States Postal Service, by registered or
certified mail, or next day air courier, with postage and fees prepaid and
addressed to the party entitled to such notice at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by 10 days, advance written notice to the other parties to this
Agreement.
6.6 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Purchaser agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Purchaser or any of its officers, partners, employees or
representatives is responsible.
The Company agrees to indemnify and hold harmless Purchaser from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or is
responsible.
6.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and
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either retroactively or prospectively), only with the written consent of the
Company and the holders of a majority of the Common Stock purchased under this
Agreement. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of Common Stock purchased under this Agreement
at the time outstanding, each future holder of such Common Stock, and the
Company.
6.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
6.9 Entire Agreement. This Agreement and the Related Agreements embody
the entire agreement and understanding of the parties hereto and thereto in
respect of the subject matter contained herein and therein and supersede all
prior agreements and understandings between the parties with respect to such
subject matter. No party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein or therein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
IXSYS, INC.
By /s/ JANINE TAYLOR
-------------------------------------
Janine Taylor
President
Address: 3520 Dunhill Street
San Diego, CA 92121
MEDIMMUNE, INC.
By /s/ [Signature Illegible]
-------------------------------------
Address: 35 West Watkins Mill Road
Gaithersburg, MD 20878
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EXHIBIT A
REGISTRATION RIGHTS
Subject to each Holder (as defined below) acknowledging and agreeing to
be bound by the terms of this Exhibit A such Holder shall have the rights set
forth herein with respect to such Holder's Registrable Securities (as defined
below).
1. Definitions. For purposes of this Exhibit A:
1.1 The term "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
1.2 The term "REGISTRABLE SECURITIES" means (a) the shares of the
Common Stock issued pursuant to the Stock Purchase Agreement dated February 24
1999 between the Company and MedImmune, Inc. ("MedImmune"), (b) any shares of
Common Stock purchased by MedImmune pursuant to Section 6.12(d) of the License
Agreement, effective as of February 24, 1999, between the Company and MedImmune
and (c) any Common Stock 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
Common Stock, excluding in all cases, however, any Registrable Securities sold
by a person in a transaction in which such person's registration rights are not
assigned;
1.3 The term "HOLDER" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 10 below; and
1.4 The term "PREFERRED REGISTRABLE SECURITIES" means (a) the
Common Stock issued upon the conversion of the Company's currently outstanding
Convertible Preferred Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
and (b) any Common Stock 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
Preferred Stock or Common Stock.
1.5 The term "Combined Registrable Securities" means the
Registrable Securities and the Preferred Registrable Securities in the
aggregate.
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2. Request for Registration.
2.1 If the Company shall receive at any time after one year after
the effective date of the first registration statement for a public offering of
securities of the Company (other than a registration statement relating either
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or a SEC Rule 145 transaction), a written
request from the Holders of at least twenty-five percent (25%) of the
Registrable Securities and holders of at least 25% of the Preferred Registrable
Securities then outstanding that the Company file a registration statement under
the Securities Act covering the registration of at least 20% of the Combined
Registrable Securities then outstanding (or a lesser percent if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $7,500,000), then the Company shall, within 10 days of the receipt
thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 2.2 and Section 8, file as soon as practicable,
and in any event within 60 days of the receipt of such request, a registration
statement under the Securities Act covering all Registrable Securities which the
Holders request to be registered within 20 days of the mailing of such notice by
the Company. To facilitate a Holder's exercise of the rights granted under this
Section 2, upon request the Company shall furnish to such Holder the names and
addresses (if in the Company's possession) of the holders of the Preferred
Registrable Securities.
2.2 If the holders of the Combined Registrable Securities
initiating the registration request hereunder ("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 and the Company shall include such information in the
written notice referred to in subsection 2.1. In such event, the right of any
Holder to include such Holder's 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 (together with the
Company as provided in subsection 4.5) 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 and consented
to by the Company (which consent shall not be unreasonably withheld).
Notwithstanding any other provision of this Section 2, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall advise all Holders of Registrable Securities which would otherwise
be underwritten pursuant hereto of the number of shares of Registrable
Securities, if any, that may be included in the
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underwriting after giving effect to the superior rights of the holders of
Preferred Registrable Securities as set forth in Section 8, which shares shall
be allocated among all Holders thereof, in proportion (as nearly as practicable)
to the amount of Registrable Securities of the Company owned by each Holder.
2.3 The Company is obligated to effect only one such registration
pursuant to this Section 2 on behalf of the Holders; provided, however, that the
Company shall not be obligated to effect a registration pursuant to this Section
2 if within the 12 months immediately preceding a request hereunder the Company
has effected a demand registration on behalf of holders of Preferred Registrable
Securities pursuant to registration rights granted to such holders.
2.4 Notwithstanding the foregoing, if the Company shall furnish
to Initiating Holders requesting a registration statement pursuant to this
Section 2 a certificate signed by the President 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 stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any 12-month period.
3. Company Registration. If at any time (but without any obligation to
do so) the Company proposes to register any of its stock or other securities
under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or an SEC Rule 145
transaction, or a registration on any form which does not include substantially
the same information as would be required to be included in a registration
statement covering the sale of the Registrable Securities), the Company shall,
at such time, promptly give each Holder written notice of such registration.
Upon the written request of each Holder given within 20 days after mailing of
such notice by the Company to the address for each such Holder as reflected in
the records of the Company, the Company shall, subject to the provisions of
Sections 7 and 8 below, cause to be registered under the Securities Act all of
the Registrable Securities that each such Holder has requested to be registered.
In the event a Holder determines not to include any or all of the Registrable
Securities held by such Holder in any such registration, such Holder shall
continue to have the right to include such Registrable Securities in any
subsequent registration, pursuant to the terms of this Section 3.
4. Obligations of the Company. Whenever required under this Exhibit A to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
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4.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best 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 120 days.
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.
4.3 Furnish to the Holders such numbers 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.
4.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
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 of such offering. Any Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
4.6 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.
4.7 Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Exhibit A on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Exhibit A 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 such date, of the counsel
representing the
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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 to the Holders requesting registration of
Registrable Securities and (ii) a letter dated 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, if any, and to
the Holders requesting registration of Registrable Securities.
5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Exhibit A 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 the Registrable Securities.
6. Expenses of Registration.
6.1 All expenses other than underwriting discounts and
commissions incurred in connection with registrations, filings or qualifications
pursuant to Section 2, including (without limitation) all registration, filing
and qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel for the Initiating Holders shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2 if the registration request
is subsequently withdrawn at the request of the holders of a majority of the
Combined Registrable Securities to be registered (in which case all
participating Holders shall bear their pro rata share of such expenses), unless
the holders of a majority of the Registrable Securities agree to forfeit their
right to one demand registration pursuant to Section 2; provided, however, that
if at the time of such withdrawal, the Initiating Holders have learned of a
material adverse change in the condition, business or prospects of the Company
from that known to the Holders at the time of their request, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 2.
6.2 The Company shall bear and pay all expenses incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to registrations pursuant to Section 3 above for each
Holder (which right may be assigned as provided in Section 12 below), including
(without limitation) all registration, filing and qualification fees, printers,
and accounting fees relating or apportionable thereto but excluding underwriting
discounts and commission relating to Registrable Securities. The Holders may
select their own counsel but any fees and disbursements of such counsel shall be
paid for by the Holders, and the Company shall have no obligation for such fees
and disbursements.
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7. Underwritings and Cut-Backs.
(a) In connection with any offering involving an underwriting of
shares being issued by the Company, the Company shall not be required under
Section 3 above to include any of the Holders, securities in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it, and then only in such quantity as
will not, in the opinion of the underwriters, jeopardize the success of the
offering by the Company. Notwithstanding the foregoing, the Holders may at any
time upon notice to the Company withdraw from registration any Registrable
Securities previously requested to be included in such registration, subject to
any custody arrangements that may have been subsequently agreed to.
(b) If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering pursuant
to Section 3 exceeds the amount of securities sold other than by the Company
that the underwriters reasonably believe is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters believe will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities requested and entitled to be
included therein owned by each selling stockholder or in such other proportions
as shall mutually be agreed to by such selling stockholders).
Notwithstanding the foregoing, the rights of the Holders of Registrable
Securities hereunder shall be subject to the prior right of the selling holders
of Preferred Registrable Securities to have registered at least 20% of the total
amount of securities included in such offering (to the exclusion of the
Registrable Securities). For purposes of the above parenthetical phrase
concerning apportionment, for any selling stockholder which is a holder of
Registrable Securities and which is a partnership or corporation, the partners,
retired partners and stockholders 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 such persons shall be deemed to be a single "selling stockholder," and
any pro rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals deemed hereby to be such "selling stockholder.
8. Superior Rights. Any and all rights of Holders and/or rights relating
to Registrable Securities pursuant to Section 2 shall be subject to, and
qualified in their entirety by, the registration rights of the holders of
Preferred Registrable Securities including, without limitation, the rights of
such holders of Preferred Registrable Securities to have Preferred Registrable
Securities included in a registration requested by
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holders of Preferred Registrable Securities (or holders of Registrable
Securities and Preferred Registrable Securities) to the exclusion of Holders
and/or Registrable Securities (i.e., because inclusion would reduce the number
of Preferred Registrable Securities otherwise included).
9. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of the PROVISIONS of this Exhibit A.
10. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Exhibit A:
10.1 To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the 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, 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"): (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; and, within 30 days after the
Company receives a written request containing a description in reasonable detail
of the expenses incurred, the Company will advance to each Holder, officer,
director, underwriter or controlling person any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, whether prior to or after final
disposition of any claim or action (unless there has been a final determination
that such Holder, officer, director, underwriter or controlling person is not
entitled to be indemnified for such expenses); provided, however, that at the
time of such advance, such Holder, officer, director, underwriter or controlling
person shall agree to repay the amounts advanced if it is ultimately determined
that he or she is not entitled to be indemnified pursuant to the terms of this
Agreement; provided, further, that the indemnity agreement contained in this
Section 10.1 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is
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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 any such Holder, officer, director, underwriter or controlling
person.
10.2 To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter
and any other Holder selling securities in such registration statement or any of
its 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, or underwriter or controlling
person, or other such Holder or director, officer or controlling person 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 expressly
for use in connection with such registration; and each such Holder will
reimburse as incurred any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or
controlling person, other Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 10.2 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 Holder, which consent shall not be unreasonably withheld;
provided, further that in no event shall any indemnity under this Section 10.2
exceed the net proceeds from the offering received by such Holder.
10.3 Promptly after receipt by an indemnified party under this
Section 10 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 10, 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
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain its own counsel, with
the fees and expenses to
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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 prejudicial to its ability to defend such
Action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10 to the extent such delay is prejudicial,
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 10.
10.4 The obligations of the Company and Holders under this
Section 10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Exhibit A, termination of the
registration rights granted under this Exhibit A, and otherwise.
10.5 If the indemnification provided for in this Section 10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
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 statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined 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. Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
11. Reports Under the Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to (i) at all times after the Company first becomes subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, comply with
the current public information
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requirements of Rule 144(c)(1) under the Securities Act; and (ii) at all such
times as Rule 144 is available for use by a Holder, furnish any Purchaser upon
request with-all information within the possession of the Company required for
the preparation and filing of Form 144;
12. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Exhibit A may be assigned by
(a) a Holder to a transferee or assignee of an amount of such securities
representing not less than twenty-five percent of the aggregate number of shares
of Registrable Securities or (b) any Holder who transfers all of such Holder's
shares; provided, that in each case the Company is, within a reasonable time
after such transfer, furnished with (x) 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 (y) an undertaking by the assignee to
be bound by the provisions of this Exhibit A; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
13. Amendment of Registration Rights. Any provision of this Exhibit A
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 a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 13
shall be binding upon all Holders and all Registrable Securities.
14. Market Stand-Off Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, a Holder shall
not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder (other than those included in the
registration) during the period of duration specified by the Company and the
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that:
(a) Such agreement shall not exceed 180 days for the first
registration statement of the Company, which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) Such agreement shall not exceed ninety (90) days for any
subsequent registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
(c) Senior Management of the Company shall have agreed to
transfer restrictions no less restrictive than those requested by the Company
and the underwriter.
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15. Termination of Registration Rights. The Company's rights and
obligations pursuant to this Exhibit A shall terminate as to any Holder and any
Registrable Securities on the earlier of (a) when the Holder can sell all of
such Holder's shares pursuant to Rule 144 under the Securities Act during any
95-day period or (b) the third anniversary of the closing of the first Company
initiated registered public offering.
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<PAGE> 1
EXHIBIT 4.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 3rd
day of May, 2000 by and between APPLIED MOLECULAR EVOLUTION, INC., a Delaware
corporation (the "Company"), and each of the persons or entities listed on
Schedule A hereto (individually each, an "Investor", collectively the
"Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Restated Certificate. The Company shall adopt and file with the
Secretary of State of the State of Delaware on or before the Closing (as defined
below) the Restated Certificate of Incorporation in the form attached hereto as
Exhibit A (the "Restated Certificate").
1.2 Sale and Issuance of Series F Preferred Stock. Subject to the terms
and conditions of this Agreement, each Investor agrees to purchase severally and
not jointly at the Closing and the Company agrees to sell and issue to each
Investor, severally and not jointly, at the Closing, that number of shares of
the Company's Series F Preferred Stock set forth opposite each Investor's name
on Schedule A for the purchase price of $4.50 per share.
1.3 Closing.
(a) Initial Closing. The initial purchase and sale of the shares of
Series F Preferred Stock indicated on Part 1 of Schedule A shall take place at
the offices of the Company at 3520 Dunhill Street, San Diego, California, at
10:00 a.m. on May 3rd, 2000 the (the "Initial Closing"), or such other times
and places as the Company and the Investors mutually agree upon, verbally or in
writing. At the Closing the Company shall deliver to each Investor a certificate
representing the Series F Preferred Stock which such Investor is purchasing
against delivery to the Company by Investor of a bank check or bank wire equal
to the amount of the purchase price set forth in Part of Schedule A hereto,
payable to the Company's order.
(b) Second Closing. The purchase and sale of the shares of Series F
Preferred stock indicated in Part II of Schedule A hereto shall take place on or
prior to June 15, 2000 (the "Second Closing") at the offices of the Company at a
time and date as the Company and the Investors purchasing shares at the Second
Closing mutually agreed upon, verbally or in writing. At the Second Closing the
Company shall deliver to each Investor a certificate representing the Series F
Preferred Stock which such investor is purchasing against delivery to the
Company by Investor of a bank check or bank wire equal to the amount of the
purchase price set forth in Part II of Schedule A hereto payable to the
Company's order. For purposes of this Agreement the Initial Closing and Second
Closing shall each be deemed a "Closing."
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on the
Schedule of Exceptions furnished to each Investor and specifically identifying
the relevant subparagraph hereof, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
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<PAGE> 2
2.1 Organization, Good Standing and Qualification. The Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted and as proposed to
be conducted. The Company and each Subsidiary is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists, or
will consist prior to the Closing, of:
(a) Preferred Stock. 14,055,110 shares of preferred stock (the
"Preferred Stock"), of which 500,000 shares have been designated Convertible
Preferred Stock, par value $.001 per share (the "Convertible Preferred Stock"),
1,062,802 shares have been designated Series A Preferred Stock, par value $.001
per share (the "Series A Preferred Stock"), 3,097,625 shares have been
designated Series B Preferred Stock, par value $.001 per share (the "Series B
Preferred Stock"), 4,375,000 shares have been designated Series C Preferred
Stock, par value $.001 per share (the "Series C Preferred Stock"), 1,108,572
shares have been designated Series D Preferred Stock, par value $.001 per share
(the "Series D Preferred Stock"), 1,666,667 shares have been designated Series E
Preferred Stock, par value $.001 per share (the "Series E Preferred Stock") and
2,244,444 shares have been designated Series F Preferred Stock, par value
$.001 per share (the "Series F Preferred Stock"). Prior to the filing of the
Restated Certificate, there are 500,000 shares of Convertible Preferred Stock,
1,062,802 shares of Series A Preferred Stock, 3,097,625 shares of Series B
Preferred Stock, 4,271,125 shares of Series C Preferred Stock, 1,108,572 shares
of Series D Preferred Stock and 1,600,000 shares of Series E Preferred Stock
issued and outstanding and, based upon the Company's records, such outstanding
shares of Convertible Preferred Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are owned by the persons and in the numbers specified in the
stockholder list made available to Investor upon request. The outstanding shares
of Preferred Stock will be convertible immediately prior to the Initial Closing
into an aggregate of 11,640,124 shares of Common Stock. The rights, preferences
and privileges of the Convertible Preferred Stock, the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock will be as stated
in the Restated Certificate.
(b) Common Stock. 27,296,832 shares of common stock (the "Common
Stock"), of which 2,590,831 shares are issued and outstanding and, based upon
the Company's records, are owned by the persons and in the numbers specified in
the stockholder list made available to Investor upon request.
(c) Agreements for Purchase of Shares. Except for (i) the conversion privileges
of the Convertible Preferred Stock, Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock, (ii) the rights of Investor provided for in
Section 8.4, hereof, (iii) the rights of first offer provided for in Section 8.4
of the Stock Purchase Agreement dated as of October 6, 1989 between the Company
and the investor listed in Schedule A thereto, as amended, (the "1989 Purchase
Agreement") (iv) the rights of first offer provided for in Section 8.4 of the
Stock Purchase Agreement dated as of March 7, 1990 between the Company and the
investors listed on Schedule A
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thereto, as amended (the "Series A Agreement"), (v) the rights of first offer
provided for in Section 8.4 of the Stock Purchase Agreement dated as of August
6, 1991 between the Company and the investors listed on Schedule A thereto, as
amended and supplemented (the "Series B Agreement"), (vi) the rights of first
offer provided for in Section 8.4 of the Stock Purchase Agreement dated as of
February 19, 1993 between the Company and the investors listed on Schedule A
thereto, as amended and supplemented (the "Series C Agreement"), (vii) the right
of first offer provided for in Section 8.4 of the Stock Purchase Agreement dated
as of June 8, 1993 between the Company and the investors listed on Schedule A
thereto (the "Series D Agreement"), (viii) warrants to purchase 66,667 shares of
Series E Preferred Stock, (ix) the options to purchase an aggregate of 1,798,628
shares of Common Stock granted to certain employees and consultants of the
Company pursuant to the Company's 1992 Stock Plan and (x) the options to
purchase an aggregate of 800,000 shares of common stock pursuant to he Company's
2000 Option Plan, there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from the Company of any shares of its capital stock.
2.3 Subsidiaries. Except as set forth on the Schedule of Exceptions, the
Company does not own or control, directly or indirectly, any interest in any
other corporation, association, partnership or other business entity. The
Company is, directly or indirectly, the record and beneficial owner of all of
the outstanding shares of capital stock of each of its Subsidiaries, there are
no irrevocable proxies with respect to such shares and no equity securities of
any of the Subsidiaries are or may become required to be issued by reason of any
options, warrants, convertible or exchangeable securities, subscriptions, rights
(including any preemptive rights), stock appreciation rights, calls or
commitments of any character whatsoever relating to shares of any capital stock
of any Subsidiary, and there are no contracts or other agreements by which any
Subsidiary is bound to issue additional shares of capital stock or any options,
warrants, convertible or exchangeable securities, subscriptions, rights
(including any preemptive rights), stock appreciation rights, calls or
commitments of any character whatsoever relating to such shares. All of such
shares so owned by the Company are owned by it free and clear of any Liens with
respect thereto. Except for shares of capital stock of the Company's
Subsidiaries, the Company does not, directly or indirectly, own or control or
have any capital or other equity interest or participation, or any interest
convertible, exchangeable or exercisable for, any capital or other equity
interest or participation in, nor is the Company, directly or indirectly,
subject to any obligation or requirement to provide funds to or invest in, any
person.
2.4 Authorization. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, issuance (or reservation for issuance)
and delivery of the Series F Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Series F Preferred Stock has been taken or
will be taken on or prior to the Closing, and this Agreement constitutes a valid
and legally binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally.
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2.5 Valid Issuance of Preferred and Common Stock.
(a) The Series F Preferred Stock which is being purchased by Investors
hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable and, based in part upon the representations of each
Investor in this Agreement, will be issued in compliance with all applicable
federal and state securities laws. The Common Stock issuable upon conversion of
the Series F Preferred Stock purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance and in accordance with the
terms of the Restated Certificate will be duly and validly issued, fully paid
and nonassessable.
(b) The outstanding shares of Preferred Stock of the Company are duly
and validly authorized, issued and outstanding, fully paid and nonassessable,
and were issued in compliance with all applicable federal and state securities
laws. The outstanding shares of Common Stock of the Company are duly and validly
authorized and issued, fully paid and nonassessable and were issued in
compliance with all federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for any post-sale filings pursuant to
applicable state securities laws, which filings will be effected within the
applicable time periods.
2.7 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against the Company or any of its subsidiaries
listed in the Schedule of Exceptions (each a "Subsidiary") which questions the
validity of this Agreement or the right of the Company to enter into it, or to
consummate the transactions contemplated hereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company or any of the Subsidiaries,
financially or otherwise, or any change in the current equity ownership of the
Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's employees, their use in connection with the Company's or any of
the Subsidiaries' business of any information or techniques allegedly
proprietary to any of their former employers, or their obligations under any
agreements with prior employers. Neither the Company nor any of the Subsidiaries
is a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company or any Subsidiary
currently pending or which the Company or any Subsidiary intends to initiate.
2.8 Invention and Secrecy and Common Stock Purchase Agreements. Each key
employee and key consultant of the Company and its Subsidiaries with access to
the Company's proprietary information has executed an Employee's or Consultant's
Invention and Proprietary Information Agreement, as the case may be, in
substantially the form made available to Investors. The Company, after
reasonable investigation, is not aware that any key employees or key consultants
are in violation thereof, and the Company will use reasonable efforts to prevent
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any such violation. Each holder of Common Stock of the Company has entered into
a Common Stock Purchase Agreement, in substantially the form made available to
Investors.
2.9 Patents and Trademarks. The Company and, each of the Subsidiaries,
has sufficient title and ownership of all material patents, trademarks, service
marks, trade names, copyrights, trade secrets, information, proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses or agreements of any kind relating to
the foregoing, nor is the Company or any of the Subsidiaries bound by or a party
to any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
which options, licenses or agreements are material to the Company or any of the
Subsidiaries or their respective business as now conducted and as proposed to be
conducted. Neither the Company nor any Subsidiary has received any
communications alleging that the Company or any Subsidiary has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its or any Subsidiary's key employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such key employee's best efforts to
promote the interests of the Company or of any Subsidiary, or that would
conflict with the Company's or any Subsidiary's business as proposed to be
conducted, which would, in the aggregate, be materially adverse to the Company.
Neither the execution nor delivery of this Agreement, nor the carrying on of the
Company's business by the key employees of the Company, nor the conduct of the
Company's business as proposed or of any Subsidiary, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such key employees is now obligated, which
conflict, breach or default would be materially adverse to the Company or any of
the Subsidiaries. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently intends
to hire) made prior to their employment by the Company.
2.10 Compliance with Other Instruments. Neither the Company nor any of
the Subsidiaries is in violation or default of any provisions of (i) its
Restated Certificate or Bylaws or (ii) of any instrument, judgment, order, writ,
decree or contract to which it is a party or by which it is bound or, to its
knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company or any Subsidiary, which violation or default under
this clause (ii) would be materially adverse to the Company or any Subsidiary.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in any such violation or
default pursuant to the clause (ii) of the preceding sentence or be in conflict
with or constitute, with or without the passage of time and giving of notice,
either such a violation or a default under any such provision, instrument,
judgment, order, writ, decree or contract or an event which results in the
creation of any material lien, charge or encumbrance upon any assets of the
Company or any of the Subsidiaries, which violation, default, conflict or event
would be materially adverse to the Company or any of the Subsidiaries.
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2.11 Agreements; Action.
(a) Except for the agreements explicitly contemplated hereby, there are
no agreements, understandings or proposed transactions between (i) the Company
and any of its officers, directors, affiliates or any affiliate thereof; or (ii)
any of the Subsidiaries and any of the respective officers, directors,
affiliates or any affiliates thereof.
(b) There are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any Subsidiary is a party or by
which it is bound which involve (i) obligations of, or payments to the Company
or any Subsidiary in excess of, $50,000, other than obligations or liabilities
of the Company or any Subsidiary for compensation under employment, advisor or
consulting agreements, (ii) the license of any patent, copyright, trade secret
or other proprietary right of the Company or any Subsidiary, or (iii) any other
material agreement.
(c) Neither the Company or any Subsidiary has (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or Series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities individually in excess of $50,000 or
in excess of $100,000 in the aggregate, other than obligations or liabilities of
the Company or any Subsidiary for compensation under employment, advisor or
consulting agreements, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses or (iv) since December 31, 1999,
sold, exchanged or otherwise disposed of any of its material assets or rights,
other than the sale of its inventory in the ordinary course of business.
(d) Neither the Company nor any of its Subsidiaries is a party to and is
not bound by any contract, agreement or instrument, or subject to any
restriction under its Restated Certificate or Bylaws, which adversely affects in
any material respect its business as now conducted or as proposed to be
conducted, its properties, its financial condition or its prospects.
(e) Neither the Company nor any of its Subsidiaries has engaged in the
past three months in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company or a transaction or series of related transactions in which more
than 50 percent of the voting power of the Company is disposed of, other than as
contemplated by this Agreement or (iii) regarding any other form of liquidation,
dissolution or winding up of the Company.
2.12 Disclosure. The Company believes it has fully provided each
Investor with all the information that each Investor has requested for deciding
whether to purchase the Series F Preferred Stock and all information reasonably
necessary to enable Investor to make such decision.
2.13 Information. Neither this Agreement nor any other statements or
certificates made or delivered in connection herewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading.
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2.14 Registration Rights. Except as provided in Section 7 of this
Agreement, Section 7 of the Stock Purchase Agreement dated as of September 28,
1995 between the Company and the investor listed therein (the "Series E
Agreement"), Section 7 of the 1989 Purchase Agreement, Section 7 of the Series A
Agreement, Section 7 of the Series B Agreement, Section 7 of the Series C
Agreement, Section 7 of the Series D Agreement, the Company has not granted or
agreed to grant any registration rights, including piggy-back rights, to any
person or entity. None of such other agreements impairs or conflicts with any of
the rights granted to the Investors in Section 7 hereof. No other holder of
Company securities has demand registration rights which, if exercised, would
entitle the Investors only to piggyback registration rights.
2.15 Corporate Documents. The Restated Certificate of Incorporation is
in the form attached as Exhibit A and Bylaws of the Company are in the form made
available to Investors.
2.16 Title to Property and Assets. The Company and each Subsidiary owns
its property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair the Company's or the
Subsidiary's ownership or use of such property or assets. With respect to the
property and assets it leases, the Company and each Subsidiary is in compliance
with such leases and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances, which liens, claims or
encumbrances would be materially adverse to the Company or any of the
Subsidiaries.
2.17 Employee Benefit Plans. Neither the Company nor any Subsidiary has
any employee benefit plan described in section 3(2)(A) or section 3(2)(B) of the
Employee Retirement Income Security Act of 1974.
2.18 Tax Returns and Payments. The Company and each Subsidiary has filed
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company and each Subsidiary has
paid all taxes and other assessments due prior to the time penalties would
accrue thereon. The provision for taxes of the Company and each Subsidiary is
adequate for taxes due or accrued as of the date thereof.
2.19 Minute Books. The minute books of the Company and each Subsidiary
made available to each Investor contain a complete summary of all meetings of
directors and stockholders since the Company's and each Subsidiary's
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
2.20 Labor Agreements and Actions. Neither the Company nor any
Subsidiary is bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company, has sought to represent any of the
employees, representatives or agents of the Company or any Subsidiary. There is
no strike or other labor dispute involving the Company or any Subsidiary
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results or business of the Company (as such business is presently
conducted and as it is proposed to be conducted), nor is the Company aware of
any labor organization activity involving its or any Subsidiary's employees. The
Company is not aware
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<PAGE> 8
that any officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company or any Subsidiary, nor does the
Company or any Subsidiary have a present intention to terminate the employment
of any of the foregoing.
2.21 Real Property Holding Company. Neither the Company nor any
Subsidiary is a "United States real property holding corporation" (as that term
is defined in Treasury Regulation section 1.897-2(b)). If at any time in the
future the Company or any of the Subsidiaries shall become a "United States real
property holding corporation," the Company shall, as promptly as practicable,
notify each foreign investor. Within 30 days after receipt of a request from a
foreign investor, the Company shall prepare and deliver to such foreign investor
the statement required under Treasury Regulation section 1.897-2(h)(1) and, in
the case of a disposition of an interest of the Company, either or both of the
following documents: (i) an affidavit in conformance with the requirements of
Internal Revenue Code of 1986, as amended ("IRC"), section 1445(b)(3), or (ii) a
notarized statement, executed by an officer having actual knowledge of the
facts, that the shares of Company stock held by such foreign investor are of a
class that is regularly traded on an established securities market, within the
meaning of IRC section 1445(b)(6). If the Company is unable to provide either of
the documents described in (i) or (ii) above, if requested, it shall promptly
notify such foreign investor in writing of the reasons for such inability.
Finally, upon the request of a foreign investor and without regard to whether
either document described in (i) or (ii) above has been requested, the Company
shall cooperate fully with the efforts of such foreign investor to obtain a
"qualifying statement," within the meaning of IRC section 1445(b)(4), or such
other documents as would excuse a transferee of a foreign investor's interest
from withholding of income tax imposed pursuant to IRC section 1445(a).
2.22 Financial Statements. The Company and each Subsidiary has made
available to each Investor its audited financial statements (balance sheet,
statement of operations and statement of cash flows) at and for the fiscal year
ended December 31, 1999 and its unaudited financial statements (balance sheet,
statement of operations and statement of cash flows) at and for the three-month
period ended March 31, 2000 (the "Financial Statements"). The Financial
Statements are complete and correct in all material respects, subject, in the
case of the unaudited financial statements, to normal year-end adjustments, and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the period indicated and are consistent
with each other. The Financial Statements accurately set out and describe the
financial condition and operating results of the Company and the Subsidiaries as
of the dates, and for the periods, indicated therein, subject, in the case of
the unaudited financial statements, to normal year-end adjustments. Except as
set forth in the Financial Statements and the Schedule of Exceptions, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to March 31, 2000, and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
2.23 Voting Arrangements. Except as provided in Section 5.5 hereof,
Section 5.6 of the 1989 Purchase Agreement, Section 5.6 of the Series A
Agreement, Section 5.6 of the
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Series B Agreement, Section 5.6 of the Series C Agreement, Section 5.6 of the
Series D Agreement and Section 5.6 of the Series E Agreement, to the Company's
knowledge, there are no outstanding stockholder agreements, voting trusts,
proxies or other arrangements or understandings among the stockholders of the
Company relating to the voting of their respective shares. None of such other
agreements impairs or conflicts with any of the rights granted to the Investors
in Section 5.5 hereof.
2.24 Qualified Small Business Stock.
(a) The Company is a domestic C corporation for federal income tax
purposes, and the aggregate gross assets (cash plus the adjusted tax basis of
other property) of the Company does not, and at all times on or after August 10,
1993 did not, exceed $50 million. For purposes of this Section 2.24(a), (x) the
adjusted tax basis of property contributed to the Company (or of other property
the basis of which is determined by reference to the basis of property so
contributed) shall be determined as if the basis of the contributed property
immediately after its contribution to the Company were its fair market value at
that time and (y) all corporations that are members of a "parent-subsidiary
controlled group" within the meaning of section 1202(d)(3) of the Code of which
the Company is also a member (a "Company Group") shall be treated as though such
corporations and the Company together constitute one corporation.
(b) The Company is not (i) a corporation having (or with a direct or
indirect subsidiary having) an election under section 936 of the Code (relating
to possession corporations) in effect, (ii) a regulated investment company,
(iii) a real estate investment trust, (iv) a real estate mortgage investment
conduit, (v) a financial asset securitization investment trust, or (vi) a
cooperative.
(c) Since the date that is one year prior to the issuance of the
Securities (the "Redemption Measurement Date"), the Company has not redeemed or
repurchased shares of its stock having an aggregate value (at the time of
purchase) in excess of five percent (5%) of the value of all the Company's
outstanding stock on the Redemption Measurement Date (excluding repurchases upon
death, disability, mental incapacity, or divorce of a shareholder if the
requirements of Treasury Regulation section 1.1202-2(d) are met).
3. Representations and Warranties of Investors. Each Investor hereby
represents and warrants that:
3.1 Authorization. This Agreement constitutes its valid and legally
binding obligation.
3.2 Purchase Entirely for Own Account. This Agreement is made with
Investor in reliance upon Investor's representation to the Company, which by
Investor's execution of this Agreement Investor hereby confirms, that the Series
F Preferred Stock to be received by Investor and the Common Stock issuable upon
conversion thereof (collectively, the "Securities") will be acquired for
investment for Investor's own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof, and that Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, Investor further represents
that Investor does not have any contract, undertaking,
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agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. Investor represents that it has full power and authority to enter
into this Agreement.
3.3 Disclosure of Information. Investor believes that it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series F Preferred Stock. Investor further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Series F Preferred
Stock. The foregoing, however, does not limit or modify the representations and
warranties of the Company in Section 2 of this Agreement.
3.4 Investment Experience. Investor is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Series F Preferred Stock. Investor
also represents that it has not been organized solely for the purpose of
acquiring the Series F Preferred Stock.
3.5 Restricted Securities. Investor understands that the shares of
Series F Preferred Stock it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended (the
"Securities Act"), only in certain limited circumstances. In this connection
Investor represents that it is familiar with Securities and Exchange Commission
(the "SEC") Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
3.6 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Series F Preferred Stock (or the Common
Stock issuable upon the conversion thereof) unless and until:
(a) 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
(b) (i) Investor 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 (ii) if reasonably
requested by the Company, Investor 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, as currently in existence, except in
unusual circumstances.
3.7 Legends. It is understood that the certificates evidencing the
Series F Preferred Stock (and the Common Stock issuable upon conversion thereof)
may bear one or all of the following legends:
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(a) "These securities have not been registered under the Securities Act
of 1933. They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or if reasonably requested by the Company an opinion of counsel
reasonably satisfactory to the Company, that such registration is not required
or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required by the laws of the State of California or other
jurisdiction, including any legend required by the California Department of
Corporations and sections 417 and 418 of the California Corporations Code.
3.8 Accredited or Foreign Investor. Except as otherwise disclosed to the
Company in writing, Investor either is (i) an accredited investor as defined in
Rule 501(a) of Regulation D of the SEC under the Securities Act, or (ii) neither
(x) a national or resident of the United States, its territories, possessions or
any area subject to its jurisdiction, nor (y) a corporation, partnership, trust
or other entity created or organized in the United States, its territories,
possessions or any area subject to its jurisdiction, nor (z) a corporation,
partnership, trust or other entity, any of the equity owners of which is
described in clause (x) or (y) above and agrees not to sell, hypothecate, pledge
or otherwise dispose of any interest in the Securities in the United States, its
territories, possessions or any area subject to its jurisdiction, or to any
person who is a national thereof or resident therein (including any estate of
such person), or any corporation, partnership or other entity created or
organized therein, unless such securities have been either registered under the
Securities Act, or are exempt from the registration requirements of the
Securities Act, in the opinion of the Company's counsel, and Investor has
complied with any restrictions on transfer contained in this Agreement.
3.9 Confidentiality. Investor hereby represents, warrants and covenants
that it shall maintain in confidence, and shall not use or disclose without the
prior written consent of the Company, any information identified as confidential
that is furnished to it by the Company in connection with this Agreement,
including (without limitation) all financial statements, budget and other
information delivered or provided to Investor pursuant to Section 8 hereof. This
obligation of confidentiality shall not apply, however, to any information (a)
in the public domain through no unauthorized act or failure to act by Investor,
(b) lawfully disclosed to Investor by a third party who possessed such
information without any obligation of confidentiality or (c) known previously by
Investor or lawfully developed by Investor independent of any disclosure by the
Company. Investor further covenants that Investor shall return to the Company
all tangible materials containing such information upon request by the Company.
3.10 Removal of Legends; Further Covenants.
(a) Any legend endorsed on a certificate pursuant to Section 3.7 hereof
shall be removed (i) if the shares of the Series F Preferred Stock or Common
Stock issued upon conversion thereof represented by such certificate shall have
been effectively registered under the Securities Act or otherwise lawfully sold
in a public transaction, (ii) if such shares may be transferred in compliance
with Rule 144(k) promulgated under the Securities Act or (iii) if the holder of
such shares shall have provided the Company with an opinion of counsel, in form
and substance acceptable to the Company and its counsel and from attorneys
reasonably acceptable
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to the Company and its counsel, stating that a public sale, transfer or
assignment of such shares may be made without registration.
(b) Any legend endorsed upon a certificate pursuant to Section 3.7
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if the holder of the Series F
Preferred Stock or Common Stock issued upon conversion thereof provides the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that such state legend may be removed.
(c) Investor further covenants that Investor will not transfer the
Series F Preferred Stock or any securities received in exchange therefor or on
conversion thereof, in violation of the Securities Act, the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), or the rules of the SEC
promulgated thereunder, including Rule 144 under the Securities Act. Further,
Investor agrees that, prior to the closing of the Company's initial public
offering, Investor will not transfer any of such securities in a public offering
without the Company's prior consent, even if Investor is otherwise permitted to
transfer them pursuant to Rule 144(k). Investor further agrees to require any
transferee or assignee of any of Investor's shares of Series F Preferred Stock
in a private transaction to agree in a writing to be delivered to the Company
promptly following such transfer or assignment to be bound by lock-up provisions
substantially as set forth in Section 7.15 of this Agreement.
4. California Commissioner of Corporations.
4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATIONS BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. Conditions of Investors' Obligations at Closing. The obligations of
each Investor under subsection 1.2 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the date of such Closing.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Compliance Certificate. The President or a Vice President of the
Company shall deliver to Investors at the Closing a certificate certifying that
the conditions specified in
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Sections 5.1 and 5.2 have been fulfilled and stating that there has been no
material adverse change in the business, affairs, prospects, operations,
properties, assets or condition of the Company since the date of the Agreement.
5.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to each
Investor, and each Investor shall have received all such counterpart original
and certified or other copies of such documents as it may reasonably request.
5.5 Board of Directors. The Board of Directors, effective upon the
Closing, shall consist of five duly elected members: William D. Huse, James
Bochnowski, Costa G. Sevastopoulos, John G. Morris and Peter Hilal.
5.6 Opinion of Company Counsel. Investor shall have received from
Pillsbury Madison & Sutro, counsel for the Company, an opinion, dated as of the
Closing, in form and substance satisfactory to Investor, attached hereto as
Exhibit B:
The opinion of counsel for the Company under this Section 5.6 shall be
subject to such matters as are set forth in the Schedule of Exceptions to this
Agreement.
5.7 Related Agreements. The Company shall have entered into an Amended
and Restated Co-Sale Agreement, (the "Co-Sale Agreement") with each Investor or
its affiliates, as the case may be, each dated as of even date herewith in form
attached hereto as Exhibit C. The Company shall have entered into a Voting
Agreement in the form attached hereto as Exhibit D.
6. Conditions of the Company's Obligations at Closing. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by each
Investor:
6.1 Representations and Warranties. The representations and warranties
of each Investor contained in Section 3 hereof shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 Payment of Purchase Price. Each Investor shall have delivered the
purchase price specified in Section 1.2.
6.3 Co-Sale Agreement. Each Investor or its affiliates, as the case may
be, shall have entered into the Co-Sale Agreement.
7. Registration Rights. The Company covenants and agrees as follows:
7.1 Definitions. For purposes of this Section 7:
(a) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with
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the Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Convertible Preferred Stock, Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock (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 Preferred Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which such person's
registration rights are not assigned;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are exercisable or convertible into,
Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 7.13 hereof; and
(e) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Securities Act subsequently
adopted by the SEC in lieu of Form S-3 which permits inclusion or incorporation
of substantial information by reference to other documents filed by the Company
with the SEC.
7.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i)
May 3, 2004 or (ii) one year after the effective date of the first registration
statement for a public offering of securities of the Company (other than a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or a SEC
Rule 145 transaction), a written request from the Holders of at least 50% of the
Registrable Securities then outstanding (25% if such request is made following
the closing of the offering referred to in subsection (ii) of this Section
7.2(a)) that the Company file a registration statement under the Securities Act
covering the registration of at least 20% of the Registrable Securities then
outstanding (or a lesser percent if the anticipated aggregate offering price,
net of underwriting discounts and commissions, would exceed $7,500,000), then
the Company shall, within 10 days of the receipt thereof, give written notice of
such request to all Holders and shall, subject to the limitations of subsection
7.2(b), file as soon as practicable, and in any event within 60 days of the
receipt of such request, a registration statement under the Securities Act
covering all Registrable Securities which the Holders request to be registered
within 20 days of the mailing of such notice by the Company in accordance with
Section 9.6.
(b) If the Holders initiating the registration request hereunder
("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 7.2 and the Company
shall include such information in the written notice referred to in
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<PAGE> 15
subsection 7.2(a). In such event, the right of any Holder to include such
Holder's 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 (together with the Company as provided in
subsection 7.4(e)) 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 and consented to by the Company (which
consent shall not be unreasonably withheld). Notwithstanding any other provision
of this Section 7.2, if the underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder.
(c) The Company is obligated to effect only two such registrations
pursuant to this Section 7.2; provided, however, that the Company shall not be
obligated to effect a registration pursuant to this Section 7.2 if within the 12
months immediately preceding a request hereunder the Company has effected a
demand registration under this Section 7.2. Notwithstanding the foregoing,
should the holders of Series F Preferred Stock (or of Common Stock issuable upon
conversion thereof) decline to participate in such demand registration, such
holders shall be entitled to initiate one additional demand registration;
provided such demand is made by the holders of at least 66-2/3% of the Series F
Preferred Stock (or of Common Stock issuable upon conversion thereof).
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 7.2 a
certificate signed by the President 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 stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any 12-month period.
7.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Securities Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within 20 days after mailing of such notice
by the Company in accordance with Section 9.6, the Company shall, subject to the
provisions of
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<PAGE> 16
Section 7.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
7.4 Obligations of the Company. Whenever required under this Section 7
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 its 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 120 days.
(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 numbers 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 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 any Holder requesting registration of
Registrable Securities pursuant to this Section 7, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 7, 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 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 to the Holders requesting
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<PAGE> 17
registration of Registrable Securities and (ii) a letter dated 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,
if any, and to the Holders requesting registration of Registrable Securities.
7.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 7 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 the Registrable Securities.
7.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 7.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 7.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 7.2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business or prospects of
the Company from that known to the Holders at the time of their request, then
the Holders shall not be required to pay any of such expenses and shall retain
their rights pursuant to Section 7.2.
7.7 Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
7.3 for each Holder (which right may be assigned as provided in Section 7.13),
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees relating or apportionable thereto and the fees and
disbursements of one counsel for the selling Holders selected by them, but
excluding underwriting discounts and commissions relating to Registrable
Securities.
7.8 Underwriting Requirements. In connection with any offering involving
an underwriting of shares being issued by the Company, the Company shall not be
required under Section 7.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the success
of the offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters reasonably believe compatible with the success of the offering,
then the Company shall be required to include in the offering only that number
of such securities, including Registrable Securities, which the underwriters
believe will not jeopardize the success of the offering (the securities so
included to be
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<PAGE> 18
apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders) but in no event shall (i) the amount of securities of the
selling Holders included in the offering be reduced below 20% of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities or an offering in which
securities other than Common Stock of the Company are to be sold in which case
the selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a stockholder
exercising a demand registration right similar to that granted in Section 7.2 be
excluded from such offering.
7.9 Delay of Registration. 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 7.
7.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the 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, 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"): (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; and the Company will reimburse each such Holder, officer
or 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 subsection 7.10(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 any such Holder, officer, director, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the Securities
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<PAGE> 19
Act, any underwriter and any other Holder selling securities in such
registration statement or any of its 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, or underwriter or controlling person, or other such Holder or director,
officer or controlling person 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 expressly 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 controlling person, other Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 7.10(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, that, in no event shall any indemnity
under this subsection 7.10(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
7.10 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 7.10, 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 prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.10, 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
7.10.
(d) The obligations of the Company and Holders under this Section 7.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 7, and otherwise.
7.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
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(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) take such action, including the voluntary registration of its Common
Stock under section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company), the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
7.12 Form S-3 Registration. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 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; 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 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 7.12: (i) if Form S-3 is
not available for such offering by the Holders; (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 (net of any
underwriters' discounts or commissions) of less than $2,000,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President 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
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer
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the filing of the Form S-3 Registration Statement for a period of not more than
120 days after receipt of the request of the Holder or Holders under this
Section 7.12; provided, however, that the Company shall not utilize this right
more than once in any 12-month period; (iv) if the Company has, within the
six-month period preceding the date of such request, already effected a
registration on Form S-3 for the Holders pursuant to this Section 7.12 and other
similar provisions granting rights to registration on Form S-3; (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; or (vi) if the Holders hold in the
aggregate less than 1% of the outstanding shares of the Company's capital stock.
(c) Subject to the foregoing, the Company shall file a 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. All expenses incurred in connection with a registration
requested pursuant to Section 7.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration; provided, however, that the Company
shall bear and pay all such expenses, including (without limitation) all
registration filing and qualification fees, printer's and accounting fees and
the fees and disbursements of one counsel for the selling Holders, but excluding
underwriting discounts and commission relative to the Registrable Securities,
with respect to the first such registration pursuant to this Section 7.12.
Registrations effected pursuant to this Section 7.12 shall not be counted as
demands for registration effected pursuant to Section 7.2.
7.13 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 7 may be assigned by
(i) a Holder to a transferee or assignee of at least 50,000 shares (adjusted to
reflect stock dividends, stock splits or recapitalizations)of Registrable
Securities, (ii) any Holder who transfers all of its shares of Registrable
Securities or (iii) any Holder that is a partnership or limited liability
company to a partner or member or retired partner or retired member of such
partnership or amendment who after such assignment holds at least 7,500 shares
(adjusted to reflect stock dividends, stock splits or recapitalizations) of
Registrable Securities; provided, in each case, the Company is, within a
reasonable time after such transfer, furnished with 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 provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act.
7.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 7.2 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of
such holder's securities will not reduce the amount of the Registrable
Securities of the Holders which is
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included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 7.2(a) or within 120 days of the effective
date of any registration effected pursuant to Section 7.2.
7.15 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other than to donees who agree to be similarly bound) of any
Registrable Securities during a reasonable and customary period of time, as
agreed to by the Company and the underwriters, not to exceed 180 days, following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers shares (or securities) to be
sold on its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company enter into similar
agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such reasonable and customary period.
7.16 Amendment of Registration Rights. Any provision of this Section 7
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 a majority of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any securities purchased
under this Agreement at the time outstanding (including securities into which
such securities are convertible), each future holder of all such securities, and
the Company.
7.17 Termination of Registration Rights. The Company's obligations
pursuant to this Section 7 shall terminate as to any Holder of Registrable
Securities on the earlier of (i) when the Holder can sell all of such Holder's
shares pursuant to Rule 144 under the Securities Act during any 90-day period or
(ii) on the fifth anniversary of the closing of the Company's sale of its Common
Stock in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act which results in gross offering
proceeds of at least $25,000,000, the public offering price of which was not
less than $7.50 per share (adjusted to reflect stock dividends, stock splits or
recapitalizations); provided, however, in no event shall such obligations
terminate earlier than the first anniversary of the closing of the offering
described in subsection (ii) of this Section 7.17.
8. Covenants.
8.1 Delivery of Financial Statements. The Company shall deliver to each
Investor and each assignee of an Investor who acquires at least 50% of an
Investor's shares of Series F Preferred Stock purchased hereunder:
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(a) as soon as practicable, but in any event within 90 days after the
end of each fiscal year of the Company, a statement of operations for such
fiscal year, a balance sheet of the Company as of the end of such year, and a
statement of cash flows for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
(b) within 30 days of the end of each month, an unaudited statement of
operations, statement of cash flows and balance sheet for and as of the end of
such month, in reasonable detail; such monthly statements shall also contain the
foregoing information on a year-to-date basis and shall also compare actual
performance to budget;
(c) within 60 days prior to the close of each fiscal year, a
comprehensive operating budget for the next fiscal year forecasting the
Company's revenues, expenses and cash position, prepared on a monthly basis,
including balance sheets and sources and applications of funds statements for
such months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company;
(d) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as Investor may from
time to time reasonably request, provided, however, that the Company shall not
be obligated to provide information which it deems in good faith to be
proprietary; and
(e) with respect to the financial statements called for in subsection
(a) of this Section 8.1, an instrument executed by the Treasurer or the
President of the Company and certifying that such financials were prepared in
accordance with internally consistent accounting methods consistently applied
with prior practice for earlier periods and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment.
8.2 Inspection. The Company shall permit each Investor, at Investor's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 8.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
8.3 Termination of Covenants. The covenants set forth in Sections 8.1
and 8.2 hereof shall terminate and be of no further force or effect when the
sale of securities pursuant to a registration statement filed by the Company
under the Securities Act in connection with the firm commitment underwritten
offering of its securities to the general public is consummated or when the
Company first becomes subject to the periodic reporting requirements of section
13(a) or 15(d) of the Exchange Act, whichever event shall first occur; provided
that the Company shall furnish, for five years following the termination of such
covenants, to Investor copies of its reports on Forms 10-K and 10-Q within 10
days after filing with the SEC.
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<PAGE> 24
8.4 Right of First Offer. Subject to the terms and conditions specified
in this Section 8.4, the Company hereby grants to each Investor a right of first
offer with respect to future sales by the Company of its Shares (as hereinafter
defined). Investor shall be entitled to apportion the right of first offer
hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for, any class of its capital stock ("Shares"),
the Company shall first make an offering of such Shares to Investor in
accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice") to
Investor stating (I) its bona fide intention to offer or issue such Shares, (ii)
the number of such Shares to be offered, and (iii) the price, if any, for which
it proposes to offer such Shares.
(b) Within 20 calendar days after receipt of the Notice, Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares which equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series F Preferred Stock then held, by Investor bears to the total number of
shares of outstanding Common Stock and Common Stock issuable upon conversion of
the Preferred Stock then outstanding.
(c) If all such Shares referred to in the Notice are not elected to be
obtained as provided in subsection 8.4(b) hereof, the Company may, during the
60-day period following the expiration of the period provided in Section 8.4(b)
hereof, offer the remaining unsubscribed Shares to any person or persons as a
price not less than, and upon terms no more favorable to the offeree than those,
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 60 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to Investor in accordance herewith.
(d) The right of first offer granted in this Section 8.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors, consultants or advisors of the Company
provided each such person executes an agreement relating to such issuance or
sale, in substantially the form as approved by the Company's Board of Directors,
(ii) to the issuance of securities of the Company in connection with the
acquisition by the Company of the stock or assets of a corporation, partnership
or other entity, (iii) to the issuance and sale of the Company's securities to a
corporation, partnership, educational institution or other entity in connection
with a research and development partnership, licensing or other collaborative
arrangement between the Company and such institution or entity, and (iv) to or
after consummation of a bona fide, firmly underwritten public offering of shares
of the Company's Common Stock registered under the Securities Act pursuant to a
registration statement on form S-1, which results in gross proceeds to the
Company of at least $25,000,000 at a price per share of at least $7.50 (adjusted
for any stock splits, stock dividends or other recapitalizations).
8.5 Designated Director. For so long as the Investors (or their
affiliates) hold at least 20% of the shares of Series F Preferred Stock or the
shares of Common Stock issued upon
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<PAGE> 25
conversion of the shares of Series F Preferred Stock, the Company shall cause
(i) the nomination of Peter Hilal ( or a nominee of Peter Hilal, provided such
nominee is approved by the Board of Directors) as a member of the Board of
Directors of the Company and (ii) the nomination of Peter Hilal to any Audit
and/or Compensation Committee of the Board of Directors of the Company. The
Company shall pay Peter Hilal, as a director, (i) for all expenses incurred in
connection performing his duties as a director and (ii) compensation equal to
compensation of any other non-employee director, and the Company shall provide
directors and officers liability insurance coverage for Peter Hilal, as a
director, and shall otherwise exculpate and indemnify him, to the maximum extent
of any non-employee director.
8.6 Additional Directors. The Board of Directors shall increase the
size of the board to seven duly elected members, provided the two additional
directors would qualify as "independent" directors under the rules of the Nasdaq
Stock Market, as approved by the SEC December 14, 1999.
9. Miscellaneous.
9.1 Survival of Warranties. The warranties, representations and
covenants of the Company contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Investor.
9.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California (irrespective of its choice of law
principles).
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified (or upon the date of
attempted delivery where delivery is refused) or, if sent by telecopier, telex,
telegram, or other facsimile means, upon receipt of appropriate confirmation of
receipt, or upon deposit with the United States Postal Service, by registered or
certified mail, or next day air courier, with postage and fees prepaid and
addressed to the party entitled to such notice at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by 10 days' advance written notice to the other parties to this
Agreement.
9.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Investor agrees to indemnify and hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted
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<PAGE> 26
liability) for which such Investor or any of its officers, partners, employees
or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
9.8 Expenses. Irrespective of whether the Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement or the Restated Certificate, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled. If the Closing
is effected, the Company and each Investor shall each bear their respective fees
and expenses associated with the transaction contemplated by this Agreement;
provided however, that the Company shall reimburse Investors for up to [$40,000]
in reasonable legal fees and expenses and up to an additional [$40,000] for fees
and expenses incurred in performing intellectual property due diligence on the
Company.
9.9 Amendments and Waivers. Except as specified in Section 7.16, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Common Stock issued or issuable upon
conversion of the Series F Preferred Stock. Notwithstanding anything to the
contrary, the last sentence of Section 7.2(c) herein may only be amended by the
consent of the holders of a majority of the shares of Series F Preferred Stock.
Any waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company; provided, however, that no
condition set forth in Section 5 hereof may be waived with respect to Investor
if Investor does not consent thereto.
9.10 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Aggregation of Stock. All shares of Series F Preferred Stock held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
9.12 Entire Agreement. This Agreement and the Related Agreements embody
the entire agreement and understanding of the parties hereto and thereto in
respect of the subject
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<PAGE> 27
matter contained herein and therein and supersede all prior agreements and
understandings between the parties with respect to such subject matter. No party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
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<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
APPLIED MOLECULAR EVOLUTION, INC.
By /s/ William D. Huse
------------------------------------
Name: William D. Huse
Title: President and CEO
Address: 3520 Dunhill Street
San Diego, CA 92121
Investor signature pages to follow:
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<PAGE> 29
INVESTORS:
/s/ Keith Manchester
------------------------------------
Keith Manchester
Address:
----------------------------
------------------------------------
------------------------------------
BY: HILAL CAPITAL PARTNERS, LLC
AND
HILAL CAPITAL MANAGEMENT, LLC
/s/ Peter Hilal
------------------------------------
BY: Peter Hilal, Managing Member
On behalf of the following INVESTORS:
HILAL CAPITAL, L.P.
HILAL CAPITAL QP, LP
HILAL CAPITAL ASSOCIATES, LLC
HILAL CAPITAL INTERNATIONAL LTD.
HIGHBRIDGE INTERNATIONAL LLC
Investor signature pages to follow:
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<PAGE> 30
SCHEDULE A
PART I - FIRST CLOSING
MAY 3, 2000
LIST OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF INVESTOR PURCHASED PURCHASE PRICE
- -------------------------------- ------- ------------
<S> <C> <C>
Hilal Capital, LP 1,111,111 $4,999,999.50
Hilal Capital QP, LP
------- ------------
Hilal Capital International Ltd.
------- ------------
Highbridge International LLC
Hilal Capital Associates LLC
Keith Manchester 22,222 99,999.00
TOTALS 1,133,333 $5,099,998.50
========= =============
</TABLE>
-30-
<PAGE> 31
PART II - SECOND CLOSING
JUNE 15, 2000
LIST OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF INVESTOR PURCHASED PURCHASE PRICE
- -------------------------- ------- -------------
<S> <C> <C>
Hilal Capital, LP 1,111,111 $4,999,999.50
------- -------------
TOTALS 1,111,111 $4,999,999.50
======= =============
</TABLE>
31
<PAGE> 1
EXHIBIT 10.1.1
AS AMENDED AND RESTATED
OCTOBER 10, 1996
EXHIBIT A
1992 STOCK PLAN OF
IXSYS, INC.
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was established in 1992. The purpose of the Plan is to offer
selected employees, directors, advisors and consultants an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan was last
amended and restated effective as of October 10, 1996. The Plan provides both
for the direct award or sale of Shares and for the grant of Options to purchase
Shares. Options granted under the Plan may include Nonstatutory Options as well
as ISOs intended to qualify under section 422 of the Code.
SECTION 2. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a committee of the Board of Directors, as
described in Section 3(a).
(d) "Company" shall mean Ixsys, Inc., a Delaware corporation.
(e) "Employee" shall mean (i) any individual who is a common-law
employee of the Company or of a Subsidiary, (ii) a member of the Board of
Directors or (iii) an independent contractor who performs services for the
Company or a Subsidiary. Service
-1-
<PAGE> 2
as a member of the Board of Directors or as an independent contractor shall be
considered employment for all purposes of the Plan except the second sentence of
Section 4(a).
(f) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(g) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(h) "ISO" shall mean an employee incentive stock option described in
section 422(b) of the Code.
(i) "Nonstatutory Option" shall mean an employee stock option not
described in sections 422(b) or 423(b) of the Code.
(j) "Offeree" shall mean an individual to whom the Committee has offered
the right to acquire Shares under the Plan (other than upon exercise of an
Option).
(k) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(l) "Optionee" shall mean an individual who holds an Option.
(m) "Plan" shall mean this 1992 Stock Plan of Ixsys, Inc.
(n) "Purchase Price" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Committee.
(o) "Service" shall mean service as an Employee.
-2-
<PAGE> 3
(p) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 9 (if applicable).
(q) "Stock" shall mean the Common Stock ($.001 par value) of the
Company.
(r) "Stock Option Agreement" shall mean the agreement between the
Company and an Optionee which contains the terms, conditions and restrictions
pertaining to the Optionee's Option.
(s) "Stock Purchase Agreement" shall mean the agreement between the
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(t) "Subsidiary" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(u) "Total and Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
SECTION 3. ADMINISTRATION.
(a) Committee Membership. The Plan shall be administered by one or more
Committees. Each Committee shall consist of one or more members of the Board of
Directors who have been appointed by the Board of Directors. If more than one
Committee has been appointed, each Committee shall have such authority and be
-3-
<PAGE> 4
responsible for such functions as the Board of Directors has assigned to it, and
a reference to the Committee in the Plan shall be construed as a reference to
the Committee to whom the Board of Directors has assigned the function in
question. If no Committee has been appointed, the entire Board of Directors
shall constitute the Committee.
(b) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Shares are to be awarded or offered for sale
and when Options are to be granted under the Plan;
(v) To select the Offerees and Optionees;
(vi) To determine the number of Shares to be offered to each
Offeree or to be made subject to each Option;
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<PAGE> 5
(vii) To prescribe the terms and conditions of each award or sale of
Shares, including (without limitation) the Purchase Price, and to specify
the provisions of the Stock Purchase Agreement relating to such award or
sale;
(viii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price, to determine whether
such Option is to be classified as an ISO or as a Nonstatutory Option and
to specify the provisions of the Stock Option Agreement relating to such
Option;
(ix) To amend any outstanding Stock Purchase Agreement or Stock
Option Agreement, subject to applicable legal restrictions and to the
consent of the Offeree or Optionee who entered into such agreement;
(x) To prescribe the consideration for the grant of each Option or
other right under the Plan and to determine the sufficiency of such
consideration; and
(xi) To take any other actions deemed necessary or advisable for
the administration of the Plan.
All decisions, interpretations and other actions of the Committee shall be final
and binding on all Offerees, all Optionees and all persons deriving their rights
from an Offeree or Optionee. No member of the Committee shall be liable for any
action that such member has taken or has failed to take in good faith with
respect to the Plan, any Option or any right to acquire Shares under the Plan.
(d) Financial Reports. The Company each year shall furnish to Optionees,
Offerees and stockholders who have received Stock under the Plan its financial
statements and management's discussion and analysis of financial condition and
results of operations, unless such Optionees, Offerees or stockholders are key
Employees whose
-5-
<PAGE> 6
duties with the Company assure them access to equivalent information. Such
financial statements need not be audited.
SECTION 4. ELIGIBILITY.
(a) General Rule. Only Employees, as defined in Section 2(e), shall be
eligible for designation as Optionees or Offerees by the Committee. In addition,
only individuals who are employed as common-law employees by the Company or a
Subsidiary shall be eligible for the grant of ISOs.
(b) Ten-Percent Stockholders. An Employee who owns more than 10 percent
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for designation as an
Optionee or Offeree unless (i) the Exercise Price is at least 110 percent of the
Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if
any) is at least 100 percent of the Fair Market Value of a Share and (iii) in
the case of an ISO, such ISO by its terms is not exercisable after the
expiration of five years from the date of grant.
(c) Attribution Rules. For purposes of Subsection (b) above, in
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for such Employee's brothers, sisters, spouse,
ancestors and lineal descendants. Stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Employee holds an option shall not be counted.
(d) Outstanding Stock. For purposes of Subsection (b) above,
"outstanding stock" shall include all stock actually issued and outstanding
immediately after the grant.
-6-
<PAGE> 7
"Outstanding stock" shall not include shares authorized for issuance under
outstanding options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares or treasury Shares. The aggregate number of Shares which may
be issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 2,100,000 Shares, subject to adjustment pursuant to
Section 9. The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan.
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Purchase Agreement. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Offeree and the Company. Such award or sale shall
be subject to all applicable terms and conditions of the Plan and may be subject
to any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems
-7-
<PAGE> 8
appropriate for inclusion in a Stock Purchase Agreement. The provisions of the
various Stock Purchase Agreements entered into under the Plan need not be
identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Offeree within 30 days after the grant of such right was
communicated to the Offeree by the Committee. Such right shall not be
transferable and shall be exercisable only by the Offeree to whom such right was
granted.
(c) Purchase Price. The Purchase Price of Shares to be offered under the
Plan shall not be less than 85 percent of the Fair Market Value of such Shares,
except as otherwise provided in Section 4(b). Subject to the preceding sentence,
the Purchase Price shall be determined by the Committee at its sole discretion.
The Purchase Price shall be payable in a form described in Section 8.
(d) Withholding Taxes. As a condition to the purchase of Shares, the
Offeree shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with such purchase.
(e) Restrictions on Transfer of Shares. Any Shares awarded or sold under
the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any restrictions that
may apply to holders of Shares generally. Any service-based vesting conditions
shall not be less rapid than the schedule set forth in Section 7(e).
-8-
<PAGE> 9
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 9. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100 percent
of the Fair Market Value of a Share on the date of grant, and a higher
percentage may be required by Section 4(b). The Exercise Price of a Nonstatutory
Option shall not be less than 85 percent of the Fair Market Value of a Share on
the date of grant, and a higher percentage may be required by Section 4(b).
Subject to the preceding two sentences, the Exercise Price under any Option
shall be determined by the Committee at its sole discretion. The Exercise Price
shall be payable in a form described in Section 8.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in
-9-
<PAGE> 10
connection with such exercise. The Optionee shall also make such arrangements as
the Committee may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.
(e) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. An Option
shall become exercisable at least as rapidly as set forth in the following
schedule:
<TABLE>
<CAPTION>
Anniversary of Percentage of Shares
Date of Grant Exercisable
-------------- --------------------
<S> <C>
First....................................... 20%
Second...................................... 40%
Third....................................... 60%
Fourth...................................... 80%
Fifth....................................... 100%
</TABLE>
Subject to the preceding sentence, the vesting provisions of any Stock Option
Agreement shall be determined by the Committee at its sole discretion.
(f) Term. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, except as
otherwise provided in Section 4(b). Subject to the preceding sentence, the
Committee at its sole discretion shall determine when an Option is to expire.
(g) Nontransferability. No Option shall be transferable by the Optionee
other than by will or by the laws of descent and distribution. An Option may be
exercised during the lifetime of the Optionee only by the Optionee or by the
Optionee's guardian or legal representative. No Option or interest therein may
be transferred, assigned, pledged or hypothecated by the Optionee during the
Optionee's lifetime, whether by operation of law or otherwise, or be made
subject to execution, attachment or similar process.
-10-
<PAGE> 11
(h) Termination of Service (Except by Death). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the Optionee's
Option(s) shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (f)
above;
(ii) The date 90 days after the termination of the Optionee's
Service for any reason other than Total and Permanent Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Total and Permanent Disability.
The Optionee may exercise all or part of the Optionee's Option(s) at any time
before the expiration of such Option(s) under the preceding sentence, but only
to the extent that such Option(s) had become exercisable before the Optionee's
Service terminated. The balance of such Option(s) shall lapse when the
Optionee's Service terminates. In the event that the Optionee dies after the
termination of the Optionee's Service but before the expiration of the
Optionee's Option(s), all or part of such Option(s) may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Option(s) directly from the Optionee by bequest
or inheritance, but only to the extent that such Option(s) had become
exercisable before the Optionee's Service terminated.
(i) Leaves of Absence. For purposes of Subsection (h) above, Service
shall be deemed to continue while the Optionee is on military leave, sick leave
or other bona fide leave of absence (as determined by the Committee). The
foregoing notwithstanding, in the case of an ISO granted under the Plan, Service
shall not be deemed to continue
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<PAGE> 12
beyond the first 90 days of such leave, unless the Optionee's reemployment
rights are guaranteed by statute or by contract.
(j) Death of Optionee. If an Optionee dies while the Optionee is in
Service, then the Optionee's Option(s) shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (f)
above;
or
(ii) The date six months after the Optionee's death.
All or part of the Optionee's Option(s) may be exercised at any time before the
expiration of such Option(s) under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Option(s) directly from the Optionee by bequest or inheritance, but only to the
extent that such Option(s) had become exercisable before the Optionee's death.
The balance of such Option(s) shall lapse when the Optionee dies.
(k) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person is entitled, pursuant to the
terms of such Option, to receive such Shares. No adjustments shall be made,
except as provided in Section 9.
(l) Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price. The foregoing
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<PAGE> 13
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, impair the Optionee's rights or increase the Optionee's obligations
under such Option.
(m) Restrictions on Transfer of Shares. Any Shares issued upon exercise
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any restrictions that may
apply to holders of Shares generally. Any service-based vesting conditions shall
not be less rapid than the schedule set forth in Subsection (e) above.
SECTION 8. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in lawful money of the United States of
America at the time when such Shares are purchased, except as provided in
Subsections (b), (c), (d), (e) and (f) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or the Optionee's representative for more than six months
and which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan. (c) Services Rendered. At the discretion of the
Committee, Shares may be awarded or exercised under the Plan in consideration of
services rendered to the Company or a Subsidiary prior to the award. If Shares
are awarded without the payment
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<PAGE> 14
of a Purchase Price in cash, the Committee shall make a determination (at the
time of the award or prior to exercise of an option) of the value of the
services rendered by the Offeree and the sufficiency of the consideration to
meet the requirements of Section 6(c).
(d) Promissory Note. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note, provided that (i) the par value of such
Shares must be paid in lawful money of the United States of America at the time
when such Shares are purchased, (ii) the Shares are pledged as security for
payment of the principal amount of the promissory note and interest thereon and
(iii) the interest rate payable under the terms of the promissory note shall not
be less than the minimum rate (if any) required to avoid the imputation of
additional interest under the Code. Subject to the foregoing, the Committee (at
its sole discretion) shall specify the term, interest rate, amortization
requirements (if any) and other provisions of such note.
(e) Exercise/Sale. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Shares and to deliver all or part of the sales
proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes.
(f) Exercise/Pledge. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by the delivery (on a form
prescribed by the Company) of an irrevocable direction to pledge Shares to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan
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<PAGE> 15
proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes.
SECTION 9. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock into a lesser
number of Shares, a recapitalization, a spinoff, a reclassification or a similar
occurrence, the Committee shall make appropriate adjustments in one or more of
(i) the number of Shares available for future grants under Section 5, (ii) the
number of Shares covered by each outstanding Option or (iii) the Exercise Price
under each outstanding Option.
(b) Mergers; Consolidations. In the event that the Company is a party to
a merger or consolidation, outstanding Options shall be subject to the agreement
of merger or consolidation. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by the Company (if the Company is the surviving corporation). In
the event the Company is not the surviving corporation and the surviving
corporation will not assume the outstanding Options, the agreement of merger or
consolidation may provide for payment of a cash settlement for exercisable
Options equal to the difference between the amount to be paid for one Share
under such agreement and the Exercise Price and for the cancellation of Options
not exercised or settled, in either case without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 9, an
Optionee or Offeree shall have no rights by reason of (i) any subdivision or
consolidation of shares
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<PAGE> 16
of stock of any class, (ii) the payment of any dividend or (iii) any other
increase or decrease in the number of shares of stock of any class. Any issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
SECTION 10. SECURITIES LAWS.
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares comply with (or are exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.
SECTION 11. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason.
SECTION 12. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective as of August 17, 1994, subject to the approval of the Company's
stockholders. In the event
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<PAGE> 17
that the stockholders fail to approve the Plan on or before the date 12 months
after August 17, 1994, any ISOs already granted shall be treated as Nonstatutory
Options, and no additional ISOs shall be granted after such date. The Plan shall
terminate automatically 10 years after its initial adoption by the Board of
Directors on May 26, 1992, and may be terminated on any earlier date pursuant to
Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 9), or
which materially changes the class of persons who are eligible for the grant of
ISOs, shall be subject to the approval of the Company's stockholders.
Stockholder approval shall not be required for any other amendment of the Plan.
(c) Effect of Amendment or Termination. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.
SECTION 13. EXECUTION.
To record the amendment and restatement of the Plan by the Board of
Directors on October 10, 1996, the Company has caused its authorized officer to
execute the same.
IXSYS, INC.
By ______________________________
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<PAGE> 18
AMENDMENT TO
APPLIED MOLECULAR EVOLUTION, INC.
1992 STOCK PLAN
Pursuant to Section 12(b) of Ixsys, Inc. 1992 Stock Plan (the "Plan"), the
Plan is hereby amended as follows:
1. The name of the Plan is hereby changed from Ixsys, Inc. 1992 Stock
Plan to "Applied Molecular Evolution, Inc. 1992 Stock Plan."
2. Section 2 is hereby amended by adding a new subsection (b) which
shall read as follows:
(b) "Change in Control" shall mean:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization,
if more than 50% of the combined voting power of the continuing or
surviving entity's securities outstanding immediately after such
merger, consolidation or other reorganization is owned by persons
who were not stockholders of the Company immediately prior to such
merger, consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if: (a) its
sole purpose is to change the state of the Company's incorporation,
(b) its sole purpose is to create a holding company that will be
owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction or (c)
such transaction constitutes the Company's initial public offering.
3. Section (2)(d) is hereby amended by replacing "Ixsys, Inc." with
"Applied Molecular Evolution, Inc."
4. Section 2(m) is hereby amended by replacing "Ixsys, Inc." with
"Applied Molecular Evolution, Inc."
5. Section 2 is hereby amended by adding a new subsection (o) which
shall read as follows:
(o) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
<PAGE> 19
6. Section 3(b) is hereby amended by adding the following:
(i) Section 162(m): To the extent that the Committee determines it
to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section
162 (m) of the Code, the Plan shall be administered by a
Committee of two or more "outside directors" within the
meaning of Section 162(m) of the Code.
(ii) Rule 16b-3: To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the
requirements for exemption under Rule 16b-3.
7. The last paragraph of Section 3(c) shall be deleted in its entirety
and replaced with the following:
Subject to the requirements of applicable law, the Committee may
designate persons other than members of the Committee to carry out
its responsibilities and may prescribe such conditions and
limitations as it may deem appropriate, except that the Committee
may not delegate its authority with regard to the selection for
participation of or the granting of Options or other rights under
the Plan to persons subject to Section 16 of the Exchange Act. All
decisions, interpretations and other actions of the Committee shall
be final and binding on all Offerees, all Optionees and all persons
deriving their rights from an Offeree or Optionee. No member of the
Committee shall be liable for any action that he has taken or has
failed to take in good faith with respect to the Plan, any Option,
or any right to acquire Shares under the Plan.
8. The first sentence in Section 3(d) is hereby amended by adding the
following language to the beginning of such sentence, "To the extent
required by applicable law[,]."
9. Section 5(a) is hereby amended by deleting "2,100,000 Shares" and
replacing such language with "3,100,000 Shares."
10. The last sentence in Section 6(e) is hereby amended by adding the
following language to the beginning of such sentence, "To the extent
required by applicable law[,]."
11. The second sentence of Section 7(e) is hereby amended by adding the
following language to the beginning of such sentence, "To the extent
required by applicable law[,]."
[SIGNATURE PAGE FOLLOWS]
<PAGE> 20
IN WITNESS WHEREOF, Applied Molecular Evolution, Inc. has adopted this Amendment
to the Plan, effective, April 7, 2000. To record this Amendment of the Plan by
the Board of Directors on April 7, 2000, the Company has caused its authorized
officer to execute the same.
APPLIED MOLECULAR EVOLUTION, INC.
BY: /S/ William D. Huse
-------------------
DATE: April 7, 2000
-------------------
<PAGE> 1
EXHIBIT 10.1.2
THE OPTION GRANTED PURSUANT TO THIS INCENTIVE STOCK OPTION AGREEMENT (THE
"OPTION") AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE OPTION OR THE SHARES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL,
WHICH IS SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS OPTION AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES.
1992 STOCK PLAN OF IXSYS, INC.:
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, entered into as of __________ __, 199_, between IXSYS,
INC., a Delaware corporation (the "Company"), and _____________________________
(the "Optionee"),
W I T N E S S E T H:
WHEREAS, the Company's Board of Directors has established the 1992 Stock
Plan of Ixsys, Inc. in order to provide selected Employees of the Company and
its Subsidiaries with an opportunity to acquire Stock of the Company; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the Incentive Stock
Option described in this Agreement to the Optionee as an inducement to enter
into or remain in the Service of the Company and as an incentive for
extraordinary efforts during such Service:
NOW, THEREFORE, it is agreed as follows:
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<PAGE> 2
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions stated below, the Company hereby
grants to the Optionee the option to purchase ______________________________
(________) Shares for the sum of _____________________________ dollars ($___.__)
per Share, which is agreed to be __________ percent (___%) of the Fair Market
Value thereof on the Date of Grant.
(b) Stock Plan. This option is granted pursuant to the Plan, a copy of
which the Optionee acknowledges having received, read and understood. The
provisions of the Plan are incorporated into this Agreement by this reference.
SECTION 2. RIGHT TO EXERCISE.
(a) Vesting. Subject to the conditions stated herein, the right to
exercise this option shall accrue on a daily basis over the four-year period
commencing on the Date of Grant. The percentage of the total number of Shares
subject to this option with respect to which this option is exercisable at any
time shall be equal to the product of 0.06844627% times the number of days that
have elapsed since the Date of Grant; provided, however, that this option shall
not be exercisable for any number of Shares until after the Optionee has
completed six months of Service from the Date of Grant (as determined by and in
accordance with the Plan). The resulting number of Shares shall be rounded to
the nearest integer.
(b) Periods of Nonexercisability. Any other provision of this Agreement
notwithstanding, the Company shall have the right to designate one or more
periods of time, each of which shall not exceed 18 consecutive months in length,
during which this option shall not be exercisable if the Company determines (in
its sole discretion) that
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<PAGE> 3
such limitation on exercise could in any way facilitate a lessening of any
restriction on transfer pursuant to the Securities Act or any state securities
laws with respect to any issuance of securities by the Company, facilitate the
registration or qualification of any securities by the Company under the
Securities Act or any state securities laws, or facilitate the perfection of any
exemption from the registration or qualification requirements of the Securities
Act or any applicable state securities laws for the issuance or transfer of any
securities. Such limitation on exercise shall not alter the vesting schedule set
forth in Subsection (a) above other than to limit the periods during which this
option shall be exercisable. The Optionee shall be notified in writing in
advance of any such designation by the Company.
(c) Stockholder Approval. Any other provision of this Agreement
notwithstanding, this option shall not be exercisable at any time prior to the
approval of the Plan by the Company's stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the
rights and privileges conferred hereby shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to sale under execution, attachment, levy or similar
process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of this option, or of any right or privilege conferred hereby, contrary
to the provisions hereof, or upon any attempted sale under any execution,
attachment, levy or similar process upon the rights and privileges conferred
hereby, this option and the rights and privileges conferred hereby shall
immediately become null and void.
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<PAGE> 4
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee's representative
may exercise this option by giving written notice to the Secretary of the
Company pursuant to Section 12(c). The notice shall specify the election to
exercise this option, the number of Shares for which it is being exercised and
the form of payment (if more than one form is available). The notice shall be
signed by the person exercising this option. In the event that this option is
being exercised by the representative of the Optionee, the notice shall be
accompanied by proof (satisfactory to the Company) of the representative's right
to exercise this option. The Optionee or the Optionee's representative shall
deliver to the Secretary of the Company, at the time of giving the notice,
payment in a form permissible under Section 5 for the full amount of the
Purchase Price.
(b) Issuance of Shares. After receiving a proper notice of exercise, the
Company shall cause to be issued a certificate or certificates for the Shares as
to which this option has been exercised, registered in the name of the person
exercising this option (or in the names of such person and his or her spouse as
community property or as joint tenants with right of survivorship). The Company
shall cause such certificate or certificates to be delivered to or upon the
order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that it
is required to withhold foreign, federal, state or local tax as a result of the
exercise of this option, the Optionee, as a condition to the exercise of this
option, shall make arrangements satisfactory to the Company to enable it to
satisfy all withholding requirements. The Optionee shall also make arrangements
satisfactory to the Company
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<PAGE> 5
to enable it to satisfy any withholding requirements that may arise in
connection with the disposition of Shares purchased by exercising this option.
SECTION 5. PAYMENT FOR STOCK.
(a) Cash. All or part of the Purchase Price may be paid in lawful money
of the United States of America.
(b) Surrender of Stock. All or part of the Purchase Price may be paid by
the surrender of Shares in good form for transfer. Such Shares must have been
owned for more than six months by the Optionee or the Optionee's representative
and must have a fair market value (as determined by the Committee) on the date
of exercise of this option which, together with any amount paid in another form
permissible under this Section 5, is equal to the Purchase Price.
(c) Exercise/Sale. All or part of the Purchase Price and any withholding
taxes may be paid by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company.
(d) Exercise/Pledge. All or part of the Purchase Price and any
withholding taxes may be paid by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company.
SECTION 6. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the date 10
years after the Date of Grant.
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<PAGE> 6
(b) Termination of Service (Except by Death). If the Optionee's Service
terminates for any reason other than death, then this option shall expire on the
earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a)
above;
(ii) The date 90 days after the termination of the Optionee's
Service for any reason other than Total and Permanent Disability; or
(iii) The date six months after the termination of the
Optionee's Service by reason of Total and Permanent Disability.
The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's Service terminated. The balance of
this option shall lapse when the Optionee's Service terminates. In the event
that the Optionee dies after the termination of Service but before the
expiration of this option, all or part of this option may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired this option directly from the Optionee by bequest or
inheritance, but only to the extent that this option had become exercisable
before the Optionee's Service terminated.
(c) Death of Optionee. If the Optionee dies as an Employee, then this
option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a)
above; or
(ii) The date six months after the Optionee's death.
All or part of this option may be exercised at any time before its expiration
under the
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<PAGE> 7
preceding sentence by the executors or administrators of the Optionee's estate
or by any person who has acquired this option directly from the Optionee by
bequest or inheritance, but only to the extent that this option had become
exercisable before the Optionee's death. The balance of this option shall lapse
when the Optionee dies.
(d) Leaves of Absence. For purposes of this Section 6, the Employee
relationship shall be deemed to continue during any period when the Optionee is
on military leave, sick leave or other bona fide leave of absence (to be
determined in the sole discretion of the Committee). However, if the Optionee's
reemployment rights are not guaranteed by statute or by contract, then the
Employee relationship shall not be deemed to continue beyond the 90th day of
such period.
SECTION 7. THE COMPANY'S RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. In the event that the Optionee or a
Transferee proposes to sell, pledge or otherwise transfer to a third party any
Shares acquired under this Agreement, or any interest in such Shares, the
Company shall have the Right of First Refusal with respect to all (and not less
than all) of such Shares. If the Optionee or Transferee desires to transfer
Shares acquired under this Agreement, the Optionee or Transferee shall give a
written Transfer Notice to the Company describing fully the proposed transfer,
including the number of Shares proposed to be transferred, the proposed transfer
price, the name and address of the proposed new Transferee and proof
satisfactory to the Company that the proposed sale or transfer will not violate
any applicable federal or state securities laws. The Transfer Notice shall be
signed both by the Optionee or Transferee and by the proposed new Transferee and
must constitute a binding commitment of both parties to the transfer of the
Shares. The Company shall
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<PAGE> 8
have the right to purchase all, and not less than all, of the Shares on the
terms of the proposal described in the Transfer Notice (subject, however, to any
change in such terms permitted under Subsection (b) below) by delivery of a
notice of exercise of the Right of First Refusal within 30 days after the date
when the Transfer Notice was received by the Company. The Company's rights under
this Subsection (a) shall be freely assignable, in whole or in part.
(b) Transfer of Shares. If the Company fails to exercise its Right of
First Refusal within 30 days after the date when it received the Transfer
Notice, the Optionee or Transferee may, not later than 90 days following receipt
of the Transfer Notice by the Company, conclude a transfer of the Shares subject
to the Transfer Notice on the terms and conditions described in the Transfer
Notice; provided that any such sale is made in compliance with applicable
federal and state securities laws and not in violation of any other contractual
restrictions to which the Optionee is bound. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee or Transferee, shall again be
subject to the Right of First Refusal and shall require compliance with the
procedure described in Subsection (a) above. If the Company exercises its Right
of First Refusal, the parties shall consummate the sale of the Shares on the
terms set forth in the Transfer Notice within 60 days after the date when the
Company received the Transfer Notice (or within such longer period as may have
been specified in the Transfer Notice); provided, however, that in the event the
Transfer Notice provided that payment for the Shares was to be made in a form
other than lawful money paid at the time of transfer, the Company
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<PAGE> 9
shall have the option of paying for the Shares with lawful money equal to the
present value of the consideration described in the Transfer Notice.
(c) Binding Effect. The Company's Right of First Refusal shall inure to
the benefit of its successors and assigns and shall be binding upon any
Transferee of the Shares.
(d) Additional Shares or Substituted Securities. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than stock, a stock split, an adjustment in conversion
ratio, a recapitalization or a similar transaction affecting the Company's
outstanding securities without receipt of consideration, any new, substituted or
additional securities or other property which are by reason of such transaction
distributed with respect to any Shares subject to this Section 7 or into which
such Shares thereby become convertible shall immediately be subject to this
Section 7. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the Shares
subject to this Section 7.
(e) Termination of Right of First Refusal. Any other provision of this
Section 7 notwithstanding, in the event that Stock is listed on an established
stock exchange or is quoted regularly on the NASDAQ System at the time when the
Optionee or Transferee desires to transfer Shares, the Company shall have no
Right of First Refusal, and the Optionee or Transferee shall have no obligation
to comply with the procedures prescribed by Subsections (a), (b) and (c) above.
(f) Transfer by Will or Intestate Succession. This Section 7 shall not
apply to a transfer by will or intestate succession, provided that the
Transferee agrees in writing on a form prescribed by the Company to be bound by
this Agreement.
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<PAGE> 10
(g) Transfer to Trust. The Optionee shall have the right to transfer all
or any portion of the Optionee's interest in the Shares issued and delivered
under this Agreement, to a trust established by the Optionee for the benefit of
the Optionee or the Optionee's spouse or children, without being subject to the
provisions of this Section 7, provided that the trustee on behalf of such trust
shall agree in writing on a form prescribed by the Company to be bound by this
Agreement.
(h) Termination of Rights as Stockholder. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased in accordance with
the provisions of this Section 7, then from and after such time the person from
whom such Shares are to be purchased shall no longer have any rights as a holder
of such Shares (other than the right to receive payment of such consideration in
accordance with this Agreement). Such Shares shall be deemed to have been
purchased in accordance with the applicable provisions hereof, whether or not
the certificate(s) therefor have been delivered as required by this Agreement.
(i) Legend. All certificates representing Shares purchased under this
Agreement shall be endorsed with the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS
CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF
THE SHARES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN
REQUEST
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FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT
CHARGE."
SECTION 8. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:
(a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof;
(b) Any applicable listing requirement of any stock exchange on which
Stock is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has been
satisfied.
SECTION 9. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the
sale of Shares under the Securities Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the sale
of Shares under this Agreement to comply with any law.
SECTION 10. SECURITIES LAW RESTRICTIONS ON TRANSFER.
(a) Restrictions. Regardless of whether the offering and sale of Shares
under the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company at
its discretion may impose restrictions upon the sale, pledge or other transfer
of such Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Company and its counsel, such
restrictions are necessary or desirable in order to achieve
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compliance with the Securities Act, the securities laws of any state or any
other law or with restrictions imposed by the Company's underwriters.
(b) Investment Intent at Grant. The Optionee represents and agrees that
the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
(c) Investment Intent at Exercise. In the event that the sale of Shares
under the Plan is not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being acquired for investment,
and not with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.
(d) Legend. All certificates evidencing Shares acquired under this
Agreement in an unregistered transaction shall bear the following restrictive
legend (and such other restrictive legends as are required or deemed advisable
under the provisions of any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED."
(e) Removal of Legends. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such
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<PAGE> 13
certificate for a certificate representing the same number of Shares but lacking
such legend.
(f) Administration. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 10 shall be
conclusive and binding on the Optionee and all other persons.
SECTION 11. SHARES AND ADJUSTMENTS.
(a) General. In the event of a subdivision of the outstanding Shares, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Shares into a
lesser number of Shares, a recapitalization, a spinoff, a reclassification or a
similar occurrence, the Committee shall make appropriate adjustments in one or
both of (i) the number of Shares covered by this option or (ii) the Exercise
Price.
(b) Mergers; Consolidations. In the event that the Company is a party to
a merger or consolidation, outstanding Options shall be subject to the agreement
of merger or consolidation. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by the Company (if the Company is the surviving corporation). In
the event the Company is not the surviving corporation and the surviving
corporation will not assume the outstanding Options, the agreement of merger or
consolidation may provide for payment of a cash settlement for exercisable
Options equal to the difference between the amount to be paid for one Share
under such agreement and the Exercise Price and for the cancellation of Options
not exercised or settled, in either case without the Optionees' consent.
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(c) Reservation of Rights. Except as provided in this Section 11, the
Optionee shall have no rights by reason of (i) any subdivision or consolidation
of shares of stock of any class, (ii) the payment of any dividend or (iii) any
other increase or decrease in the number of shares of stock of any class. Any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of the
Shares subject to this option. The grant of this option shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 12. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until the Optionee or the Optionee's representative is
entitled, pursuant to the terms of this option, to receive such Shares.
(b) No Employment Rights. Nothing in this Agreement shall be construed
as giving the Optionee the right to be retained as an Employee. The Company
reserves the right to terminate the Optionee's Service at any time, with or
without cause.
(c) Notice. Any notice required or permitted by the terms of this
Agreement shall be given in writing and shall be deemed effective upon personal
delivery to the party to be notified (or upon the date of attempted delivery
where delivery is refused) or, if sent by telecopier, telex, telegram, or other
facsimile means, upon receipt of appropriate confirmation of receipt, or upon
deposit with the United States Postal
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Service, by registered or certified mail, or next day air courier, with postage
and fees prepaid and addressed to the party entitled to such notice at the
address shown below such party's signature on this Agreement, or at such other
address as such party may designate by 10 days' advance written notice to the
other party to this Agreement.
(d) Entire Agreement. This Agreement and the Plan constitute the entire
contract between the parties hereto with regard to the subject matter hereof.
(e) Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
SECTION 13. DEFINITIONS.
(a) "Agreement" shall mean this Incentive Stock Option Agreement.
(b) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee of the Board described in
section 3 of the Plan or, if none has been appointed, the full Board.
(e) "Date of Grant" shall mean the date on which the Committee resolved
to grant this option, which is also the date as of which this Agreement is
entered into.
(f) "Employee" shall mean any individual who is a common-law employee of
the Company or of a Subsidiary.
(g) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in Section 1(a).
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(h) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(i) "Incentive Stock Option" shall mean an employee incentive stock
option described in section 422(b) of the Code.
(j) "Plan" shall mean the 1992 Stock Plan of Ixsys, Inc., as in effect
on the Date of Grant.
(k) "Purchase Price" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.
(l) "Right of First Refusal" shall mean the Company's right of first
refusal described in Section 7.
(m) "Securities Act" shall mean the Securities Act of 1933, as amended.
(n) "Service" shall mean service as an Employee.
(o) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 11 (if applicable).
(p) "Stock" shall mean the Common Stock ($.001 par value) of the
Company.
(q) "Subsidiary" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50% of the total combined voting
power of all classes of outstanding stock of such corporation.
(r) "Total and Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
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(s) "Transferee" shall mean any person to whom the Optionee has directly
or indirectly transferred any Share acquired under this Agreement.
(t) "Transfer Notice" shall mean the notice of a proposed transfer of
Shares described in Section 7.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by its officer duly authorized to act on behalf of the Committee,
and the Optionee has personally executed this Agreement.
OPTIONEE IXSYS, INC.
___________________________ By ___________________________
Optionee's Address: Company's Address:
___________________________ 3550 General Atomics Court
Suite L-103
___________________________ San Diego, CA 92121
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<PAGE> 18
ACKNOWLEDGMENT OF RECEIPT OF COPY
OF SECTION 260.141.11 OF
THE CALIFORNIA CORPORATE
SECURITIES RULES
Pursuant to the grant to the undersigned of an option to purchase shares
of Common Stock of Ixsys, Inc., under that Incentive Stock Option Agreement
dated as of _____________, 199_, the undersigned hereby acknowledges that he or
she received a copy of section 260.141.11 of the California Corporation
Securities Rules as required by subsection (a) thereof, and that such receipt
occurred at the same time as the undersigned entered into the aforementioned
Incentive Stock Option Agreement.
------------------------------
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<PAGE> 1
EXHIBIT 10.1.3
THE OPTION GRANTED PURSUANT TO THIS NONSTATUTORY STOCK OPTION AGREEMENT (THE
"OPTION") AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE OPTION OR THE SHARES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL,
WHICH IS SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS OPTION AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE HEREOF, OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES.
1992 STOCK PLAN OF IXSYS, INC.:
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT, entered into as of __________ __, 199_, between IXSYS,
INC., a Delaware corporation (the "Company"), and _____________________________
(the "Optionee"),
W I T N E S S E T H:
WHEREAS, the Company's Board of Directors has established the 1992 Stock
Plan of Ixsys, Inc. in order to provide selected Employees of the Company and
its Subsidiaries with an opportunity to acquire Stock of the Company; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and its stockholders to grant the Nonstatutory Stock
Option described in this Agreement to the Optionee as an inducement to enter
into or remain in the Service of the Company and as an incentive for
extraordinary efforts during such Service:
NOW, THEREFORE, it is agreed as follows:
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SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions stated below, the Company hereby
grants to the Optionee the option to purchase ______________________________
(________) Shares for the sum of _____________________________ dollars ($___.__)
per Share, which is agreed to be ___________ percent (___%) of the Fair Market
Value thereof on the Date of Grant. This option is not intended to be an
Incentive Stock Option.
(b) Stock Plan. This option is granted pursuant to the Plan, a copy of
which the Optionee acknowledges having received, read and understood. The
provisions of the Plan are incorporated into this Agreement by this reference.
SECTION 2. RIGHT TO EXERCISE.
(a) Vesting. Subject to the conditions stated herein, the right to
exercise this option shall accrue on a daily basis over the four-year period
commencing on the Date of Grant. The percentage of the total number of Shares
subject to this option with respect to which this option is exercisable at any
time shall be equal to the product of 0.06844627% times the number of days that
have elapsed since the Date of Grant; provided, however, that this option shall
not be exercisable for any number of Shares until after the Optionee has
completed six months of Service from the Date of Grant (as determined by and in
accordance with the Plan). The resulting number of Shares shall be rounded to
the nearest integer.
(b) Periods of Nonexercisability. Any other provision of this Agreement
notwithstanding, the Company shall have the right to designate one or more
periods of time, each of which shall not exceed 18 consecutive months in length,
during which this option shall not be exercisable if the Company determines (in
its sole discretion) that
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<PAGE> 3
such limitation on exercise could in any way facilitate a lessening of any
restriction on transfer pursuant to the Securities Act or any state securities
laws with respect to any issuance of securities by the Company, facilitate the
registration or qualification of any securities by the Company under the
Securities Act or any state securities laws, or facilitate the perfection of any
exemption from the registration or qualification requirements of the Securities
Act or any applicable state securities laws for the issuance or transfer of any
securities. Such limitation on exercise shall not alter the vesting schedule set
forth in Subsection (a) above other than to limit the periods during which this
option shall be exercisable. The Optionee shall be notified in writing in
advance of any such designation by the Company.
(c) Stockholder Approval. Any other provision of this Agreement
notwithstanding, this option shall not be exercisable at any time prior to the
approval of the Plan by the Company's stockholders.
(d) NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the
rights and privileges conferred hereby shall not be transferred, assigned,
pledged or hypothecated in any way (whether by operation of law or otherwise)
and shall not be subject to sale under execution, attachment, levy or similar
process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of this option, or of any right or privilege conferred hereby, contrary
to the provisions hereof, or upon any attempted sale under any execution,
attachment, levy or similar process upon the rights and privileges conferred
hereby, this option and the rights and privileges conferred hereby shall
immediately become null and void.
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SECTION 3. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee's representative
may exercise this option by giving written notice to the Secretary of the
Company pursuant to Section 12(c). The notice shall specify the election to
exercise this option, the number of Shares for which it is being exercised and
the form of payment (if more than one form is available). The notice shall be
signed by the person exercising this option. In the event that this option is
being exercised by the representative of the Optionee, the notice shall be
accompanied by proof (satisfactory to the Company) of the representative's right
to exercise this option. The Optionee or the Optionee's representative shall
deliver to the Secretary of the Company, at the time of giving the notice,
payment in a form permissible under Section 5 for the full amount of the
Purchase Price.
(b) Issuance of Shares. After receiving a proper notice of exercise, the
Company shall cause to be issued a certificate or certificates for the Shares as
to which this option has been exercised, registered in the name of the person
exercising this option (or in the names of such person and his or her spouse as
community property or as joint tenants with right of survivorship). The Company
shall cause such certificate or certificates to be delivered to or upon the
order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that it
is required to withhold foreign, federal, state or local tax as a result of the
exercise of this option, the Optionee, as a condition to the exercise of this
option, shall make arrangements satisfactory to the Company to enable it to
satisfy all withholding requirements. The Optionee shall also make arrangements
satisfactory to the Company
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to enable it to satisfy any withholding requirements that may arise in
connection with the disposition of Shares purchased by exercising this option.
SECTION 4. PAYMENT FOR STOCK.
(a) Cash. All or part of the Purchase Price may be paid in lawful money
of the United States of America.
(b) Surrender of Stock. All or part of the Purchase Price may be paid by
the surrender of Shares in good form for transfer. Such Shares must have been
owned for more than six months by the Optionee or the Optionee's representative
and must have a fair market value (as determined by the Committee) on the date
of exercise of this option which, together with any amount paid in another form
permissible under this Section 5, is equal to the Purchase Price.
(c) Exercise/Sale. All or part of the Purchase Price and any withholding
taxes may be paid by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company.
(d) Exercise/Pledge. All or part of the Purchase Price and any
withholding taxes may be paid by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company.
SECTION 5. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the date 10
years after the Date of Grant.
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(b) Termination of Service (Except by Death). If the Optionee's Service
terminates for any reason other than death, then this option shall expire on the
earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a)
above;
(ii) The date 90 days after the termination of the Optionee's
Service for any reason other than Total and Permanent Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Total and Permanent Disability. The Optionee may
exercise all or part of this option at any time before its expiration under the
preceding sentence, but only to the extent that this option had become
exercisable before the Optionee's Service terminated. The balance of this option
shall lapse when the Optionee's Service terminates. In the event that the
Optionee dies after the termination of Service but before the expiration of this
option, all or part of this option may be exercised (prior to expiration) by the
executors or administrators of the Optionee's estate or by any person who has
acquired this option directly from the Optionee by bequest or inheritance, but
only to the extent that this option had become exercisable before the Optionee's
Service terminated.
(c) Death of Optionee. If the Optionee dies as an Employee, then this
option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a)
above; or
(ii) The date six months after the Optionee's death.
All or part of this option may be exercised at any time before its expiration
under the
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preceding sentence by the executors or administrators of the Optionee's estate
or by any person who has acquired this option directly from the Optionee by
bequest or inheritance, but only to the extent that this option had become
exercisable before the Optionee's death. The balance of this option shall lapse
when the Optionee dies.
(d) Leaves of Absence. For purposes of this Section 6, the Employee
relationship shall be deemed to continue during any period when the Optionee is
on military leave, sick leave or other bona fide leave of absence (to be
determined in the sole discretion of the Committee).
SECTION 6. THE COMPANY'S RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. In the event that the Optionee or a
Transferee proposes to sell, pledge or otherwise transfer to a third party any
Shares acquired under this Agreement, or any interest in such Shares, the
Company shall have the Right of First Refusal with respect to all (and not less
than all) of such Shares. If the Optionee or Transferee desires to transfer
Shares acquired under this Agreement, the Optionee or Transferee shall give a
written Transfer Notice to the Company describing fully the proposed transfer,
including the number of Shares proposed to be transferred, the proposed transfer
price, the name and address of the proposed new Transferee and proof
satisfactory to the Company that the proposed sale or transfer will not violate
any applicable federal or state securities laws. The Transfer Notice shall be
signed both by the Optionee or Transferee and by the proposed new Transferee and
must constitute a binding commitment of both parties to the transfer of the
Shares. The Company shall have the right to purchase all, and not less than all,
of the Shares on the terms of the proposal described in the Transfer Notice
(subject, however, to any change in such terms
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permitted under Subsection (b) below) by delivery of a notice of exercise of the
Right of First Refusal within 30 days after the date when the Transfer Notice
was received by the Company. The Company's rights under this Subsection (a)
shall be freely assignable, in whole or in part.
(b) Transfer of Shares. If the Company fails to exercise its Right of
First Refusal within 30 days after the date when it received the Transfer
Notice, the Optionee or Transferee may, not later than 90 days following receipt
of the Transfer Notice by the Company, conclude a transfer of the Shares subject
to the Transfer Notice on the terms and conditions described in the Transfer
Notice; provided that any such sale is made in compliance with applicable
federal and state securities laws and not in violation of any other contractual
restrictions to which the Optionee is bound. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee or Transferee, shall again be
subject to the Right of First Refusal and shall require compliance with the
procedure described in Subsection (a) above. If the Company exercises its Right
of First Refusal, the parties shall consummate the sale of the Shares on the
terms set forth in the Transfer Notice within 60 days after the date when the
Company received the Transfer Notice (or within such longer period as may have
been specified in the Transfer Notice); provided, however, that in the event the
Transfer Notice provided that payment for the Shares was to be made in a form
other than lawful money paid at the time of transfer, the Company shall have the
option of paying for the Shares with lawful money equal to the present value of
the consideration described in the Transfer Notice.
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(c) Binding Effect. The Company's Right of First Refusal shall inure to
the benefit of its successors and assigns and shall be binding upon any
Transferee of the Shares.
(d) Additional Shares or Substituted Securities. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than stock, a stock split, an adjustment in conversion
ratio, a recapitalization or a similar transaction affecting the Company's
outstanding securities without receipt of consideration, any new, substituted or
additional securities or other property which are by reason of such transaction
distributed with respect to any Shares subject to this Section 7 or into which
such Shares thereby become convertible shall immediately be subject to this
Section 7. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the Shares
subject to this Section 7.
(e) Termination of Right of First Refusal. Any other provision of this
Section 7 notwithstanding, in the event that Stock is listed on an established
stock exchange or is quoted regularly on the NASDAQ System at the time when the
Optionee or Transferee desires to transfer Shares, the Company shall have no
Right of First Refusal, and the Optionee or Transferee shall have no obligation
to comply with the procedures prescribed by Subsections (a), (b) and (c) above.
(f) Transfer by Will or Intestate Succession. This Section 7 shall not
apply to a transfer by will or intestate succession, provided that the
Transferee agrees in writing on a form prescribed by the Company to be bound by
this Agreement.
(g) Transfer to Trust. The Optionee shall have the right to transfer all
or any portion of the Optionee's interest in the Shares issued and delivered
under this
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Agreement, to a trust established by the Optionee for the benefit of the
Optionee or the Optionee's spouse or children, without being subject to the
provisions of this Section 7, provided that the trustee on behalf of such trust
shall agree in writing on a form prescribed by the Company to be bound by this
Agreement.
(h) Termination of Rights as Stockholder. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased in accordance with
the provisions of this Section 7, then from and after such time the person from
whom such Shares are to be purchased shall no longer have any rights as a holder
of such Shares (other than the right to receive payment of such consideration in
accordance with this Agreement). Such Shares shall be deemed to have been
purchased in accordance with the applicable provisions hereof, whether or not
the certificate(s) therefor have been delivered as required by this Agreement.
(i) Legend. All certificates representing Shares purchased under this
Agreement shall be endorsed with the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE
TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES).
SUCH AGREEMENT GRANTS CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED
TRANSFER OF THE SHARES. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN
REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT
CHARGE."
SECTION 7. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:
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(a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof;
(b) Any applicable listing requirement of any stock exchange on which
Stock is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has been
satisfied.
SECTION 8. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify the
sale of Shares under the Securities Act or any other applicable law. The Company
shall not be obligated to take any affirmative action in order to cause the sale
of Shares under this Agreement to comply with any law.
SECTION 9. SECURITIES LAW RESTRICTIONS ON TRANSFER.
(a) Restrictions. Regardless of whether the offering and sale of Shares
under the Plan have been registered under the Securities Act or have been
registered or qualified under the securities laws of any state, the Company at
its discretion may impose restrictions upon the sale, pledge or other transfer
of such Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Company and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
Securities Act, the securities laws of any state or any other law or with
restrictions imposed by the Company's underwriters.
(b) Investment Intent at Grant. The Optionee represents and agrees that
the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
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(c) Investment Intent at Exercise. In the event that the sale of Shares
under the Plan is not registered under the Securities Act but an exemption is
available which requires an investment representation or other representation,
the Optionee shall represent and agree at the time of exercise that the Shares
being acquired upon exercising this option are being acquired for investment,
and not with a view to the sale or distribution thereof, and shall make such
other representations as are deemed necessary or appropriate by the Company and
its counsel.
(d) Legend. All certificates evidencing Shares acquired under this
Agreement in an unregistered transaction shall bear the following restrictive
legend (and such other restrictive legends as are required or deemed advisable
under the provisions of any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(e) Removal of Legends. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but lacking such legend.
(f) Administration. Any determination by the Company and its counsel in
connection with any of the matters set forth in this Section 10 shall be
conclusive and binding on the Optionee and all other persons.
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<PAGE> 13
SECTION 10. SHARES AND ADJUSTMENTS.
(a) General. In the event of a subdivision of the outstanding Shares, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Shares into a
lesser number of Shares, a recapitalization, a spinoff, a reclassification or a
similar occurrence, the Committee shall make appropriate adjustments in one or
both of (i) the number of Shares covered by this option or (ii) the Exercise
Price.
(b) Mergers; Consolidations. In the event that the Company is a party to
a merger or consolidation, outstanding Options shall be subject to the agreement
of merger or consolidation. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by the Company (if the Company is the surviving corporation). In
the event the Company is not the surviving corporation and the surviving
corporation will not assume the outstanding Options, the agreement of merger or
consolidation may provide for payment of a cash settlement for exercisable
Options equal to the difference between the amount to be paid for one Share
under such agreement and the Exercise Price and for the cancellation of Options
not exercised or settled, in either case without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 11, the
Optionee shall have no rights by reason of (i) any subdivision or consolidation
of shares of stock of any class, (ii) the payment of any dividend or (iii) any
other increase or decrease in the number of shares of stock of any class. Any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and
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<PAGE> 14
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of the Shares subject to this option. The grant of this option
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
SECTION 11. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until the Optionee or the Optionee's representative is
entitled, pursuant to the terms of this option, to receive such Shares.
(b) No Employment Rights. Nothing in this Agreement shall be construed
as giving the Optionee the right to be retained as an Employee. The Company
reserves the right to terminate the Optionee's Service at any time, with or
without cause.
(c) Notice. Any notice required or permitted by the terms of this
Agreement shall be given in writing and shall be deemed effective upon personal
delivery to the party to be notified (or upon the date of attempted delivery
where delivery is refused) or, if sent by telecopier, telex, telegram, or other
facsimile means, upon receipt of appropriate confirmation of receipt, or upon
deposit with the United States Postal Service, by registered or certified mail,
or next day air courier, with postage and fees prepaid and addressed to the
party entitled to such notice at the address shown below such party's signature
on this Agreement, or at such other address as such party may designate by 10
days' advance written notice to the other party to this Agreement.
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<PAGE> 15
(d) Entire Agreement. This Agreement and the Plan constitute the entire
contract between the parties hereto with regard to the subject matter hereof.
(e) Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
SECTION 12. DEFINITIONS.
(a) "Agreement" shall mean this Nonstatutory Stock Option Agreement.
(b) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the committee of the Board described in
section 3 of the Plan or, if none has been appointed, the full Board.
(e) "Date of Grant" shall mean the date on which the Committee resolved
to grant this option, which is also the date as of which this Agreement is
entered into.
(f) "Employee" shall mean (i) any individual who is a common-law
employee of the Company or of a Subsidiary, (ii) a member of the Board of
Directors and (iii) an independent contractor who performs services for the
Company or a Subsidiary.
(g) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in Section 1(a).
(h) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
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<PAGE> 16
(i) "Incentive Stock Option" shall mean an employee incentive stock
option described in section 422(b) of the Code.
(j) "Plan" shall mean the 1992 Stock Plan of Ixsys, Inc., as in effect
on the Date of Grant.
(k) "Purchase Price" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.
(l) "Right of First Refusal" shall mean the Company's right of first
refusal described in Section 7.
(m) "Securities Act" shall mean the Securities Act of 1933, as amended.
(n) "Service" shall mean service as an Employee.
(o) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 11 (if applicable).
(p) "Stock" shall mean the Common Stock ($.001 par value) of the
Company.
(q) "Subsidiary" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than 50% of the total combined voting
power of all classes of outstanding stock of such corporation.
(r) "Total and Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted, or can be expected to last, for a continuous period
of not less than one year.
(s) "Transferee" shall mean any person to whom the Optionee has directly
or indirectly transferred any Share acquired under this Agreement.
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<PAGE> 17
(t) "Transfer Notice" shall mean the notice of a proposed transfer of
Shares described in Section 7.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by its officer duly authorized to act on behalf of the Committee,
and the Optionee has personally executed this Agreement.
OPTIONEE IXSYS, INC.
By
- ----------------------------------- ---------------------------------
Optionee's Address: Company's Address:
3550 Dunhill Street
- ----------------------------------- San Diego, CA 92121
- -----------------------------------
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<PAGE> 18
ACKNOWLEDGMENT OF RECEIPT OF COPY
OF SECTION 260.141.11 OF
THE CALIFORNIA CORPORATE
SECURITIES RULES
Pursuant to the grant to the undersigned of an option to purchase shares
of Common Stock of Ixsys, Inc., under that Nonstatutory Stock Option Agreement
dated as of _____________, 199_, the undersigned hereby acknowledges that he or
she received a copy of section 260.141.11 of the California Corporation
Securities Rules as required by subsection (a) thereof, and that such receipt
occurred at the same time as the undersigned entered into the aforementioned
Nonstatutory Stock Option Agreement.
-----------------------------------
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<PAGE> 1
EXHIBIT 10.2.1
APPLIED MOLECULAR EVOLUTION, INC.
2000 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. PURPOSE..........................................................................1
SECTION 2. DEFINITIONS......................................................................1
(a) "Affiliate"....................................................................1
(b) "Award"........................................................................1
(c) "Board"........................................................................1
(d) "Change in Control"............................................................1
(e) "Code".........................................................................1
(f) "Committee"....................................................................1
(g) "Common-Law Employee"..........................................................2
(h) "Common Stock".................................................................2
(i) "Company"......................................................................2
(j) "Consultant"...................................................................2
(k) "Employee".....................................................................2
(l) "Exchange Act".................................................................2
(m) "Exercise Price"...............................................................2
(n) "Fair Market Value"............................................................2
(o) "Incentive Stock Option" or "ISO"..............................................3
(p) "Initial Public Offering" or "IPO".............................................3
(q) "Non-Employee Director"........................................................3
(r) "Nonstatutory Option" or "NSO".................................................3
(s) "Offeree"......................................................................3
(t) "Option".......................................................................3
(u) "Optionee".....................................................................3
(v) "Parent".......................................................................3
(w) "Participant"..................................................................3
(x) "Plan".........................................................................3
(y) "Purchase Price"...............................................................3
(z) "Restricted Share".............................................................3
(aa) "Service"......................................................................3
(bb) "Stock Award Agreement"........................................................3
(cc) "Stock Option Agreement".......................................................4
(dd) "Stock Purchase Agreement".....................................................4
(ee) "Subsidiary"...................................................................4
(ff) "10% Stockholder"..............................................................4
(gg) "Total and Permanent Disability"...............................................4
(hh) "W-2 Payroll"..................................................................4
SECTION 3. ADMINISTRATION...................................................................4
(a) Committees of the Board........................................................4
(b) Committee Procedures...........................................................5
(c) Authority of the Committee.....................................................5
(d) Committee Liability............................................................5
SECTION 4. ELIGIBILITY......................................................................5
SECTION 5. STOCK SUBJECT TO PLAN............................................................5
(a) Basic Limitation...............................................................5
(b) Additional Shares..............................................................5
</TABLE>
i
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<TABLE>
<S> <C>
SECTION 6. TERMS AND CONDITIONS OF GRANTS OR SALES..........................................6
(a) Stock Purchase Agreement.......................................................6
(b) Duration of Offers.............................................................6
(c) Purchase Price.................................................................6
(d) Restrictions on Transfer of Common Stock.......................................6
SECTION 7. ADDITIONAL TERMS AND CONDITIONS OF RESTRICTED SHARES.............................6
(a) Form and Amount of Award.......................................................6
(b) Exercisability.................................................................6
(c) Effect of Change in Control....................................................7
(d) Voting Rights..................................................................7
SECTION 8. TERMS AND CONDITIONS OF OPTIONS..................................................7
(a) Stock Option Agreement.........................................................7
(b) Number of Shares...............................................................7
(c) Exercise Price.................................................................7
(d) Exercisability.................................................................7
(e) Effect of Change in Control....................................................7
(f) Term...........................................................................8
(g) Exercise of Options on Termination of Service..................................8
(h) No Rights as a Stockholder.....................................................8
(i) Modification, Extension and Assumption of Options..............................8
(j) Restrictions on Transfer.......................................................8
SECTION 9. FORMS OF PAYMENT.................................................................8
(a) General Rule...................................................................8
(b) Surrender of Stock.............................................................8
(c) Promissory Notes...............................................................9
(d) Cashless Exercise..............................................................9
(e) Other Forms of Payment.........................................................9
SECTION 10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK........................................9
(a) General........................................................................9
(b) Mergers and Consolidations.....................................................9
(c) Reservation of Rights.........................................................10
SECTION 11. WITHHOLDING TAXES..............................................................10
(a) General.......................................................................10
(b) Common Stock Withholding......................................................10
(c) Cashless Exercise/Pledge......................................................10
(d) Other Forms of Payment........................................................10
SECTION 12. LEGAL REQUIREMENTS.............................................................11
(a) Restrictions on Issuance......................................................11
(b) Financial Reports.............................................................11
SECTION 13. ASSIGNMENT OR TRANSFER OF AWARDS...............................................11
(a) General.......................................................................11
(b) Trusts........................................................................11
SECTION 14. NO EMPLOYMENT RIGHTS...........................................................11
SECTION 15. DURATION AND AMENDMENTS........................................................11
(a) Term of the Plan..............................................................11
</TABLE>
ii
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<TABLE>
<S> <C>
(b) Right to Amend or Terminate the Plan..........................................12
(c) Effect of Amendment or Termination............................................12
SECTION 16. EXECUTION......................................................................12
</TABLE>
iii
<PAGE> 5
APPLIED MOLECULAR EVOLUTION, INC.
2000 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, to encourage such persons to remain
in the employ of the Company and to attract new employees with outstanding
qualifications. The Plan seeks to achieve this purpose by providing for the
direct grant or sale of Common Stock and for the grant of Options to purchase
Common Stock. Options granted under the Plan shall only include Nonstatutory
Options. This Plan is intended to satisfy Section 25102(f) of the California
Corporations Code.
SECTION 2. DEFINITIONS.
(a) "AFFILIATE" shall mean any partner, officer, director or controlling
person of the Company.
(b) "Award" shall mean any award of an Option, Restricted Share or other
right under the Plan.
(c) "BOARD" shall mean the Board of Directors of the Company, as
constituted from time to time.
(d) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if
more than 50% of the combined voting power of the continuing or
surviving entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
stockholders of the Company immediately prior to such merger,
consolidation or other reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change in Control if: (a) its sole
purpose is to change the state of the Company's incorporation, (b) its sole
purpose is to create a holding company that will be owned in substantially the
same proportions by the persons who held the Company's securities immediately
before such transaction or (c) such transaction constitutes the Company's
initial public offering.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" shall mean a committee consisting of one or more members
of the Board that is appointed by the Board to administer the Plan under Section
3.
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<PAGE> 6
(g) "COMMON-LAW EMPLOYEE" shall mean an individual paid from W-2 Payroll
of the Company or a Subsidiary. If, during any period, the Company (or
Subsidiary, as applicable) has not treated an individual as a Common-Law
Employee and, for that reason, has not paid such individual in a manner which
results in the issuance of a Form W-2 and withheld taxes with respect to him or
her, then that individual shall not be an eligible Employee for that period,
even if any person, court or government agency determines, retroactively, that
that individual is or was a Common-Law Employee during all or any portion of
that period.
(h) "COMMON STOCK" means the Company's common stock.
(i) "COMPANY" shall mean Applied Molecular Evolution, Inc., a Delaware
corporation.
(j) "CONSULTANT" shall mean an individual who performs bona fide
services to the Company, a Parent or a Subsidiary other than as an Employee or a
member of the Board.
(k) "EMPLOYEE" shall mean (i) any individual who is a Common-Law
Employee of the Company, a Parent or a Subsidiary, (ii) a member of the Board,
including (without limitation) a Non-Employee Director, or an affiliate of a
member of the Board; (iii) a member of the board of directors of a Subsidiary,
or (iv) a Consultant.
(l) "EXCHANGE ACT" shall mean the Securities and Exchange Act of 1934,
as amended.
(m) "EXERCISE PRICE" shall mean the amount for which one share of Common
Stock may be purchased upon exercise of an Option, as specified by the Board in
the applicable Stock Option Agreement.
(n) "FAIR MARKET VALUE" shall mean the market price of Common Stock,
determined by the Board as follows:
(i) If the Shares were traded over-the-counter on the date in
question but were not traded on the Nasdaq Stock Market or the Nasdaq
National Market System, then the Fair Market Value shall be equal to the
mean between the last reported representative bid and asked prices
quoted for such date by the principal automated inter-dealer quotation
system on which the Shares are quoted or, if the Shares are not quoted
on any such system, by the "Pink Sheets" published by the National
Quotation Bureau, Inc.;
(ii) If the Shares were traded over-the-counter on the date in
question and were traded on the Nasdaq Stock Market or the Nasdaq
National Market System, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by the Nasdaq Stock Market
or the Nasdaq National Market;
(iii) If the Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
price reported by the applicable composite transactions report for such
date; and
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<PAGE> 7
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Board in good faith on such
basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Board shall
be conclusive and binding on all persons.
(o) "INCENTIVE STOCK OPTION" OR "ISO" shall mean an incentive stock
option described in Code section 422(b).
(p) "INITIAL PUBLIC OFFERING" or "IPO" shall mean the Company's first
underwritten offering of its Common Stock to the general public on Form S-1 (or
its equivalent) under the Securities Act of 1933, as amended.
(q) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who is not
a Common-Law Employee of the Company or a Subsidiary.
(r) "NONSTATUTORY OPTION" OR "NSO" shall mean a stock option that is not
an ISO.
(s) "OFFEREE" shall mean an individual to whom the Board has offered the
right to acquire Common Stock under the Plan (other than upon exercise of an
Option).
(t) "OPTION" shall mean a Nonstatutory Stock Option granted under the
Plan entitling the holder to purchase Common Stock.
(u) "OPTIONEE" shall mean an individual who holds an Option.
(v) "PARENT" shall have the meaning set forth in Section 424(e) of the
Code.
(w) "PARTICIPANT" shall mean an individual or estate who holds an Award.
(x) "PLAN" shall mean this 2000 Stock Incentive Plan of Applied
Molecular Evolution, Inc.
(y) "PURCHASE PRICE" shall mean the consideration for which one share of
Common Stock may be acquired under the Plan (other than upon exercise of an
Option) pursuant to a grant or sale under Section 6, as specified by the Board.
(z) "RESTRICTED SHARE" shall mean a share of Common Stock sold or
granted to an eligible Employee which is nontransferable and subject to
substantial risk of forfeiture until restrictions lapse.
(aa) "SERVICE" shall mean service as an Employee.
(bb) "STOCK AWARD AGREEMENT" shall mean the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Share.
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<PAGE> 8
(cc) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to an Option.
(dd) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and an Offeree who acquires Common Stock under the Plan (other than
pursuant to an Option) that contains the terms, conditions and restrictions
pertaining to the acquisition of such Common Stock.
(ee) "SUBSIDIARY" shall have the meaning set forth in Section 424(f) of
the Code.
(ff) "10% STOCKHOLDER" shall mean an individual who owns more than 10%
of the total combined voting power of all classes of outstanding stock of the
Company, its Parent or any of its Subsidiaries. For purposes of this Subsection
(ee), in determining stock ownership, the attribution rules of Section 424(d) of
the Code shall be applied. For purposes of this Subsection (ee), "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include Common Stock authorized for
issuance under outstanding Options held by the Employee or by any other person.
(gg) "TOTAL AND PERMANENT DISABILITY" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment.
(hh) "W-2 PAYROLL" shall mean whatever mechanism or procedure that the
Company or a Subsidiary utilizes to pay any individual which results in the
issuance of Form W-2 to the individual. "W-2 Payroll" does not include any
mechanism or procedure which results in the issuance of any form other than a
Form W-2 to an individual, including, but not limited to, any Form 1099 which
may be issued to an independent contractor, an agency employee or a consultant.
Whether a mechanism or procedure qualifies as a "W-2 Payroll" shall be
determined in the absolute discretion of the Company (or Subsidiary, as
applicable), and the Company or Subsidiary determination shall be conclusive and
binding on all persons.
SECTION 3. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD. The Plan shall be administered by the
Board. However, any or all administrative functions otherwise exercisable by the
Board may be delegated to a Committee. Members of the Committee shall serve for
such period of time as the Board may determine and shall be subject to removal
by the Board at any time. The Board may also at any time terminate the functions
of the Committee and reassume all powers and authority previously delegated to
the Committee. Any reference to the Board in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board has assigned a particular
function.
In the event that the Company's Common Stock becomes publicly traded,
the Board may appoint a Committee which, if appointed, shall be comprised solely
of two or more Non-Employee Directors (although Committee functions may be
delegated to officers to the extent the Awards relate to persons who are not
subject to the reporting requirements of Section 16 of the Exchange Act).
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<PAGE> 9
(b) COMMITTEE PROCEDURES. The Board shall designate one of the members
of the Committee as chairperson. The Committee may hold meetings at such times
and places as it shall determine. The acts of a majority of the Committee
members present at meetings at which a quorum exists, or acts reduced to or
approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take any actions it
deems necessary or advisable for the administration of the Plan. The Committee
has authority in its discretion to determine eligible Employees to whom, and the
time or times at which, Awards may be granted and the number of Shares subject
to each Award. Subject to the express provisions of the respective Award
agreements (which need not be identical) and to make all other determinations
necessary or advisable for Plan administration, the Committee has authority to
prescribe, amend and rescind rules and regulations relating to the Plan. All
decisions, interpretations and other actions of the Committee shall be final,
conclusive and binding on all parties who have an interest in the Plan or any
option or shares issued thereunder.
(d) COMMITTEE LIABILITY. No member of the Board or the Committee will be
liable for any action or determination made in good faith by the Committee with
respect to the Plan or any Award made under the Plan.
SECTION 4. ELIGIBILITY.
Employees shall be eligible for designation as Participants by the
Board. In addition, certain individuals, other than Employees, shall be eligible
for designation as Participants by the Board if: (i) such individual has a
preexisting personal or business relationship with the Company or any of the
Company's Affiliates, or (ii) such individual could reasonably be assumed to
have the capacity to protect his or her interests in connection with the
transaction by reason of his or her business or financial experience or, subject
to certain conditions set forth in Section 25102(f) of the California
Corporations Code, by reason of the business or financial experience of his or
her professional advisor.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. The stock issuable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock. The maximum number of
shares of Common Stock which may be issued under the Plan shall not exceed
___________ shares, subject to adjustment pursuant to Section 9.
In any event, the number of Shares which are subject to Awards or other
rights outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. If any outstanding Option or other right to
acquire Common Stock for any reason expires or is canceled, forfeited or
otherwise terminated, the Common Stock allocable to the unexercised portion of
such Option or other right shall again be available for the
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<PAGE> 10
purposes of the Plan. If shares of Common Stock issued under the Plan are
reacquired by the Company pursuant to any right of repurchase or right of first
refusal, such shares of Common Stock shall again be available for the purposes
of the Plan.
SECTION 6. TERMS AND CONDITIONS OF GRANTS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each grant or sale of Common Stock under
the Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Offeree and the Company. Such grant or sale shall
be subject to all applicable terms and conditions of the Plan and may be subject
to any other terms and conditions that are not inconsistent with the Plan and
that the Board deems appropriate for inclusion in a Stock Purchase Agreement.
The provisions of the various Stock Purchase Agreements entered into under the
Plan need not be identical.
(b) DURATION OF OFFERS. Any right to acquire Common Stock under the Plan
other than an Option shall automatically expire if not exercised by the Offeree
within thirty (30) days after the grant of such right was communicated by the
Board to the Offeree.
(c) PURCHASE PRICE. The Purchase Price of Common Stock offered under the
Plan shall be established by the Board and set forth in the Stock Purchase
Agreement and, to the extent required by applicable law, including the
California Corporations Code or the regulations thereunder, shall not be less
than 85% of Fair Market Value (100% for 10% Stockholders). The Purchase Price
shall be payable in a form described in Section 9 or, in the discretion of the
Board, in consideration for past services rendered to the Company or for its
benefit.
(d) RESTRICTIONS ON TRANSFER OF COMMON STOCK. No Common Stock granted or
sold under the Plan may be sold or otherwise transferred or disposed of by the
Offeree during the one hundred eighty (180) day period following the effective
date of a registration statement covering securities of the Company filed under
the Securities Act of 1933 (unless such restriction is consented to or waived by
the managing underwriter). Subject to the preceding sentence, any Common Stock
granted or sold under the Plan shall be subject to such special conditions,
rights of repurchase, rights of first refusal and other transfer restrictions as
the Board may determine. Such restrictions shall apply in addition to any
general restrictions that may apply to all holders of Common Stock.
SECTION 7. ADDITIONAL TERMS AND CONDITIONS OF RESTRICTED SHARES.
(a) FORM AND AMOUNT OF AWARD. Each Stock Award Agreement shall specify
the number of shares of Common Stock that are subject to the Award. Restricted
Shares may be awarded in combination with NSOs and such an Award may provide
that the Restricted Shares will be forfeited in the event that the related NSOs
are exercised.
(b) EXERCISABILITY. Each Stock Award Agreement shall specify the
conditions upon which Restricted Shares shall become vested, in full or in
installments. The exercisability of any Stock Award shall be determined by the
Board in its sole discretion.
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<PAGE> 11
(c) EFFECT OF CHANGE IN CONTROL. The Board may determine at the time of
making an Award or thereafter, that such Award shall become fully vested, in
whole or in part, in the event that a Change in Control occurs with respect to
the Company.
(d) VOTING RIGHTS. Holders of Restricted Shares awarded under the Plan
shall have the same voting, dividend and other rights as the Company's other
stockholders. A Stock Award Agreement, however, may require that the holders
invest any cash dividends received in additional Restricted Shares. Such
additional Restricted Shares shall be subject to the same conditions and
restrictions as the Award with respect to which the dividends were paid. Such
additional Restricted Shares shall not reduce the number of Shares available
under Section 5.
SECTION 8. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions that are not inconsistent
with the Plan and that the Board deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of shares of Common Stock that are subject to the Option and shall
provide for the adjustment of such number in accordance with Section 10. The
Stock Option Agreement shall also specify that the Option is a Nonstatutory
Option.
(c) EXERCISE PRICE. An Option's Exercise Price shall be established by
the Board and set forth in a Stock Option Agreement. The Exercise Price of a
Nonstatutory Option shall not be less than 85% of the Fair Market Value (110%
for 10% Stockholders) on the date of grant. The Exercise Price shall be payable
in a form described in Section 9. Notwithstanding the foregoing, an Option may
be granted with an exercise price lower than that set prescribed in this
paragraph if the Option grant is attributable to the issuance or assumption of
an option in a transaction to which Code section 424(a) applies.
(d) EXERCISABILITY. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to vest or become exercisable. The
vesting of any Option shall be determined by the Board in its sole discretion. A
Stock Option Agreement may permit an Optionee to exercise an Option before it is
vested, subject to the Company's right of repurchase over any shares acquired
under the unvested portion of the Option (an "early exercise"), which right of
repurchase shall lapse at the same rate the Option would have vested had there
been no early exercise.
(e) EFFECT OF CHANGE IN CONTROL. The Board may determine, at the time of
granting an Option or thereafter, that such Option shall become fully
exercisable as to all shares of Common Stock subject to such Option in the event
that a Change in Control occurs with respect to the Company.
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<PAGE> 12
(f) TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed ten (10) years from the date of grant. Subject
to the preceding sentence, the Board at its sole discretion shall determine when
an Option is to expire.
(g) EXERCISE OF OPTIONS ON TERMINATION OF SERVICE. Each Option shall set
forth the extent to which the Optionee shall have the right to exercise the
Option following termination of the Optionee's Service with the Company and its
Subsidiaries. Such provisions shall be determined in the sole discretion of the
Board, need not be uniform among all Options issued pursuant to the Plan, and
may reflect distinctions based on the reasons for termination of Service.
(h) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Common Stock
covered by an Option until such person becomes entitled to receive such Common
Stock by filing a notice of exercise and paying the Exercise Price pursuant to
the terms of such Option.
(i) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of shares of Common Stock and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(j) RESTRICTIONS ON TRANSFER. No shares of Common Stock issued upon
exercise of an Option may be sold or otherwise transferred or disposed of by the
Optionee during the one hundred eighty (180) day period following the effective
date of a registration statement covering securities of the Company filed under
the Securities Act of 1933 (unless such restriction is consented to or waived by
the managing underwriter). Subject to the preceding sentence, any Common Stock
issued upon exercise of an Option shall be subject to such rights of repurchase,
rights of first refusal and other transfer restrictions as the Board may
determine. Such restrictions shall apply in addition to any restrictions that
may apply to holders of Common Stock generally. Any right to repurchase an
Optionee's Common Stock at the original Exercise Price upon termination of the
Optionee's Service may be exercised only within ninety (90) days after the
termination of the Optionee's Service for cash or for cancellation of
indebtedness incurred in purchasing the Common Stock.
SECTION 9. FORMS OF PAYMENT.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price shall be
payable in cash or cash equivalents acceptable to the Company at the time of
exercise or purchase, except as otherwise provided in this Section 9.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement or
Stock Purchase Agreement so provides, payment may be made all or in part with
Common Stock that has already been owned by the Optionee or the Optionee's
representative for any time period specified by the Board and that are
surrendered to the Company in good form for transfer. Such
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<PAGE> 13
Common Stock shall be valued at Fair Market Value on the date when the new
Common Stock is purchased under the Plan.
(c) PROMISSORY NOTES. To the extent that a Stock Option Agreement or
Stock Purchase agreement so provides, payment may be made all or in part with a
full recourse promissory note executed by the Optionee of Offeree. The interest
rate and other terms and conditions of such note shall be determined by the
Board. The Board may require that the Optionee pledge his or her Common Stock to
the Company for the purpose of securing the payment of such note. In no event
shall the stock certificate(s) representing such Common Stock be released to the
Optionee or Offeree until such note is paid in full, unless otherwise provided
in the Stock Option Agreement or Stock Purchase Agreement.
(d) CASHLESS EXERCISE. To the extent that a Stock Option Agreement so
provides and a public market for the Common Stock exists, payment may be made
all or in part by delivery (on a form acceptable to the Board) of an irrevocable
direction to a securities broker to sell Common Stock and to deliver all or part
of the sale proceeds to the Company in payment of the aggregate Exercise Price.
(e) OTHER FORMS OF PAYMENT. To the extent provided in the Stock Option
Agreement, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
SECTION 10. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.
(a) GENERAL. In the event of a subdivision of the outstanding Common
Stock, a declaration of a dividend payable in Common Stock, a declaration of an
extraordinary dividend payable in a form other than Common Stock in an amount
that has a material effect on the value of Common Stock, a combination or
consolidation of the outstanding Common Stock into a lesser number of shares, a
recapitalization, a reclassification or a similar occurrence, the Board shall
make appropriate adjustments, subject to the limitations set forth in Section
10(c), in one or more of (i) the number of shares of Common Stock available for
future grants of Options or other rights to acquire Common Stock under Section
5, (ii) the number of shares of Common Stock covered by each outstanding Option
or other right to acquire Common Stock or (iii) the Exercise Price of each
outstanding Option or the Purchase Price of each other right to acquire Common
Stock.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party
to a merger or consolidation, outstanding Options or other rights to acquire
Common Stock shall be subject to the agreement of merger or reorganization. Such
agreement, without an Optionee's consent, may provide for:
(i) The continuation of such outstanding Options by the Company
(if the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by
the surviving corporation or its parent;
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<PAGE> 14
(iii) The substitution by the surviving corporation or its
parent of options with substantially the same terms for such outstanding
Options; or
(iv) The cancellation of such outstanding Options without
payment of any consideration, provided that in such event vesting of
Options will accelerate in full.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 10, an
Optionee or Offeree shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend,
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Common Stock subject to an Option, or the number of shares subject to any
other right to acquire Common Stock and/or the Exercise Price or Purchase Price.
The grant of an Option or other right to acquire Common Stock pursuant to the
Plan shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
SECTION 11. WITHHOLDING TAXES.
(a) GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Committee for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.
(b) COMMON STOCK WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any shares of Common Stock that
otherwise would be issued to him or her or by surrendering all or a portion of
any shares of Common Stock that he or she previously acquired. Notwithstanding
the previous sentence in this Section 11(b), the maximum amount that may be
subject to common stock withholding under this Section 11(b) shall be determined
by the Committee based upon the minimum rates of federal, state and employment
withholding applicable under the circumstances. Shares of Common Stock that are
withheld or surrendered pursuant to this Section 11 shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
Any payment of taxes by assigning shares of Common Stock to the Company may be
subject to restrictions, including any restrictions required by rules of any
federal or state regulatory body or other authority.
(c) CASHLESS EXERCISE/PLEDGE. The Committee may provide that if Company
shares of Common Stock are publicly traded at the time of exercise, arrangements
may be made to meet the Optionee's withholding obligation by cashless exercise
or pledge.
(d) OTHER FORMS OF PAYMENT. The Committee may permit such other means of
tax withholding as it deems appropriate.
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<PAGE> 15
SECTION 12. LEGAL REQUIREMENTS.
(a) RESTRICTIONS ON ISSUANCE. Common Stock shall not be issued under the
Plan unless the issuance and delivery of such Common Stock complies with (or is
exempt from) all applicable requirements of law, including (without limitation)
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, state securities laws and regulations, and the regulations of any
stock exchange on which the Company's securities may then be listed, and the
Company has obtained the approval or favorable ruling from any governmental
agency that the Company determines is necessary or advisable.
(b) FINANCIAL REPORTS. To the extent required to comply with the
California Corporations Code or the regulations thereunder, not less often than
annually the Company shall furnish to Optionees and Offerees Company summary
financial information including a balance sheet regarding the Company's
financial condition and results of operations, unless such Optionees or Offerees
have duties with the Company that assure them access to equivalent information.
Such financial statements need not be audited.
SECTION 13. ASSIGNMENT OR TRANSFER OF AWARDS.
(a) GENERAL. An Award granted under the Plan shall not be anticipated,
assigned, attached, garnished, optioned, transferred or made subject to any
creditor's process, whether voluntarily, involuntarily or by operation of law,
except as approved by the Committee.
(b) TRUSTS. Neither this Section 13 nor any other provision of the Plan
shall preclude a Participant from transferring or assigning Restricted Shares to
(a) the trustee of a trust that is revocable by such Participant alone, both at
the time of the transfer or assignment and at all times thereafter prior to such
Participant's death, or (b) the trustee of any other trust to the extent
approved by the Committee in writing. A transfer or assignment of Restricted
Shares from such trustee to any other person than such Participant shall be
permitted only to the extent approved in advance by the Committee in writing,
and Restricted Shares held by such trustee shall be subject to all the
conditions and restrictions set forth in the Plan and in the applicable Stock
Award Agreement, as if such trustee were a party to such Agreement.
SECTION 14. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option granted or other right to
acquire Common Stock granted under the Plan, shall be construed to give any
person any right to become, to be treated as, or to remain an Employee. The
Company and its Subsidiaries reserve the right to terminate any person's Service
at any time and for any reason.
SECTION 15. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board. The Plan shall terminate
automatically ten (10) years after its adoption by the Board and may be
terminated on any earlier date pursuant to Subsection (b) below.
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<PAGE> 16
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board may amend or
terminate the Plan at any time. Rights under any Option granted or other right
to acquire Common Stock granted before amendment of the Plan shall not be
materially impaired by any amendment or termination, except with consent of the
Optionee or Offeree.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Common Stock shall be issued
or sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Common Stock previously issued or Option
previously granted under the Plan.
SECTION 16. EXECUTION.
To record the adoption of the Plan, the Company has caused its
authorized officer to execute the same.
APPLIED MOLECULAR EVOLUTION, INC.
By
----------------------------------
Title
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<PAGE> 1
EXHIBIT 10.2.2
IXSYS, INC.
2000 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
(WITH EXERCISE BEFORE VESTING PERMITTED)
Ixsys, Inc., a Delaware corporation (the "Company"), hereby grants an
Option to purchase its Common Stock to the Optionee named below. The terms and
conditions of the Option are set forth in this Stock Option Agreement and in the
Company's 2000 Stock Incentive Plan (the "Plan").
I. GRANT INFORMATION
Date of Grant: ____________, 20__
Name of Optionee:
----------------------------------------
Optionee's Social Security Number: - -
--- -- ----
Type of Option: Nonstatutory ("NSO")
Number of Shares of Common Stock Covered by the Option:
-------------------------
Exercise Price per Share: $
------------
Vesting Start Date: ____________, 20__
Vesting Schedule: Subject to attached Terms and Conditions, the Option shall
vest in full the fifth (5th) anniversary of the Vesting Start Date.
Notwithstanding the preceding sentence one hundred percent (100%) of the
unvested Options shall vest upon: (i) a Change in Control, so long as a Change
in Control occurs within two (2) years of the Vesting Start Date and the
consideration paid in stock and/or cash reflects a total Company valuation
exceeding two hundred fifty million dollars ($250,000,000) or (ii) the Company's
initial public offering ("IPO"), so long as the Company's IPO occurs within two
(2) years of the Vesting Start Date and the total market capitalization of the
Company at any time within 180 days of the IPO exceeds two hundred fifty million
dollars ($250,000,000)."
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<PAGE> 2
By signing below, you agree to all of the terms and conditions described
in this Stock Option Agreement, including the attached Terms and
Conditions, Notice of Exercise and Plan.
Optionee:
-----------------------------------------------------------------------
(Signature)
Company:
-----------------------------------------------------------------------
(Signature)
Title:
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<PAGE> 3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE
OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND
QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED.
STOCK OPTION AGREEMENT - TERMS AND CONDITIONS
2000 STOCK INCENTIVE PLAN
IXSYS, INC.
(INCLUDES EARLY EXERCISE PROVISION)
II. TERMS AND CONDITIONS
1. VESTING. Your Option vests during your Service on the dates specified
in the first page of this Stock Option Agreement. Vesting will cease if your
Service terminates for any reason.
2. SERVICE; LEAVES OF ABSENCE. Your Service shall cease when you cease
to be actively employed by, or a consultant or adviser to, the Company (or any
subsidiary) as determined in the sole discretion of the Board. For purposes of
your Option, your Service does not terminate when you go on a bona fide leave of
absence, that was approved by the Company in writing, if the terms of the leave
provide for continued service crediting, or when continued service crediting is
required by applicable law. Your Service terminates in any event when the
approved leave ends, unless you immediately return to active work. The Company
determines which leaves count toward Service, and when your Service terminates
for all purposes under the Plan.
3. TERM OF OPTION. Your Option expires on the day before the 10th
anniversary of the Date of Grant, and will expire earlier if your Service
terminates as follows:
(a) REGULAR TERMINATION. If your Service terminates for any
reason except death or Disability, then your Option will expire at the
close of business at Company headquarters on the date three (3) months
after your termination date. During that three-month period, you may
exercise that portion of your Option that was vested on the date that
your Service terminated.
(b) CAUSE. If your Service terminates for Cause, your Option
will expire immediately.
For purposes of this Section, "Cause" means (i) continued
failure to perform substantially your duties, which standard of duties
shall be referenced to the standards set
<PAGE> 4
by the Company at the date of this Agreement (other than as a result of
sickness, accident or similar cause beyond your reasonable control)
after receipt of a written warning and given thirty (30) days to
improve, (ii) willful and material misconduct, which is demonstrably and
materially injurious to the Company or any of its subsidiaries,
including willful and material failure to perform your duties as an
officer or Employee of the Company or any of its subsidiaries or a
material breach of this Agreement, (iii) conviction of or plea of nolo
contendere to a felony; (iv) conviction of an act of fraud against, or
the misappropriation of property belonging to the Company or any of its
subsidiaries, or any employee, customer, or supplier of the Company or
any of its subsidiaries.
(c) DEATH. If you die while in Service, then your Option will
expire at the close of business at Company headquarters on the date six
(6) months after the date of death. During that six-month period, your
estate or heirs may exercise that portion of your Option that was vested
on the date of death.
(d) DISABILITY. If your Service terminates because of your
Disability, then your Option will expire at the close of business at
Company headquarters on the date six (6) months after your termination
date. During that six-month period, you may exercise that portion of
your Option that was vested on the date of your Disability.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment.
4. EXERCISE OF OPTION.
(a) LEGAL RESTRICTIONS. By signing this Agreement, you agree not
to exercise this Option or sell any Common Stock acquired upon exercise
of this Option at a time when applicable laws, regulations or Company or
underwriter trading policies prohibit exercise or sale. In particular,
the Company shall have the right to designate one or more periods of
time, each of which shall not exceed 180 days in length, during which
this Option shall not be exercisable if the Company determines (in its
sole discretion) that such limitation on exercise could in any way
facilitate a lessening of any restriction on transfer pursuant to the
Securities Act or any state securities laws with respect to any issuance
of securities by the Company, facilitate the registration or
qualification of any securities by the Company under the Securities Act
or any state securities laws, or facilitate the perfection of any
exemption from the registration or qualification requirements of the
Securities Act or any applicable state securities laws for the issuance
or transfer of any securities. Such limitation on exercise shall not
alter the vesting schedule set forth in this Agreement other than to
limit the periods during which this Option shall be exercisable.
If the sale of Common Stock under the Plan is not registered
under the Securities Act of 1933, as amended (the "Securities Act"), but
an exemption is available which requires an investment or other
representation, you shall represent and agree at the time of exercise
that the Common Stock being acquired upon exercise of this Option are
being acquired for investment, and not with a view to the sale or
distribution thereof, and shall
<PAGE> 5
make such other representations as are deemed necessary or appropriate
by the Company and its counsel.
(b) METHOD OF EXERCISE. To exercise your Option, you must
execute the Notice of Exercise and Common Stock Purchase Agreement,
attached hereto as Exhibit A (and, if exercise is prior to vesting, you
must also execute Joint Escrow Instructions and Assignment Separate from
Certificate, attached hereto as Exhibits B and C, respectively). You
must submit the(se) form(s), together with full payment, at the address
given on the form(s). Your exercise will be effective when it is
received by the Company. If someone else wants to exercise your Option
after your death, that person must prove to the Company's satisfaction
that he or she is entitled to do so.
(c) FORM OF PAYMENT. When you submit Exhibit A, you must include
payment of the aggregate Exercise Price for the Common Stock you are
purchasing. Payment may be made in one (or a combination) of the
following forms.
- Your personal check, a cashier's check or a money order.
- Shares of Common Stock which you have owned for six months and
which are surrendered to the Company. The value of such Common
Stock, determined as of the effective date of the Option
exercise, will be applied to the Exercise Price.
- A full recourse promissory note.
- To the extent that a public market for Common Stock exists as
determined by the Company, by delivery (on a form approved by
the Company) of an irrevocable direction to a securities
broker to sell Common Stock and to deliver all or part of the
sale proceeds to the Company in payment of the aggregate
Exercise Price.
- Any other form of legal consideration approved by the Board.
(d) WITHHOLDING TAXES. You will not be allowed to exercise your
Option unless you make acceptable arrangements to pay any withholding or
other taxes that may be due as a result of the Option exercise or the
sale of Common Stock acquired upon exercise of your Option.
5. EXERCISE OF OPTION BEFORE VESTING ("EARLY EXERCISE"). You may
exercise your Option before it is fully vested, and the vesting provisions set
forth herein will apply to the Common Stock you acquire by exercising your
Option. If you exercise this Option before vesting, you should consider making
an election under Section 83(b) of the Internal Revenue Code of 1986, as amended
(the "83(b) Election"), a form of which is attached as Exhibit E. Please see the
Tax Summary attached as Exhibit F. THE 83(b) ELECTION MUST BE FILED WITHIN
THIRTY (30) DAYS AFTER THE DATE YOU EXERCISE ALL OR ANY PORTION OF YOUR OPTION
IN WHICH YOU ARE NOT VESTED.
<PAGE> 6
6. RESALE RESTRICTIONS/MARKET STAND-OFF. In connection with any
underwritten public offering by the Company of its equity securities pursuant to
an effective registration statement filed under the Securities Act, including
the Company's initial public offering, you shall not, directly or indirectly,
engage in any transaction prohibited by the underwriter, nor shall you sell,
make any short sale of, contract to sell, transfer the economic risk of
ownership in, loan, hypothecate, pledge, grant any Option for the purchase of,
or otherwise dispose or transfer for value or agree to engage in any of the
foregoing transactions with respect to any Common Stock without the prior
written consent of the Company or its underwriters, for such period of time
after the effective date of such registration statement as may be requested by
the Company or such underwriters. Such period of time shall not exceed one
hundred eighty (180) days and may be required by the underwriter as a market
condition of the offering. By signing this Agreement you agree 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. To enforce the provisions of this paragraph, the
Company may impose stop-transfer instructions with respect to the Common Stock
until the end of the applicable stand-off period.
7. RIGHT OF FIRST REFUSAL. If you propose to sell, pledge or otherwise
transfer to a third party any Common Stock acquired under this Stock Option
Agreement, or any interest in such Common Stock, the Company shall have the
"Right of First Refusal" with respect to all (and not less than all) of such
Common Stock. If you desire to transfer Common Stock acquired under this Stock
Option Agreement, you must give a written "Transfer Notice" to the Company
describing fully the proposed transfer, including the number of shares proposed
to be transferred, the proposed transfer price and the name and address of the
proposed transferee. The Transfer Notice shall be signed both by you and by the
proposed new transferee and must constitute a binding commitment of both parties
to the transfer of the Common Stock. The Company shall have the right to
purchase all, and not less than all, of the Common Stock on the terms of the
proposal described in the Transfer Notice (subject, however, to any change in
such terms permitted in the next paragraph) by delivery of a notice of exercise
of the Right of First Refusal within thirty (30) days after the date when the
Transfer Notice was received by the Company.
If the Company fails to exercise its Right of First Refusal before or
within thirty (30) days after the date when it received the Transfer Notice, you
may, not later than ninety (90) days following receipt of the Transfer Notice by
the Company, conclude a transfer of the Common Stock subject to the Transfer
Notice on the terms and conditions described in the Transfer Notice. Any
proposed transfer on terms and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed transfer by you, shall again
be subject to the Right of First Refusal and shall require compliance with the
procedure described in the paragraph above. If the Company exercises its Right
of First Refusal, the parties shall consummate the sale of the Common Stock on
the terms set forth in the Transfer Notice within sixty (60) days after the date
when the Company received the Transfer Notice (or within such longer period as
may have been specified in the Transfer Notice); provided, however, that if the
Transfer Notice provided that payment for the Common Stock was to be made in a
form other than lawful money paid at the time of transfer, the Company shall
have the Option of paying for the Common Stock with lawful money equal to the
present value of the consideration described in the Transfer Notice.
<PAGE> 7
The Company's Right of First Refusal shall inure to the benefit of its
successors and assigns, shall be freely assignable in whole or in part and shall
be binding upon any transferee of the Common Stock.
The Company's Right of First Refusal shall terminate if the Company's
common stock is listed on an established stock exchange or is quoted regularly
on the Nasdaq Stock Market.
8. TRANSFER OF OPTION. Prior to your death, only you may exercise your
Option. You cannot transfer or assign your Option. For instance, you may not
sell your Option or use it as security for a loan. If you attempt to do any of
these things, your Option will immediately become invalid. You may, however,
dispose of your Option in your will. Regardless of any marital property
settlement agreement, the Company is not obligated to honor a notice of exercise
from your spouse or former spouse, nor is the Company obligated to recognize
such individual's interest in your Option in any other way.
9. NO RETENTION RIGHTS. Your Option does not give you the right to be
retained by the Company (or any subsidiaries) in any capacity. The Company
reserves the right to terminate your Service at any time and for any reason.
10. STOCKHOLDER RIGHTS. You, or your estate or heirs, have no rights as
a stockholder of the Company until a certificate for your Common Stock has been
issued. No adjustments are made for dividends or other rights if the applicable
record date occurs before your stock certificate is issued, except as described
in the Plan.
11. ADJUSTMENTS TO COMMON STOCK. In the event of a stock split, a stock
dividend or a similar change in the Company's Common Stock, the number of shares
covered by your Option and the exercise price per share may be adjusted pursuant
to the Plan. Your Option shall be subject to the terms of the agreement of
merger, liquidation or reorganization in the event the Company is subject to
such corporate activity.
12. LEGENDS. All certificates representing the Common Stock issued upon
exercise of your Option shall, where applicable, have endorsed thereon the
following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
COMPANY AND THE INITIAL HOLDER HEREOF. SUCH AGREEMENT PROVIDES
FOR CERTAIN TRANSFER RESTRICTIONS, INCLUDING RIGHTS OF FIRST
REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SECURITIES AND RIGHTS
OF REPURCHASE. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN
REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF
WITHOUT CHARGE."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED
AND SOLD ONLY IF REGISTERED AND QUALIFIED
<PAGE> 8
PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE
SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND
QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE NOT
REQUIRED."
13. APPLICABLE LAW. This Agreement will be interpreted and enforced
under the laws of the State of California.
14. INCORPORATION OF PLAN BY REFERENCE. The text of the Plan is
incorporated in this Agreement by reference. Certain capitalized terms used in
this Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire understanding between
you and the Company regarding your Option. Any prior agreements, commitments or
negotiations concerning your Option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN. YOU ALSO ACKNOWLEDGE THAT YOU HAVE
READ SECTION 11, "PURCHASER'S INVESTMENT REPRESENTATIONS" OF EXHIBIT A AND THAT
YOU CAN AND HEREBY DO MAKE THE SAME REPRESENTATIONS WITH RESPECT TO THE GRANT OF
THIS OPTION.
<PAGE> 1
EXHIBIT 10.3
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT dated as of November 3, 1994 (the "Agreement"),
is entered into between STUART A. KAUFFMAN, M.D., an individual ("Kauffman"),
having a place of business located at 15 Montecito, Santa Fe, New Mexico 87501,
and IXSYS, INC., a Delaware corporation ("Ixsys"), having a place of business
located at 3550 Dunhill Street, San Diego, California 92121.
W I T N E S S E T H :
WHEREAS, Kauffman owns or has rights in certain technology relating to
the random generation of genes.
WHEREAS, Ixsys desires to obtain, and Kauffman desires to grant to
Ixsys, an exclusive worldwide license under Kauffman's rights in certain patent
rights and know-how relating to such technology, on the terms and subject to the
conditions of the Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of the Agreement, the terms defined in this Article 1 shall
have the respective meanings set forth below:
1.1 "Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person. A Person shall be regarded as in control of another
Person if it owns, or directly or indirectly controls, at least fifty percent
(50%) of the voting stock or other ownership interest of the other Person, or if
it directly or indirectly possesses the power to direct or cause the direction
of the management and policies of the other Person by any means whatsoever.
1.2 "B&K Know-How" shall mean all information and data, which is not
generally known, including, but not limited to, formulae, procedures, protocols,
techniques and results of experimentation and testing, which are necessary for
Ixsys to make, use, develop, sell or seek regulatory approval to market a
composition, or to practice a method or process, claimed in the B&K Patent
Rights in which Kauffman has an ownership or licensable interest.
1.3 "B&K Patent Rights" shall mean (a) United States Patent Application
Serial No. 08/133,952, filed November 20, 1986, and all foreign counterpart
patents and patent applications thereto, and (b) all divisionals, continuations,
continuations-in-part, reissues, renewals, extensions or additions to such
patents and patent applications
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(excluding the Random Chemistry Patent Rights if filed as a continuation-in-part
to the B&K Patent Rights).
1.4 "First Commercial Sale" shall mean, with respect to any Product, the
first sale for use or consumption by the general public of such Product.
1.5 "Huse Patent Rights" shall mean United States Patent No. 5,264,5634,
and all foreign counterpart patents and patent applications thereto, together
with all divisionals, continuations, continuations-in-part, reissues, renewals,
extensions or additions to such patents and patent applications.
1.6 "Net Sales" shall mean, with respect to any product (including any
Product), the invoiced sales price of such product or Product billed to
independent customers who are not Affiliates, less, to the extent included in
the invoiced sales price, (a) credits, allowances, discounts and rebates to, and
chargebacks from the account of, such independent customers for spoiled,
damaged, out-dated, rejected or returned product or Product; (b) actual freight
and insurance costs incurred in transporting such product or Product in final
form to such customers; (c) cash, quantity and trade discounts; (d) sales, use,
value-added and other taxes or governmental charges incurred in connection with
the exportation or importation of such product or Product in final form; and (e)
the cost to Ixsys of the devices for dispensing or administering such product or
Product as well as diluents or similar materials which accompany such product or
Product as it is sold.
1.7 "Person" shall mean an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.8 "Products" shall mean all products which contain or are derived from
any compositions, which at the time such compositions are conceived, (a)
incorporate, use or are based upon any process, method or composition claimed in
a Valid B&K Patent Claim, or (b) if made, used or sold absent the license
granted under the Agreement would infringe a Valid B&K Patent Claim.
1.9 "Random Chemistry Patent Rights" shall mean (a) United States Patent
Application Serial No. 08/049,268, filed April 19, 1993, and all foreign
counterpart patents and patent applications thereto, and (b) all divisionals,
continuations, continuations-in-part, reissues, renewals, extensions or
additions to such patents and patent applications.
1.10 "Royalty Term" shall mean, with respect to each Product, the period
of time beginning on the date when a valid patent issues in the United States
which claims a Valid B&K Patent Claim and ending on the date when all United
States patents which claim any Valid B&K Patent Claim have expired or have been
held permanently revoked, unenforceable or invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal,
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and which has not been admitted to be invalid or unenforceable through reissue
or disclaimer or otherwise.
1.11 "Territory" shall mean the entire world.
1.12 "Third Party" shall mean any Person other than Kauffman, Ixsys and
their respective Affiliates.
1.13 "Valid B&K Patent Claim" shall mean a claim of an issued and
unexpired patent in the United States included within the B&K Patent Rights,
which has not been held permanently revoked, unenforceable or invalid by a
decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, and which has not
been admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Kauffman Representations. Kauffman hereby represents and warrants to
Ixsys as follows:
2.1.1 Existence and Power. He is an individual, resident in the
State of New Mexico, and competent to conduct his affairs and to enter into and
perform his obligations under the Agreement.
2.1.2 Capacity and Enforcement of Obligations. Kauffman has the
capacity and the legal right to enter into the Agreement and to perform his
obligations hereunder. The Agreement has been duly executed and delivered by
Kauffman, and constitutes a legal, valid, binding obligation, enforceable
against Kauffman in accordance with its terms.
2.1.3 No Consents. All necessary consents, approvals and
authorizations of all governmental authorities and other Persons required to be
obtained by Kauffman in connection with the Agreement have been obtained.
2.1.4 No Conflict. The execution and delivery of the Agreement
and the performance of Kauffman's obligations hereunder (a) do not conflict with
or violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any contractual obligation of him.
2.1.5 Licensed Technology. Kauffman is the sole owner of the B&K
Patent Rights, the B&K Know-How and the Random Chemistry Patent Rights and has
not granted to any Third Party any license or other interest in the B&K Patent
Rights or the B&K Know-How that would limit his ability to exclusively license
such rights to Ixsys hereunder.
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2.2 Ixsys Representations. Ixsys hereby represents and warrants to
Kauffman as follows:
2.2.1 Corporate Existence and Power. Ixsys (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
state in which it is incorporated; (b) has the corporate power and authority and
the legal right to own and operate its property and assets, to lease the
property and assets it operates under lease, and to carry on its business as it
is now being conducted and (c) is in compliance with all requirements of
applicable law, except to the extent that any noncompliance would not have a
material adverse effect on the properties, business, financial or other
condition of it and would not materially adversely affect its ability to perform
its obligations under the Agreement.
2.2.2 Authorization and Enforcement of Obligations. Ixsys (a)
has the corporate power and authority and the legal right to enter into the
Agreement and to perform its obligations hereunder and (b) has taken all
necessary corporate action on its part to authorize the execution and delivery
of the Agreement and the performance of its obligations hereunder. The Agreement
has been duly executed and delivered on behalf of Ixsys, and constitutes a
legal, valid, binding obligation, enforceable against such party in accordance
with its terms.
2.2.3 No Consents. All necessary consents, approvals and
authorizations of all governmental authorities and other Persons required to be
obtained by Ixsys in connection with the Agreement have been obtained.
2.2.4 No Conflict. The execution and delivery of the Agreement
and the performance of Ixsys' obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any contractual obligation of it.
ARTICLE 3
LICENSE GRANTS
3.1 License Grants to Ixsys.
3.1.1 Exclusive Grant to B&K Technology. Kauffman hereby grants
to Ixsys an exclusive license (including the right to grant sublicenses) in the
Territory under the B&K Patent Rights and the B&K Know-How to use the processes
and methods, and to make, use and sell the compositions, claimed in the B&K
Patent Rights or which constitute B&K Know-How.
3.1.2 Non-Exclusive Grant to B&K Technology. Kauffman hereby
grants to Ixsys a non-exclusive, fully paid-up, royalty-free license (including
the right to grant sublicenses) in the Territory (a) to use the processes and
methods, and to make, use and sell the compositions, disclosed (but not claimed)
in the B&K Patent Rights, and (b) to use all information and data, which is not
generally known, including, but not limited
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to, formulae, procedures, protocols, techniques and results of experimentation
and testing which are necessary for Ixsys to make, use, develop, sell or seek
regulatory approval to market a composition, or to practice a method or process,
claimed or disclosed in the B&K Patent Rights.
3.1.3 Random Chemistry Patent Rights. Kauffman hereby grants to
Ixsys a non-exclusive, fully paid-up, royalty-free license (including the right
to grant sublicenses) in the Territory under the Random Chemistry Patent Rights
to the extent necessary or useful to use the processes and methods, and to make,
use and sell the compositions, claimed or disclosed in the B&K Patent Rights or
which constitute B&K Know-How.
3.1.4 Sublicenses. Ixsys shall give written notice to Kauffman
of each sublicense under the Agreement promptly after granting the same. Each
such sublicense shall be subject to the terms and conditions of the Agreement.
3.2 Sublicense Grantback to Kauffman.
3.2.1 B&K Technology. Ixsys hereby grants to Kauffman a limited
non-exclusive, fully paid-up, royalty-free sublicense (including the right to
grant further sublicenses) in the Territory under the B&K Patent Rights in the
Territory to the extent necessary or useful to use the processes and methods,
and to make, use and sell the compositions, claimed or disclosed in the Random
Chemistry Patent Rights and B&K Know-How. Kauffman's use of the B&K Patent
Rights under such sublicense shall be limited to (a) the right to produce
catalysts and if necessary, to use such catalysts for a reaction or sequence of
reactions in the subsequent production of the discovered chemical molecules, (b)
produce substrates in the process claimed by the Random Chemistry Patent Rights
in which substrates are significantly modified in such process prior to being
identified as candidate compositions or (c) other intermediate compounds or
agents for use in the processes and methods claimed in the Random Chemistry
Patent Rights but not for use as Products. Kauffman shall not use the B&K Patent
Rights or the B&K Know-How under such sublicense to (x) use any composition
derived through the limited sublicense as an end product or (y) derive a
composition as an end product by any means other than directly through the
processes and methods claimed in the Random Chemistry Patent Rights.
3.2.2 Sublicenses. Kauffman shall give written notice to Ixsys
of each sublicense under the Agreement promptly after granting the same. Each
such sublicense shall be subject to the terms and conditions of the Agreement.
3.3 Availability of the B&K Patent Rights and the B&K Know-How.
Promptly upon execution of the Agreement, Kauffman shall provide Ixsys with all
information available to Kauffman regarding the B&K Patent Rights, the B&K
Know-How and, to the extent of the rights granted to Ixsys under the Agreement,
the Random Chemistry Patent Rights.
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ARTICLE 4
IXSYS LICENSE AND MAINTENANCE FEES AND ROYALTIES
4.1 License Fee. In consideration for the grant of the license under the
B&K Patent Rights and the B&K Know-How, Ixsys shall pay to Kauffman a license
fee in the aggregate amount of ***, payable in installments as follows:
<TABLE>
<CAPTION>
Amount Payment Date
------ ------------
<S> <C>
*** November 3, 1994
*** November 3, 1995
*** November 3, 1996
</TABLE>
4.2 Annual Maintenance Fee. In consideration for the grant of the
license under the B&K Patent Rights and the B&K Know-How, beginning November 3,
1997 and on each anniversary until the expiration or the earlier termination of
the Agreement, Ixsys shall pay to Kauffman an annual maintenance fee. Such
annual maintenance fee shall equal *** per year prior to, and *** per year
after, either the issuance of one or more valid patents in the United States
which claim, or the irrevocable rejection of, all material claims originally
claimed in United States Patent Application Serial No. 08/133,952, filed
November 20, 1986, and claimed within the B&K Patent Rights as of the date
hereof; provided, however, that all material claims originally claimed in United
States Patent Application Serial No. 08/133,952, filed November 20, 1986, shall
be included, and shall not be materially narrowed or materially modified, in the
issued claims of such valid issued patent in the United States within the B&K
Patent Rights. Notwithstanding the foregoing, if any material claim stated in
United States Patent Application Serial No. 08/133,952, filed November 20, 1986,
is not included, or has been materially narrowed or materially modified, in the
issued claims of such valid issued patent in the United States within the B&K
Patent Rights, Ixsys and Kauffman shall negotiate in good faith a reduced annual
maintenance fee. Ixsys shall have the right to credit the aggregate amount of
all such annual maintenance fees against any royalties payable to Kauffman
pursuant to Section 4.4 below.
4.3 Sublicense Fees.
4.3.1 Random Chemistry Patent Rights. In consideration for the
grant of the license under the Random Chemistry Patent Rights, Ixsys shall pay
to Kauffman for each sublicense granted by Ixsys to a Third Party under the
Random Chemistry Patent Rights (a) a sublicense fee equal to *** payable upon
the grant of such sublicense and (b) a sublicense maintenance fee equal to ***
(or until the earlier expiration or termination of each such sublicense).
4.3.2 B&K Patent Rights Aggregate Sublicense and Maintenance
Fees. Ixsys shall pay to Kauffman an amount equal to *** of the aggregate
sublicense and maintenance fees received by Ixsys, in excess of *** in any
calendar year, in consideration for the grant of all such sublicenses to Third
Parties under the B&K
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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Patent Rights in any given calendar year. Such payments shall be made by Ixsys
to Kauffman on a quarterly basis and shall commence after Ixsys has received in
excess of *** in such calendar year.
4.4 Royalties. In consideration for the grant of the license under the
B&K Patent Rights and the B&K Know-How, during the Royalty Term, Ixsys shall
pay, on a quarterly basis as set forth in Section 7.1 below, the following
royalties to Kauffman:
4.4.1 On Sales by Ixsys and its Affiliates. With respect to
sales in the Territory of Products by Ixsys, its Affiliates or its
collaborators, Ixsys shall pay to Kauffman royalties equal to (a) *** of Net
Sales of any Product which contains one or more compositions conceived through a
process or method claimed in the B&K Patent Rights and which is not modified or
altered by Ixsys or others; (b) *** of Net Sales of any Product which contains
one or more compositions which are derivatives of any composition conceived
through a process or method claimed in the B&K Patent Rights and in which at
least one or more amino acid molecule has been modified or altered by Ixsys or
others; or (c) *** of Net Sales of any Product which contains one or more
compositions which are not conceived through a process or method claimed in the
B&K Patent Rights or a derivative thereof, but which are substantially based
upon the structure of any composition conceived through a process or method
claimed in the B&K Patent Rights.
4.4.2 On Sales by Third Party Sublicensees.
(a) With respect to sales in the Territory of Products by Third
Party sublicensees, Ixsys shall pay to Kauffman royalties equal to *** percent
*** of the aggregate royalties received by Ixsys directly in consideration for
the sublicense by Ixsys of the B&K Patent Rights. If the B&K Patent Rights are
sublicensed to a Third Party in conjunction with any additional patent or other
intellectual property rights of Ixsys, then Ixsys shall, in its reasonable
business judgment, apportion the royalties received from the Third Party under
this Section 4.4.2(a) which are attributable to the B&K Patent Rights
sublicense.
(b) Notwithstanding the foregoing, if Ixsys grants a sublicense
under the B&K Patent Rights to any Third Party, in which such Third Party grants
a cross-license under any patent or other intellectual property rights of such
Third Party to Ixsys but which is not obligated to pay any royalties to Ixsys
calculated on the basis of sales of products by or on behalf of such Third
Party, then Ixsys shall pay to Kauffman royalties equal to (i) *** of Net Sales
by Ixsys, its Affiliates and sublicensees (other than such Third Party) of each
product which incorporates, uses or is based on the B&K Patent Rights and which
also incorporates, uses or is based on such cross-licensed patent or other
intellectual property rights of such Third Party, or (ii) *** of Net Sales by
Ixsys, its Affiliates and sublicensees (other than such Third Party) of each
product (other than a Product) which incorporates, uses or is based on such
cross-licensed patent or other intellectual property rights of such Third Party.
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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4.4.3 Reduction of Royalties. Notwithstanding the foregoing, the
royalties owing from Ixsys to Kauffman under this Section 4.4 shall be subject
to the following reductions:
(a) If a product or a Product incorporates, uses or is based on
the Huse Patent Rights, or would infringe the valid claim of the Huse Patent
Rights if made, used or sold, then the royalty rates set forth in Sections 4.4.1
and 4.4.2(b) above shall be reduced to *** of the respective percentages set
forth therein.
(b) if any material claim stated in United States Patent
Application Serial No. 08/133,952, filed November 20, 1986, is not included, or
has been materially narrowed or materially modified, in the issued claims of
such valid issued patent in the United States within the B&K Patent Rights,
Ixsys and Kauffman shall negotiate in good faith a reduced royalty rate under
Sections 4.4.1 and 4.4.2(b) above.
ARTICLE 5
KAUFFMAN SUBLICENSE AND MAINTENANCE FEES
In consideration for the grantback of the sublicense under the B&K
Patent Rights, Kauffman shall pay to Ixsys for each sublicense granted by
Kauffman to a Third Party under the B&K Patent Rights (a) a sublicense fee equal
to *** payable upon the grant of such sublicense, and (b) a sublicense
maintenance fee equal to *** payable on each anniversary of the grant of each
such sublicense during the Royalty Term (or until the earlier expiration or
termination of each such sublicense).
ARTICLE 6
ROYALTY REPORTS AND ACCOUNTING
6.1 Royalty Reports. During the term of the Agreement following the
First Commercial Sale of a Product, Ixsys shall furnish to Kauffman a quarterly
written report showing in reasonably specific detail (a) the gross sales of each
Product sold by Ixsys, its Affiliates and its sublicensees in the Territory
during the reporting period and the calculation of Net Sales from such gross
sales; (b) the royalties received by Ixsys from Third Parties in consideration
for the sublicense of the B&K Patent Rights; (c) the royalties payable, if any,
which shall have accrued hereunder based upon the foregoing; and (d) withholding
taxes, if any, required by law to be deducted in respect of such sales. Reports
shall be due on the 90th day following the close of each quarter. Ixsys shall
keep complete and accurate records in sufficient detail to properly reflect all
gross sales, Net Sales and sublicense royalties and to enable the royalties
payable hereunder to be determined.
6.2 Audits.
6.2.1 Independent Accounting. Upon the written request of
Kauffman and not more than once in each calendar year, Ixsys shall permit an
independent certified
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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public accounting firm of nationally recognized standing selected by Kauffman
and reasonably acceptable to Ixsys, at Kauffman's expense, to have access during
normal business hours to such of the records of Ixsys as may be reasonably
necessary to verify the accuracy of the royalty reports hereunder for any year
ending not more than twenty-four (24) months prior to the date of such request.
The accounting firm shall disclose to Kauffman only whether the records are
correct or not and the specific details concerning any discrepancies. No other
information shall be shared.
6.2.2 Additional Payment. If such accounting firm concludes that
additional royalties were owed during such period, Ixsys shall pay the
additional royalties within thirty (30) days of the date Kauffman delivers to
Ixsys such accounting firm's written report so concluding. The fees charged by
such accounting firm shall be paid by Kauffman; provided, however, if the audit
correctly discloses that the royalties payable by Ixsys for the audited period
are more than *** of the royalties actually paid for such period, then Ixsys
shall pay the reasonable fees and expenses charged by such accounting firm.
6.3 Confidential Financial Information. Kauffman shall treat all
financial information subject to review under this Article 6 or under any
sublicense agreement as confidential, and shall cause his accounting firm to
retain all such financial information in confidence under Article 9 below.
ARTICLE 7
PAYMENTS
7.1 Payment Terms. Royalties shown to have accrued by each royalty
report provided for under Article 6 above shall be due on the date such royalty
report is due. Payment of royalties in whole or in part may be made in advance
of such due date.
7.2 Exchange Control. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any country in the
Territory where the Product is sold, Ixsys shall have the right, in its sole
discretion, to make such payments by depositing the amount thereof in local
currency to Kauffman's account in a bank or other depository institution in such
country. If the royalty rate specified in the Agreement should exceed the
permissible rate established in any country, the royalty rate for sales in such
country shall be adjusted to the highest legally permissible or
government-approved rate.
7.3 Withholding Taxes. Ixsys shall be entitled to deduct the amount of
any withholding taxes, value-added taxes or other taxes, levies or charges with
respect to such amounts, other than United States taxes, payable by Ixsys, its
Affiliates or sublicensees, or any taxes required to be withheld by Ixsys, its
Affiliates or sublicensees, to the extent Ixsys, its Affiliates or sublicensees
pay to the appropriate governmental authority on behalf of Kauffman such taxes,
levies or charges. Ixsys shall use reasonable efforts to minimize any such
taxes, levies or charges required to be withheld on behalf of Kauffman by Ixsys,
its Affiliates or sublicensees. Ixsys shall deliver promptly to
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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Kauffman proof of payment of all such taxes, levies and other charges, together
with copies of all communications from or with such governmental authority with
respect thereto.
ARTICLE 8
DEVELOPMENT OBLIGATIONS
Ixsys shall use its commercially reasonable efforts to develop, as Ixsys
determines is necessary or desirable, such Products as Ixsys determines are
commercially feasible in the Territory.
ARTICLE 9
CONFIDENTIALITY
9.1 Confidential Information. During the term of the Agreement, and for
a period of four (4) years following the expiration or earlier termination
hereof, Kauffman shall maintain in confidence all information of Ixsys
(including samples) disclosed by Ixsys to Kauffman pursuant to the Agreement, if
such information of Ixsys (including samples) is (i) disclosed in writing and
marked "Confidential" or (ii) disclosed orally and Ixsys has stated prior to or
at the time of such disclosure that the information is confidential and Ixsys
subsequently reduces such oral disclosure to a writing marked "Confidential" and
delivers such marked writing to Kauffman within thirty (30) days if such oral
disclosure (collectively, (i) and (ii) above shall be referred to as the
"Confidential Information"), and shall not use, disclose or grant the use of the
Confidential Information except on a need-to-know basis to those directors,
officers, Affiliates, employees, permitted licensees, permitted assignees and
agents, consultants, clinical investigators or contractors, to the extent such
disclosure is reasonably necessary in connection with Kauffman's activities as
expressly authorized by the Agreement. To the extent that disclosure is
authorized by the Agreement, prior to disclosure, Kauffman shall obtain
agreement of any such Person to hold in confidence and not make use of the
Confidential Information for any purpose other than those permitted by the
Agreement. Kauffman shall notify Ixsys promptly upon discovery of any
unauthorized use or disclosure of the Confidential Information.
9.2 Permitted Disclosures. The confidentiality obligations contained in
Section 9.1 above shall not apply to the extent that (a) Kauffman is (i)
required to disclose information by law, order or regulation of a governmental
agency or a court of competent jurisdiction, or (ii) Kauffman is required to
disclose information to any governmental agency for purposes of obtaining
approval to test or market a product, provided in either case that Kauffman
shall provide written notice thereof to Ixsys and sufficient opportunity to
object to any such disclosure or to request confidential treatment thereof; or
(b) Kauffman can demonstrate that (i) the disclosed information was or had
become public knowledge at the time of such disclosure by Kauffman other than as
a result of actions of Kauffman, its Affiliates, employees, permitted licensees,
permitted assignees and agents, consultants, clinical investigators or
contractors in violation hereof;
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(ii) the disclosed information was rightfully known by Kauffman or its
Affiliates (as shown by Kauffman's written records) or permitted licensees prior
to the date of disclosure to Kauffman by Ixsys; (iii) the disclosed information
was received by Kauffman or its Affiliates or permitted licensees on an
unrestricted basis from a source unrelated to Ixsys and not under a duty of
confidentiality to Ixsys; or (iv) the disclosed information was independently
developed by Kauffman, without the use of Confidential Information as evidenced
by Kauffman's written records.
9.3 Terms of the Agreement. Except as otherwise provided in Section 9.2
above, Kauffman shall not disclose any terms or conditions of the Agreement to
any Third Party without the prior consent of Ixsys. Notwithstanding the
foregoing, Kauffman may disclose the information set forth on Exhibit A attached
hereto, to those certain Third Parties with whom Kauffman has, or proposes to
enter into, a business relationship.
ARTICLE 10
PATENTS
10.1 Past Expenses. In consideration for the grant of the license under
the B&K Patent Rights, and subject to proof of such past expenditures by
Kauffman, Ixsys shall reimburse Kauffman for his past expenses incurred in the
prosecution and maintenance of the B&K Patent Rights according to the following
schedule:
<TABLE>
<CAPTION>
Amount Payment Date
------ ------------
<S> <C>
*** November 3, 1994
*** November 3, 1995
*** November 3, 1996
</TABLE>
10.2 Patent Prosecution and Maintenance.
10.2.1 B&K Patent Rights. Ixsys shall be responsible for and
shall control, at its sole cost, the preparation, filing, prosecution and
maintenance of all patents and patent applications related to the B&K Patent
Rights (including any interference actions related to the B&K Patent Rights) in
a commercially reasonable manner. If Ixsys elects to abandon any material claim
in any patent application within the B&K Patent Rights without filing a
continuation or continuation-in-part application containing such material claim,
Kauffman shall have the right to assume control, at his sole cost, of the
preparation, filing, prosecution and maintenance of such material claim in any
patent application and all patent claims which issue therefrom, and such
material claim in such patent application and patent claims shall be excluded
from the B&K Patent Rights. Kauffman shall cooperate with Ixsys, execute all
lawful papers and instruments and make all rightful oaths and declarations as
may be necessary in the preparation, prosecution and maintenance of all patents
and other filings referred to in this Section 10.2.1.
10.2.2 Random Chemistry Patent Rights. Kauffman shall be
responsible for and shall control, at his sole cost, the preparation, filing,
prosecution and maintenance of all patents and patent applications related to
the Random Chemistry Patent Rights
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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(including any interference actions relating thereto). Kauffman shall have the
right, but not the obligation, to include the claims set forth in United States
Patent Application Serial No. 08/049, 268, filed April 19, 1993, as a
continuation-in-part to United States Patent Application Serial No. 08/133,952,
filed November 20, 1986; provided, however, that such filing shall not (a) alter
or impact negatively the claims set forth in United States Patent Application
Serial No. 08/133,952, filed November 20, 1986 and licensed to Ixsys hereunder
and (b) grant to Kauffman any additional rights to the B&K Patent Rights except
as provided for in the Agreement. Ixsys shall cooperate with Kauffman, execute
all lawful papers and instruments and make all rightful oaths and declarations
as may be necessary in the preparation, prosecution and maintenance of all
patents and other filings referred to in this Section 10.2.2.
10.3 Notification of Infringement. Each party shall notify the other
party of any infringement in the Territory known to such party of any Patent
Rights of the other party and shall provide the other party with the available
evidence, if any, of such infringement.
10.4 Enforcement of Patent Rights. Ixsys, at its sole expense, shall
have the right, at any time and at its sole discretion, to determine the
appropriate course of action to enforce the B&K Patent Rights or otherwise abate
the infringement thereof, to take (or refrain from taking) appropriate action to
enforce the B&K Patent Rights, to control any litigation or other enforcement
action and to enter into, or permit, the settlement of any such litigation or
other enforcement action with respect to the B&K Patent Rights. Notwithstanding
the foregoing, Ixsys shall have no obligation to abate any infringement of the
B&K Patent Rights or to file any action to enforce the B&K Patent Rights against
an infringing party in the Territory. Neither Kauffman, an Affiliate of Kauffman
nor any Third Party shall take any action which (a) claims that the Agreement is
invalid and/or (b) seeks or claims damages from Ixsys because Ixsys failed to
abate any infringement of the B&K Patent Rights or to file any action to enforce
the B&K Patent Rights against any infringing party in the Territory. Kauffman
shall fully cooperate with Ixsys in the planning and execution of any
enforcement action regarding the B&K Patent Rights. Ixsys shall be entitled to
receive all monies recovered upon the final judgment or settlement of any such
suit to enforce the B&K Patent Rights; provided, however, that if Ixsys receives
monies in excess of Ixsys' aggregate costs associated with any such suit to
enforce the B&K Patent Rights (including, but not limited to, attorneys' fees
and costs), Ixsys shall pay to Kauffman any royalties owed to Kauffman pursuant
to Section 4.4. Ixsys shall reimburse Kauffman for reasonable out-of-pocket
expenses incurred by Kauffman in connection therewith; provided, however, that
such expenses shall have been approved in advanced, in writing, by Ixsys, which
approval shall not be withheld unreasonably.
10.5 Reimbursement to Ixsys. If Ixsys, its Affiliates or sublicensees
incur any un-reimbursed costs, including reasonable attorneys' fees and costs
(the "Reimbursement Amount"), in connection with the defense of any claim,
demand or action by any Third Party alleging the infringement of a Third Party's
patent rights by the exercise of the license rights granted to Ixsys hereunder
or the invalidity of any B&K Patent Rights (including, but not limited to, any
allowed claims or issued patents in the Territory,
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including, but not limited to, in Europe or any country thereof), Ixsys shall
have the right to credit (a) an amount equal to twenty-five percent (25%) of the
Reimbursement Amount against any amounts owed by Ixsys to Kauffman under Section
4.4.2(a) above, and (b) the Reimbursement Amount against any royalties owed to
Kauffman under Section 4.4.1 above; provided, however, that (i) Ixsys shall not
reduce the amount of the royalties paid to Kauffman under Section 4.4.1 in any
payment period to less than *** of the royalties owed to Kauffman under Section
4.4.1 above (after giving effect to any royalty reductions contemplated in
Section 4.4.3 above) for such period, and (ii) the aggregate amount of the
credits under clauses (a) and (b) above shall not exceed the Reimbursement
Amount.
ARTICLE 11
TERMINATION
11.1 Expiration. Subject to the provisions of Sections 11.2 and 11.3
below, the Agreement shall expire on the date when all issued patents which
constitute B&K Patent Rights have expired or have been held permanently revoked,
unenforceable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been admitted to be invalid or unenforceable
through reissue or disclaimer or otherwise. Upon the expiration of the
Agreement, (a) Ixsys shall have a paid-up, non-exclusive license under the B&K
Know-How to use the processes and methods, and to make, use and sell the
compositions, claimed in the B&K Patent Rights or which constitute B&K Know-How;
and (b) the paid-up, non-exclusive licenses granted under Sections 3.1.2, 3.1.3
and 3.2.1 shall survive.
11.2 Termination by Ixsys. Ixsys may terminate the Agreement, in its
sole discretion, upon thirty (30) days prior written notice to Kauffman.
11.3 Termination for Cause. Except as otherwise provided in Article 13,
either party may terminate the Agreement upon or after the breach of any
material provision of the Agreement by the other party if the other party has
not cured such breach within ninety (90) days after notice thereof by the
non-breaching party; provided, however, if any default is not capable of being
cured within such ninety (90) day period and the other party is diligently
undertaking to cure such default as soon as commercially feasible thereafter
under the circumstances, the non-breaching party shall have no right to
terminate the Agreement.
11.4 Effect of Expiration or Termination. Upon the expiration or earlier
termination of the Agreement, all rights relating to the grant of the B&K Patent
Rights license to Ixsys and all obligations of Ixsys and Kauffman, including
without limitation, Ixsys' obligations to pay maintenance or royalty fees
pursuant to Sections 4.2 and 4.4, shall terminate. The expiration or earlier
termination of the Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or earlier termination, including the payment
of pro-rata amounts, if any, owed to Kauffman, and the provisions of Articles 9
and 12 shall survive the expiration or earlier termination of the Agreement.
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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ARTICLE 12
INDEMNIFICATION
12.1 Indemnification. Ixsys shall defend, indemnify and hold Kauffman
harmless from all claims, demands, liabilities, damages and expenses, including
attorneys' fees and costs arising out of any breach of the Agreement by Ixsys,
or the gross negligence or willful misconduct of Ixsys, its Affiliates or
permitted sublicensees in the performance of its obligations contemplated by the
Agreement.
12.2 Procedure. Kauffman promptly shall notify Ixsys of any liability or
action in respect of which Kauffman intends to claim such indemnification, and
Ixsys shall have the right to participate in, and, to the extent Ixsys so
desires, jointly with any other indemnitor similarly noticed, to assume the
defense thereof with counsel selected by Ixsys; provided, however, that Kauffman
shall have the right to retain his own counsel, at his sole expense, if
representation of Kauffman by the counsel retained by Ixsys would be
inappropriate due to actual or potential differing interests between Kauffman
and any other party represented by such counsel in such proceedings. The
indemnity agreement in this Article 12 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such settlement is
effected without the consent of Ixsys, which consent shall not be withheld
unreasonably. The failure to deliver notice to Ixsys within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve Ixsys of any liability to Kauffman under this
Article 12, but the omission so to deliver notice to Ixsys will not relieve it
of any liability that it may have to Kauffman otherwise than under this Article
12. Kauffman under this Article 12, his employees and agents, shall cooperate
fully with Ixsys and its legal representatives in the investigation and defense
of any action, claim or liability covered by this indemnification.
ARTICLE 13
FORCE MAJEURE
Neither party shall be held liable or responsible to the other party nor
be deemed to have defaulted under or breached the Agreement for failure or delay
in fulfilling or performing any term of the Agreement to the extent, and for so
long as, such failure or delay is caused by or results from causes beyond the
reasonable control of the affected party including but not limited to fire,
floods, embargoes, war, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party.
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ARTICLE 14
MISCELLANEOUS
14.1 Notices. Any consent, notice or report required or permitted to be
given or made under the Agreement by one of the parties hereto to the other
party shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery, U.S. first class mail or courier), U.S. first
class mail or courier, postage prepaid (where applicable), addressed to such
other party at such party's address indicated below, or to such other address as
the addressee shall have last furnished in writing to the addressor and (except
as otherwise provided in the Agreement) shall be effective upon receipt by the
addressee.
If to Kauffman: Stuart A. Kauffman, M.D.
15 Montecito
Santa Fe, NM 87501
with a copy to: Holtzman, Wise & Shepard
3030 Hansen Way
Palo Alto, CA 94304
Attention: Thomas L. Barton
If to Ixsys: Ixsys, Inc.
3550 Dunhill Street
San Diego, CA 92121
Attention: Michael J. Hanifin
with a copy to: Pillsbury Madison & Sutro
235 Montgomery Street, 15th Floor
San Francisco, CA 94104
Attention: Thomas E. Sparks, Jr.
14.2 Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of law principles thereof.
14.3 Arbitration. Any dispute, controversy or claim originally initiated
by either party relating to, arising out of or resulting from the Agreement, or
the performance by either party of such party's obligations hereunder, whether
before or after termination of the Agreement, shall be finally resolved by
binding arbitration. Whenever a party shall decide to institute arbitration
proceedings, such party shall give written notice to that effect to the other
party. The party giving such notice shall refrain from instituting the
arbitration proceedings for a period of sixty (60) days following such notice.
Any arbitration hereunder shall be conducted under the Commercial Arbitration
Rules of the American Arbitration Association. Each such arbitration shall be
conducted by a panel of three (3) arbitrators appointed in accordance with such
rules. Any such arbitration shall be held in San Diego, California. The
arbitrators shall have the authority
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to grant specific performance, and to allocate between the parties the costs of
arbitration in such equitable manner as they determine. Judgment upon the award
so rendered may be entered in any court having jurisdiction or application may
be made to such court for judicial acceptance of any award and an order of
enforcement, as the case may be. In no event shall a demand for arbitration be
made after the date when institution of a legal or equitable proceeding based
upon such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.
14.4 Assignment. Ixsys shall not assign its rights or obligations under
the Agreement without the prior written consent of Kauffman; provided, however,
that Ixsys may, without such consent, assign the Agreement and its rights and
obligations hereunder in connection with the transfer or sale of all or
substantially all of its business, or in the event of its merger or
consolidation or change in control or similar transaction. Any permitted
assignee shall assume all obligations of its assignor under the Agreement.
14.5 Waivers and Amendments. No change, modification, extension,
termination or waiver of the Agreement, or any of the provisions herein
contained, shall be valid unless made in writing and signed by duly authorized
representatives of the parties hereto.
14.6 Entire Agreement. The Agreement embodies the entire understanding
between the parties and supersedes any prior understanding and agreements
between and among them respecting the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral or written,
between the parties hereto relating to the subject matter of the Agreement which
are not fully expressed herein.
14.7 Severability. Any of the provisions of the Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability in such
jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof and without affecting the validity or enforceability of any of
the terms of the Agreement in any other jurisdiction.
14.8 Waiver. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
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14.9 Counterparts. The 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.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the
date first set forth above.
STUART A. KAUFFMAN, M.D.
/S/ STUART A. KAUFMAN, M.D.
IXSYS, INC.
By /S/ JANINE M. TAYLOR
--------------------
Title Director, Finance & Administration
----------------------------------
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EXHIBIT A
Abstract of License Agreement
Kauffman shall be entitled to inform Third Parties of the existence of
the Agreement, but not the terms therein (except Section 3.2.1 as set forth
below), and to further inform any potential licensee of the Random Chemistry
Patent Rights of the existence of (a) the Kauffman grant to Ixsys of a
non-exclusive license under the Random Chemistry Patent Rights, but not the
terms therein other than the specific terms of Section 3.1.3 of the Agreement
and (b) the Ixsys grantback to Kauffman of a non-exclusive sublicense under the
B&K Patent Rights, including the terms set forth in Section 3.2.1 of the
Agreement.
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*** CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS HAVE BEEN REDACTED
AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT 10.4
LICENSE AGREEMENT
This License Agreement (this "Agreement") is effective as of February 24, 1999
("the EFFECTIVE DATE") by and between Ixsys, Inc., a Delaware corporation,
having an address at 3520 Dunhill Road, San Diego, CA 92121 ("IXSYS"), and
MedImmune, Inc., a Delaware Corporation, having offices at 35 West Watkins Mill
Road, Gaithersburg, MD 20878 ("MEDIMMUNE"). WHEREAS, MEDIMMUNE desires to obtain
from IXSYS an exclusive worldwide right and license to certain antibodies; and
WHEREAS, IXSYS desires to grant such rights on the terms and conditions of this
Agreement. NOW THEREFORE in consideration of the mutual promises and other good
and valuable consideration, the parties agree as follows:
SECTION 1 - Definitions.
The terms used in this Agreement have the following meaning:
1.1 "AFFILIATE," as applied to a person or entity, means any other person or
entity controlling or controlled by or under common control with such person or
entity. The term "control" means possession of the power to direct or cause the
direction of the management and policies whether through the ownership of voting
securities, by contract or otherwise. The ownership of voting securities of a
person, organization or entity, however, shall not, in and of itself, constitute
"control" for purposes of this definition, unless said ownership is of a
majority of the outstanding securities entitled to vote of such person,
organization or entity. Affiliate shall also mean a limited partnership in which
a subsidiary of such person, organization or entity is a general partner.
1.2 "ANTIBODY(IES)" means (1) an antibody that specifically binds to ***
(including, but not limited to, chimeric antibodies, humanized antibodies,
recombinant antibodies, grafted antibodies, single chain antibodies, and the
like) or an antibody fragment that specifically binds to *** or (2) a
polynucleotide that encodes any of the foregoing. For the avoidance of doubt,
ANTIBODY includes, but is not limited to, derivatives of *** antibody, fragments
thereof and modifications, variants and derivatives thereof, such as humanized,
chimeric, grafted and CDR modified versions thereof and fragments of such
versions, including, but not limited to, the humanized antibody referred to as
VITAXIN. Notwithstanding the foregoing, ANTIBODY shall exclude the *** murine
antibody produced by the cell line *** deposited with the American Type Culture
Collection.
1.3 "FIRST COMMERCIAL SALE" means, in each country, (a) the first sale of a
PRODUCT by MEDIMMUNE, its AFFILIATE or SUBLICENSEE following approval of its
marketing by the
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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appropriate governmental agency for the country in which the sale is to be made,
or (b) when governmental approval is not required, the first commercial sale of
a PRODUCT by MEDIMMUNE, its AFFILIATE or SUBLICENSEE in that country.
1.4 "IXSYS KNOW-HOW" means all information and data (including, but not limited
to, formulae, procedures, protocols, techniques and results of experimentation
and testing) that are necessary or useful for MEDIMMUNE to make, use or sell an
ANTIBODY (including an ANTIBODY that constitutes a component or ingredient of a
product), in each case only to the extent owned by or licensed to IXSYS or its
AFFILIATES (with the right to grant sublicenses) or as to which IXSYS or its
AFFILIATES otherwise has licensable rights as of the EFFECTIVE DATE or (subject
to Section 1.15) thereafter during the term of this Agreement.
1.5 "IXSYS LICENSE AGREEMENTS" means the agreements listed in Appendix A.
1.6 "IXSYS PATENT(S)" means any patent or patent application (or equivalents
thereof, such as extensions or other rights that give the right to exclude
others such as Supplementary Protection Certificates) anywhere in the world, to
the extent the claims of which would be infringed by the manufacture, use or
sale of a product comprising an ANTIBODY and only to the extent that it is
either owned by or licensed to IXSYS or its AFFILIATES (with the right to grant
sublicenses) or as to which IXSYS or its AFFILIATES otherwise has licensable
rights, in each case, as of the EFFECTIVE DATE or (subject to Section 1.15)
thereafter during the term of this Agreement (including, but not limited to,
those of Appendix B and those licensed under the IXSYS LICENSE AGREEMENTS).
1.7 "LICENSED TERRITORY" means all countries of the world.
1.8 "MATERIALS" means ANTIBODIES, the cell lines for producing such ANTIBODIES,
the polynucleotides encoding such ANTIBODIES, and the assays, vectors and
constructs for producing such ANTIBODIES, in each case only to the extent owned
by or licensed to IXSYS or its AFFILIATES (with the right to grant sublicenses)
or as to which IXSYS or its AFFILIATES otherwise has transferable rights, and in
the possession and control of IXSYS or its AFFILIATES, as of the EFFECTIVE DATE
or (subject to Section 1.15) thereafter during the term of this Agreement. For
the avoidance of doubt, MATERIALS includes the existing cell line and associated
vectors for producing the humanized version of *** known as VITAXIN and VITAXIN
variants in the possession and control of IXSYS as of the EFFECTIVE DATE.
1.9 "NET SALES" means, with respect to any PRODUCT, the invoiced sales price of
such PRODUCT sold by MEDIMMUNE, its AFFILIATES and SUBLICENSEES to independent
customers who are not AFFILIATES, less (a) actual and customary credits,
allowances, discounts and rebates to, and chargebacks from the account of, such
independent customers for spoiled, damaged, out-dated, rejected or returned
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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PRODUCT; (b) actual freight and insurance costs incurred in transporting such
PRODUCT to such customers; (c) actual and customary cash, quantity and trade
discounts; (d) sales, use, value-added and taxes or governmental charges
(excluding what is commonly known as income taxes) incurred in connection with
the exportation or importation of such PRODUCT; (e) the cost to MEDIMMUNE of the
devices for dispensing or administering such PRODUCT as well as diluents or
similar materials which accompany such PRODUCT as it is sold, and (f) a
reasonable allowance for bad debt, all in accordance with Generally Accepted
Accounting Principles. For purposes of determining NET SALES, a sale shall have
occurred when an invoice therefor shall be generated or the PRODUCT shipped for
delivery. Sales of PRODUCTS by MEDIMMUNE, an AFFILIATE or SUBLICENSEE to any
AFFILIATE or SUBLICENSEE which is a reseller thereof shall be excluded, and only
the subsequent sale of such PRODUCTS by AFFILIATES or SUBLICENSEES to unrelated
parties shall be deemed NET SALES hereunder.
1.10 "PRODUCT" means a product comprising (i) an ANTIBODY, the manufacture, use
or sale of which infringes a VALID PATENT CLAIM as to which MEDIMMUNE retains a
license under this Agreement, (ii) an ANTIBODY provided and licensed to
MEDIMMUNE by IXSYS under this Agreement, or (iii) an ANTIBODY which is derived
from an ANTIBODY provided and licensed to MEDIMMUNE under this Agreement.
1.11 "ROYALTY PERIOD" means, with respect to each PRODUCT in each country in the
LICENSED TERRITORY, (a) if the manufacture, use, offer for sale, sale or import
of such PRODUCT in such country at the time of the FIRST COMMERCIAL SALE
infringes a VALID PATENT CLAIM (if in an issued patent) but for the license
granted by this Agreement, the royalty period continues for as long as such
VALID PATENT CLAIM remains in effect and (if in an issued patent) is infringed
thereby but for the license granted by this Agreement, or (b) otherwise, ***
years from the date of the FIRST COMMERCIAL SALE of such PRODUCT in such
country.
1.12 "SUBLICENSEE" means any AFFILIATE or THIRD PARTY that is granted a
sublicense by MEDIMMUNE under the licenses and sublicenses granted by this
Agreement.
1.13 "THIRD PARTY(IES)" means a person or entity other than IXSYS or MEDIMMUNE
or any of their AFFILIATES.
1.14 The term "VALID PATENT CLAIM" shall mean either (a) a claim of an issued
and unexpired patent included within the IXSYS PATENTS, which has not been held
permanently revoked, unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which has not been admitted to be invalid or
unenforceable through reissue or disclaimer or otherwise or (b) a claim of a
pending patent application included within the IXSYS PATENTS, which claim was
filed in good faith and has not been abandoned or finally
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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disallowed without the possibility of appeal or refiling of such application,
the subject matter of which has not been pending for more than *** years,
including the pendency of any prior application.
1.15 In the event of the good faith transfer or sale of all or substantially all
of IXSYS' assets (including this Agreement) to a THIRD PARTY, or in the event of
the good faith merger, consolidation, or similar transaction with a THIRD PARTY,
in which IXSYS is not the surviving entity, (a) the subject matter of the
ANTIBODIES, IXSYS KNOW-HOW, IXSYS PATENTS and MATERIALS shall not include any
antibody or fragment, data or information, patent or patent application or
material of the surviving entity or the purchaser of IXSYS' assets existing
prior to the effective date of such transaction or acquired or arising on or
after the effective date of such transaction, if the surviving entity or the
purchaser of IXSYS' assets, prior to such effective date. was working on the
research, development, manufacture or commercialization of an ANTIBODY, and (b)
the subject matter of IXSYS KNOW-HOW and IXSYS PATENTS shall exclude any data or
information, or patent or patent application, regarding antibody production
generally, of the surviving entity or the purchaser of IXSYS' assets existing
prior to the effective date of such transaction or acquired or arising on or
after the effective date of such transaction, if the surviving entity or the
purchaser of IXSYS' assets, prior to such effective date, was in the business of
commercial production of antibodies.
1.16 The use herein of the plural shall include the singular, and the use of the
masculine shall include the feminine.
1.17 All dollars are United States Dollars.
SECTION 2 - Transfer of IXSYS KNOW-HOW and MATERIALS.
2.1 Within thirty (30) days of the EFFECTIVE DATE, IXSYS, at the cost and
expense of IXSYS, shall transfer to MEDIMMUNE the IXSYS KNOW-HOW and MATERIALS
existing as of the EFFECTIVE DATE. Promptly after the end of each calendar
quarter thereafter during the term of this Agreement, IXSYS, at the cost and
expense of IXSYS, shall transfer to MEDIMMUNE the IXSYS KNOW-HOW and MATERIALS
not previously delivered to MEDIMMUNE.
2.2 For a period of six (6) months after the EFFECTIVE DATE, IXSYS, at the cost
and expense of IXSYS, shall provide MEDIMMUNE with such technical assistance as
reasonably requested by MEDIMMUNE with respect to the use of the IXSYS PATENTS,
IXSYS KNOW-HOW and MATERIALS hereunder.
2.3 (a) IXSYS, at its cost and expense, shall deliver to MEDIMMUNE (i) a ***
liter batch of the ANTIBODY that is a humanized form of *** antibody which
humanized antibody is known as VITAXIN that is currently being produced by ***
for IXSYS under Good Manufacturing Practices with delivery expected in ***, and
(ii)
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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the associated documentation delivered by *** to IXSYS in connection therewith
that is required for use in human clinical testing and commercial development
and manufacturing of such produced VITAXIN.
(b) In the event that IXSYS does not deliver VITAXIN in accordance with Section
2.3(a), then MEDIMMUNE shall have the right to deduct from any and all payments
due and payable to IXSYS under this Agreement an amount equal to ***.
2.4 IXSYS shall have the right to publish IXSYS' KNOW-HOW; provided, however,
that IXSYS shall provide MEDIMMUNE the opportunity to review any proposed
manuscripts or any other proposed disclosure describing such work sixty (60)
days prior to their submission for publication or other proposed disclosure.
MEDIMMUNE and IXSYS shall discuss whether or not such publication or disclosure
should occur and it is expressly understood that MEDIMMUNE shall have the sole
right to make a final determination as to whether or not such publication or
disclosure shall occur provided that such determination is not unreasonable. It
shall not be unreasonable to deny publication on the basis that the information
proposed to be published is not generally available to the public and may aid a
competitor in developing a competitive product.
SECTION 3 - License Grants.
3.1 (a) IXSYS hereby grants to MEDIMMUNE and MEDIMMUNE hereby accepts from IXSYS
a sole and exclusive right and license (or sublicense, as applicable) for the
LICENSED TERRITORY (i) under and to IXSYS PATENTS and IXSYS KNOW-HOW to
research, develop, make, have made, use, import, export and sell, offer to sell
or have sold PRODUCTS and (ii) to make, have made and use the MATERIALS for all
of the purposes of 3.1(a)(i). Notwithstanding anything to the contrary in this
Agreement, the rights and licenses granted to MEDIMMUNE under this Agreement
exclude any right or license (express or implied) under any IXSYS patent rights
or know-how regarding the generation, discovery or modification of antibody
libraries, antibodies or fragments thereof, generally.
(b) To the extent that the rights and licenses granted to MEDIMMUNE under
Section 3.1(a) is a sublicense under an IXSYS LICENSE AGREEMENT, the rights, and
licenses granted to MEDIMMUNE under such sublicense are limited to the extent
that IXSYS is licensed under the IXSYS LICENSE AGREEMENT and such sublicense is
subject to the terms, conditions and restrictions of the IXSYS LICENSE AGREEMENT
that are applicable to a sublicense thereunder. MEDIMMUNE shall not take or omit
to take any action the effect of which would cause IXSYS to be in breach of
IXSYS' obligations under the IXSYS LICENSE AGREEMENTS (without regard to any
applicable cure or notice requirements thereof).
3.2 MEDIMMUNE shall have the right to grant sublicenses under
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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the licenses and sublicenses granted under Section 3.1 to its AFFILIATES and
THIRD PARTIES (with the right to grant further sublicenses, subject to any
terms, conditions and restrictions on further sublicensing under IXSYS LICENSE
AGREEMENTS). MEDIMMUNE shall deliver to IXSYS a copy of each such sublicense
promptly after execution of the same. Each such sublicense shall be subject to
the terms and conditions of this Agreement.
3.3 The licenses granted hereunder include the right of MEDIMMUNE, its
AFFILIATES and SUBLICENSEES to grant to the purchaser thereof the right to use
and/or resell a purchased PRODUCT for which a royalty has been paid hereunder on
NET SALES of such PRODUCT (determined in accordance with Section 1.9), without
payment of any further royalty to IXSYS.
3.4 The provisions of Section 11.3(b) set forth MEDIMMUNE's only diligence
obligations to IXSYS with respect to research, development and commercialization
of PRODUCT, and the sole and exclusive remedy for failure to meet such
obligations.
3.5 IXSYS acknowledges that MEDIMMUNE is in the business of developing,
manufacturing and selling of medical processes and products and that nothing in
this Agreement shall be construed as restricting such business or imposing on
MEDIMMUNE the duty to market, and/or sell and exploit PRODUCT for which
royalties are due hereunder to the exclusion of or in preference to any other
product or process.
3.6 Subject to Section 11.3(b), MEDIMMUNE shall have sole discretion for making
all decisions relating to the commercialization and marketing of PRODUCT.
3.7 Except as otherwise expressly provided in this Agreement, or the parties
otherwise expressly agree in writing, neither party shall obtain any right or
license in any patent rights, know-how, materials or technology of the other
party (by implication, estoppel or otherwise) for any purpose.
3.8 IXSYS shall in good faith request that its licensor under each IXSYS LICENSE
AGREEMENT provide the consent of Appendix C.
SECTION 4 - Confidentiality.
4.1 During the term of this Agreement, IXSYS agrees not to provide or disclose
to a THIRD PARTY any MATERIALS without the written permission of MEDIMMUNE.
4.2 After the date of this Agreement, subject to Section 2.4, IXSYS agrees not
to disclose to a THIRD PARTY any IXSYS KNOW-HOW without the written permission
of MEDIMMUNE.
4.3 During the term of this Agreement, it is contemplated that each party will
disclose to the other party confidential information which is owned or
controlled by the party providing such information or which that party is
obligated to maintain in confidence and which is designated by the party
providing such information as confidential ("Confidential Information"). Each
party shall have the right to refuse to accept the other party's Confidential
Information. Each party agrees to retain the other
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party's Confidential Information in confidence, to limit disclosure of any such
Confidential Information to its officers, directors, employees, consultants,
sublicensees and permitted assigns on a need to know basis. Each party agrees to
use the other party's Confidential Information only as permitted by this
Agreement, and not to disclose any such Confidential Information to any other
person or entity without the prior written consent of the party providing such
Confidential Information. For the avoidance of doubt, IXSYS KNOW-HOW and
MATERIALS will be Confidential Information of IXSYS.
4.4 The obligations of confidentiality and non-use of Sections
4.2 and 4.3 will not apply to:
(a) Confidential Information generally known to the public prior to its
disclosure hereunder; or
(b) Confidential Information that subsequently becomes known to the
public by some means other than a breach of this Agreement;
(c) Confidential Information that is subsequently disclosed to the
receiving party by a third party having a lawful right to make such disclosure;
or
(d) is approved for release by the parties.
4.5 Neither party shall disclose any terms or conditions of this Agreement to
any third party without the prior consent of the other party; provided, however,
that a party may disclose the terms or conditions of this Agreement, (a) on a
need-to-know basis to its legal and financial advisors to the extent such
disclosure is reasonably necessary in connection with such party's activities
expressly permitted by this Agreement and ordinary and customary business
operations, and (b) to a third party in connection with (i) an equity investment
in such party, (ii) a merger, consolidation, change in control or similar
transaction by such party, or (iii) the transfer or sale of all or substantially
all of the assets of such party. Notwithstanding the foregoing, prior to
execution of this Agreement the parties have agreed upon the substance of
information that may be used to describe the terms and conditions of this
transaction, and each party may disclose such information, as modified by mutual
written agreement of the parties, without the consent of the other party.
4.6 The obligations of this Section 4 shall not apply to the extent that a party
is required to disclose information by applicable law, regulation or bona fide
legal process, provided that the party required to make the disclosure takes
reasonable steps to restrict and maintain confidentiality of such disclosure and
provides reasonable prior notice to the other party.
4.7 Notwithstanding the foregoing, MEDIMMUNE shall have the right to disclose
Confidential Information of IXSYS to a THIRD PARTY with whom MEDIMMUNE has or
proposes to enter into a business relationship and who undertakes an obligation
of confidentiality and non-use with respect to such information, at
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least as restrictive as the obligation under this Section 4.
4.8 The parties' obligations under this Section 4 shall terminate five (5) years
after the expiration or termination of this Agreement.
SECTION 5 - Patents.
5.1 IXSYS (or its licensor) shall file, prosecute and maintain IXSYS PATENTS
through patent counsel selected by IXSYS (or its licensor). IXSYS shall consult
with and keep MEDIMMUNE advised with respect thereto. MEDIMMUNE shall pay all
reasonable out-of-pocket costs (including reasonable attorneys' fees and costs)
incurred in connection therewith by IXSYS after the EFFECTIVE DATE.
5.2 With respect to any IXSYS PATENTS, each patent application, office action,
response to office action, request for terminal disclaimer, and request for
reissue or reexamination or extension of any patent issuing from such
application shall be provided to MEDIMMUNE sufficiently prior to the filing of
such application, response or request to allow for review and comment by
MEDIMMUNE. IXSYS agrees to consider such comments and follow reasonable comments
unless IXSYS believes that such comments are adverse to the interests of IXSYS.
5.3 IXSYS shall not allow any IXSYS PATENTS licensed to MEDIMMUNE to lapse or be
surrendered, or abandoned without the written consent of MEDIMMUNE (other than
those that are abandoned in the ordinary course of prosecution in connection
with the filing of a continuation or continuation in part application therefor).
5.4 The obligations of IXSYS under Sections 5.1 - 5.3 with respect to IXSYS
PATENTS that are sublicensed to MEDIMMUNE shall only be to the extent that it is
permitted under the IXSYS LICENSE AGREEMENTS.
SECTION 6 - Royalties.
6.1 Subject to Sections 6.1, 6.2, 6.3, 6.4 and 6.12(e), during the ROYALTY
PERIOD, MEDIMMUNE shall pay royalties to IXSYS for PRODUCTS as follows:
(a) *** of that portion of NET SALES of PRODUCTS in a calendar year up to ***;
(b) *** of that portion of NET SALES of PRODUCTS in a calendar year in excess of
*** up to ***;
(c) *** of that portion of NET SALES of PRODUCTS in a calendar year that exceeds
***.
(d) For a PRODUCT for which the ROYALTY PERIOD is *** years under Section 1.11 ,
the royalty rate under Section 6.1(a), (b) and (c), after taking into account
any applicable increase or decrease, shall be reduced in each case by
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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*** in any country in which one or more THIRD PARTIES is selling ANTIBODY
(other than ANTIBODY intended for research use only), and the aggregate dollar
volume of the sales of ANTIBODY by such THIRD PARTIES equals or exceeds *** of
the aggregate market for ANTIBODY and all other products labeled for the same
use in such country. Any dispute regarding the appropriate market for purposes
of such determination shall be submitted to binding arbitration under Section
13.2.
(e) The cumulative NET SALES for a calendar year shall be calculated based on
worldwide NET SALES.
6.2 In the event that a PRODUCT is sold in combination with a therapeutically
active component that is not a PRODUCT (such combination being a "Combination
Product"), then NET SALES of such Combination Product upon which a royalty is
paid shall be subject to the following adjustment. If the PRODUCT and the other
therapeutically active component are sold separately in a country, then NET
SALES of such Combination Product in such country upon which a royalty is paid
shall be multiplied by the fraction A/A+B, where A equals the average sales
price of such PRODUCT sold separately in such country, and B equals the average
sales price of the other therapeutically active component sold separately in
such country. Otherwise, the parties shall enter into good faith negotiations
and attempt to reach mutual agreement to determine an appropriate adjustment to
the NET SALES of such Combination Product in a country to reflect the relative
contributions of the PRODUCT and the other therapeutically active component to
the value of the Combination Product in such country. If such mutual agreement
is not reached within ninety (90) days after commencement of such negotiations,
then the determination shall be submitted to binding arbitration under Section
13.2.
6.3 With respect to any PRODUCT for which the cumulative royalty rate owed by
MEDIMMUNE to a THIRD PARTY(IES) based on sales in any country, including the
royalty rates under the IXSYS LICENSE AGREEMENTS, exceeds ***, the royalty rate
under Sections 6.1(b) and (c) for such PRODUCT in such country shall be reduced
by *** of such excess, but in no event shall any of such royalty rates for such
PRODUCT in such country be reduced to less than ***.
6.4 With respect to any PRODUCT for which the cumulative royalty rate owed by
MEDIMMUNE to a THIRD PARTY(IES) based on sales in any country, including the
royalty rates under the IXSYS LICENSE AGREEMENTS, is less than ***, the royalty
rate under Sections 6.1(a), (b) and (c) for such PRODUCT in such country shall
be increased by *** of such deficiency but in no event shall such royalty rates
for such PRODUCT in such country be increased by more than ***.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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6.5 MEDIMMUNE additionally shall pay to IXSYS all royalties and other amounts
owed by IXSYS under the IXSYS LICENSE AGREEMENTS that are based on development
milestones, sales or manufacturing of PRODUCT by MEDIMMUNE, its AFFILIATES and
SUBLICENSEES. IXSYS shall timely remit such amounts to the applicable THIRD
PARTY. All other payments due under IXSYS LICENSE AGREEMENTS shall be paid by
IXSYS.
6.6 MEDIMMUNE shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES to keep, full and accurate books of account containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to IXSYS. Such books of account, together with all necessary supporting
data, shall be kept at their principal place of business, and for the three (3)
years next following the end of the calendar year to which each pertains, shall
be open for inspection by an independent certified accountant selected by IXSYS
and reasonably acceptable to MEDIMMUNE upon reasonable notice during normal
business hours at IXSYS' expense for the sole purpose of verifying royalty
statements or compliance with this Agreement, but in no event more than once in
each calendar year. All information and data offered shall be used only for the
purpose of verifying royalties and shall be treated as MEDIMMUNE Confidential
Information subject to the obligations of this Agreement.
6.7 With each quarterly payment, MEDIMMUNE shall deliver to IXSYS a full and
accurate accounting of the calculation of the royalties owing hereunder to
include at least the following information:
(a) Quantity of each PRODUCT subject to royalty sold (by country) by MEDIMMUNE,
its AFFILIATES and SUBLICENSEES;
(b) NET SALES for each PRODUCT (by country);
(c) The calculation of the gross royalties (before deductions) for each PRODUCT
(by country) and any deductions, offsets and credits therefrom; and
(d) Total royalties payable to IXSYS for each PRODUCT (by country) and the total
royalties payable to IXSYS for all PRODUCTS (for all countries).
6.8 In each year the amount of royalty due shall be calculated quarterly as of
March 31, June 30, September 30 and December 31 (each being the last day of an
"ACCOUNTING PERIOD") and shall be paid quarterly within the sixty (60) days next
following such date. Every such payment shall be supported by the accounting
prescribed in Section 6.7 and shall be made in United States currency. Whenever
for the purpose of calculating royalties conversion from any foreign currency
shall be required, such conversion shall be at the average of the rate of
exchange (local currency per US$1) published in the Western Edition of The Wall
Street Journal under the caption "Currency Trading" for the last business day of
each month during the applicable ACCOUNTING PERIOD.
6.9 If the transfer of or the conversion into United States
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Dollar equivalent of any remittance due hereunder is not lawful or possible in
any country, such remittance shall be made by the deposit thereof in the
currency of the country to the credit and account of IXSYS or its nominee in any
commercial bank or trust company located in that country, prompt notice of which
shall be given to IXSYS. IXSYS shall be advised in writing in advance by
MEDIMMUNE and provide to MEDIMMUNE a nominee, if so desired.
6.10 Any tax required to be withheld by MEDIMMUNE under the laws of any foreign
country for the account of IXSYS shall be promptly paid by MEDIMMUNE for and on
behalf of IXSYS to the appropriate governmental authority, and MEDIMMUNE shall
furnish IXSYS with proof of payment of such tax. Any such tax actually paid on
IXSYS' behalf shall be deducted from royalty payments due IXSYS.
6.11 Only one royalty shall be due and payable under each of the applicable
subsections under this Section 6 for the manufacture, use and sale of a PRODUCT
irrespective of the number of patents or claims thereof which cover the
manufacture, use and sale of such PRODUCT.
6.12 (a) MEDIMMUNE shall pay to IXSYS the following milestone payments upon the
occurrence of the following events with respect to a PRODUCT and all or a
portion of such milestone payment may be made by the purchase of common stock of
IXSYS in accordance with Section 6.12(d):
A. PRODUCT for *** indication
EVENT PAYMENT
(1) Initiate Phase II Clinical Trial ***
(2) Initiate a Phase III Clinical Trial ***
(3) Submission of a Biologics License Application in the
United States or an equivalent for Europe (or any
country in Europe) or Japan ***
(4) Approval of a Biologics License Application in the
United States ***
(5) Approval to sell in Europe (or any country in Europe)
including pricing approvals ***
(6) Approval to sell in Japan including pricing approvals ***
B. PRODUCT for an indication other than *** indication.
EVENT PAYMENT
(1) Initiate Phase II Clinical Trial ***
(2) Initiate a Phase III Clinical Trial ***
(3) Submission of a Biologics License Application
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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in the United States or an equivalent for Europe
(or any country in Europe) or Japan ***
(4) Approval of a Biologics License Application in the
United States ***
(5) Approval to sell in Europe (or any country in Europe)
including pricing approvals ***
(6) Approval to sell in Japan including pricing approvals ***
C. Sales Milestones
EVENT PAYMENT
(1) Cumulative NET SALES of PRODUCTS in a calendar year
exceeds *** ***
(2) Cumulative NET SALES of PRODUCTS in a calendar year
exceeds *** ***
(b) Each of the *** milestones shall be paid *** whereby the total milestone
payment for all PRODUCTS is: (i) *** under Section 6.12(a) A ; (ii) *** under
Section 6.12(a) B ; and (iii) *** under Section 6.12(a) C.
(c) The milestone payments under Section 6.12(a) are due and payable sixty (60)
days after the applicable milestone occurs.
(d) At its option, MEDIMMUNE may make the milestone payment due under Section
6.12(a) in the form of a purchase of common stock of IXSYS on the date the
applicable milestone payment is due in a dollar amount equal to the applicable
milestone payment that is due at a price per share equal to *** per share if the
milestone occurs prior to the first anniversary of the EFFECTIVE DATE, and
thereafter at a price per share equal to the greater of (i) *** per share (which
*** per share price shall be adjusted for stock splits that occur after the
EFFECTIVE DATE), or (ii)(A) *** prior to the date the applicable milestone is
achieved, or (B) if such shares are not traded on a stock exchange , *** of the
most recent share price in a good faith, arm's length sale of equity securities
of IXSYS to any THIRD PARTY (independent of an overall transaction that includes
a transfer of technology or marketing rights and independent of a sale to
employees of IXSYS pursuant to a stock plan) or to MEDIMMUNE. Any such purchase
of IXSYS common stock shall be made pursuant to a stock purchase agreement
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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substantially in the form of the stock purchase agreement described in Section
6.13. In no event shall MEDIMMUNE have the right to purchase a number of shares
by which MEDIMMUNE and its AFFILIATES, in the aggregate, will own more than ***
of the total outstanding shares of IXSYS, at the time, on a fully diluted basis.
MEDIMMUNE will not have the right to make the milestone payment in the form of a
purchase of common stock of IXSYS under this Section 6.12(d) if (i) at least ***
of the total outstanding shares of IXSYS, on a fully diluted basis, is owned by
a single person or entity, (ii) there has been a good faith merger,
consolidation or similar transaction with a THIRD PARTY in which IXSYS is not
the surviving entity, or (iii) there has been the good faith sale of all or
substantially all of IXSYS' assets (including this Agreement) to a THIRD PARTY.
(e) *** of all milestone payments paid in cash under Section 6.12(a) and *** of
all milestone payments made by the purchase of common stock of IXSYS under
Section 6.12(d), are creditable against up to *** of each royalty payment that
is to be made pursuant to Section 6.1 until the full amount of such credit has
been taken.
6.13 At the option of IXSYS, this Agreement shall terminate and be void ab
initio if, by the end of the second business day after the EFFECTIVE DATE,
MEDIMMUNE shall not have purchased common stock of IXSYS in a cumulative dollar
amount equal to *** at a price per share of *** pursuant to a stock purchase
agreement dated as of the EFFECTIVE DATE between the parties.
SECTION 7 - Infringement.
7.1 (a) If any of the IXSYS PATENTS under which MEDIMMUNE is licensed hereunder
is infringed by the sale by a THIRD PARTY of a PRODUCT, subject to the
provisions of the IXSYS LICENSE AGREEMENTS, MEDIMMUNE shall have the right and
option but not the obligation to bring an action for such infringement, at its
sole expense, against such THIRD PARTY in the name of IXSYS and/or in the name
of MEDIMMUNE and/or in the name of a licensor of IXSYS, as the case may be, and
to join IXSYS or its licensor as a party plaintiff if required. MEDIMMUNE shall
promptly notify IXSYS of any such infringement and shall keep IXSYS informed as
to the prosecution of any action for such infringement. No settlement, consent
judgment or other voluntary final disposition of the suit which adversely
affects IXSYS PATENTS may be entered into without the consent of IXSYS, which
consent shall not unreasonably be withheld.
(b) In the event that MEDIMMUNE shall undertake the enforcement under Section
7.1(a) of the IXSYS PATENTS by litigation, subject to the provisions of the
IXSYS LICENSE AGREEMENTS, any recovery
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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of damages by MEDIMMUNE for any such suit shall be applied first pro rata in
satisfaction of any unreimbursed out of pocket expenses and legal fees of
MEDIMMUNE regarding such suit. The balance remaining from any such recovery
shall be divided between MEDIMMUNE and IXSYS, as follows (i) for that portion,
if any, based on lost profits, IXSYS shall recover the royalty IXSYS would have
received under this Agreement if such sales had been made by MEDIMMUNE; and (ii)
for any other recovery, IXSYS shall receive *** of the remaining amount.
7.2 In the event that MEDIMMUNE elects not to pursue an action for infringement,
upon written notice to IXSYS by MEDIMMUNE that an unlicensed THIRD PARTY is an
infringer of a VALID PATENT CLAIM of IXSYS PATENTS licensed to MEDIMMUNE, IXSYS
shall have the right and option, but not the obligation at its cost and expense
to initiate infringement litigation and to retain any recovered damages.
7.3 In any infringement suit either party may institute to enforce the IXSYS
PATENTS pursuant to this Agreement, the other party hereto shall, at the request
of the party initiating such suit, reasonably cooperate and, to the extent
reasonably possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like. All reasonable out-of-pocket costs incurred in connection with rendering
cooperation requested hereunder shall be paid by the party requesting
cooperation.
SECTION 8 - Warranties.
8.1 Each of IXSYS and MEDIMMUNE warrants and represents to the other that:
(a) it has the corporate power and authority and the legal right to enter into
this Agreement and to perform its obligations hereunder;
(b) it has taken all necessary corporate action on its part to authorize the
execution and delivery of this Agreement and the performance of its obligations
hereunder; and
(c) this Agreement has been duly executed and delivered on its behalf, and
constitutes a legal, valid, binding obligation, enforceable against it in
accordance with its terms.
8.2 IXSYS represents and warrants to MEDIMMUNE that:
(a) it has not previously granted and, prior to expiration or
termination of this Agreement, will not grant any rights in the IXSYS PATENTS or
IXSYS KNOW-HOW that conflict with the rights and licenses granted to MEDIMMUNE
herein;
(b) IXSYS has provided to MEDIMMUNE a true, complete and correct
copy of the IXSYS LICENSE AGREEMENTS (including any amendments thereto), IXSYS
has performed all obligations under such agreements to enable IXSYS to grant the
license granted to MEDIMMUNE hereunder, and there are no other requirements
necessary for IXSYS to grant such license. IXSYS has neither
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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received nor delivered any written notice of default under the IXSYS LICENSE
AGREEMENTS. IXSYS hereby covenants and agrees that (i) it shall not consent to
any amendment or modification or termination of the IXSYS LICENSE AGREEMENTS
without the prior written consent of MEDIMMUNE; (ii) shall keep the IXSYS
LICENSE AGREEMENTS in full force and effect during the respective terms thereof;
(iii) shall not assign IXSYS LICENSE AGREEMENTS without the written consent of
MEDIMMUNE (which consent shall not be unreasonably withheld), except that such
consent shall not be required for assignment in connection with the transfer or
sale of all or substantially all of its business, or in the event of its merger,
consolidation, change in control or similar transaction, (x) provided that such
assignment is subject to this Agreement and (y) such assignment does not
adversely affect the IXSYS LICENSE AGREEMENTS or IXSYS rights thereunder; (iv)
MEDIMMUNE will be promptly advised of any notice that IXSYS has breached or that
an IXSYS LICENSE AGREEMENT will be terminated, and to the extent permitted under
the IXSYS LICENSE AGREEMENTS, MEDIMMUNE shall have the right but not the
obligation to cure any such breach; and (v) prior to the EFFECTIVE DATE, IXSYS
has provided to MEDIMMUNE all information and data in its possession and control
regarding the safety and efficacy of the ANTIBODY known as VITAXIN.
(c) The IXSYS PATENTS that exist as of the Effective Date are listed
in Appendix B. IXSYS has neither received nor delivered any written claim, nor
has actual knowledge of any claim, asserting the invalidity, unenforceability or
misuse of the IXSYS PATENTS.
8.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTIONS 8.1
and 8.2, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY
KIND EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR VALIDITY
OF ANY PATENT RIGHTS ISSUED OR PENDING.
SECTION 9 - Indemnification.
9.1 MEDIMMUNE agrees to indemnify and hold harmless IXSYS, its
directors, officers, employees and agents (collectively, the "Indemnitees") from
and against all losses, liabilities, damages and expenses (including reasonable
attorneys' fees and costs) incurred in connection with any claims, demands,
actions or other proceedings by any third party arising from (a) the research,
development, manufacture, use or sale of ANTIBODIES or PRODUCTS by MEDIMMUNE,
its AFFILIATES or SUBLICENSEES, (b) the use of PRODUCTS by any purchasers
thereof, (c) the use by MEDIMMUNE, its AFFILIATES or SUBLICENSEES of the IXSYS
PATENTS, IXSYS KNOW-HOW or MATERIALS, or (d) any act or omission by MEDIMMUNE,
its AFFILIATES OR SUBLICENSEES the effect of which would cause IXSYS to be in
breach of its obligations under the IXSYS LICENSE AGREEMENTS (without regard to
any applicable cure or notice
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requirements thereof).
9.2 If any such claims or actions are made, IXSYS shall be defended at
MEDIMMUNE's sole expense by counsel selected by MEDIMMUNE and reasonably
acceptable to IXSYS provided that IXSYS may, at its own expense, also be
represented by counsel of its own choosing.
9.3 MEDIMMUNE's indemnification under Section 9.1 shall not apply to the
extent any loss, liability, damage or expense is attributable to the gross
negligence or intentional misconduct of the Indemnitees.
9.4 MEDIMMUNE may not settle any such claim, demand, action or other
proceeding or otherwise consent to an adverse judgment in any such action or
other proceeding that diminishes the rights or interests of the Indemnitees
without the express written consent of the Indemnitees.
9.5 IXSYS shall notify MEDIMMUNE promptly of any claim, demand, action
or other proceeding under Section 9.1 and shall reasonably cooperate with all
reasonable requests of MEDIMMUNE with respect thereto.
SECTION 10 - Assignment; Successors.
10.1 This Agreement shall not be assigned or otherwise transferred (in
whole or in part, whether voluntarily, by operation of law or otherwise) by
either of the parties without the prior written consent of the other party
(which consent shall not be unreasonably withheld); provided, however, that
either party may, without such consent, assign this Agreement and its rights and
obligations hereunder to an AFFILIATE or in connection with the transfer or sale
of all or substantially all of its business, or in the event of its merger,
consolidation, change in control or similar transaction, provided that such
assignment by IXSYS does not cause the termination of the rights and licenses
granted to MEDIMMUNE under this Agreement. Any permitted assignee shall assume
all obligations of its assignor under this Agreement. Any purported assignment
or transfer in violation of this Section 10.1 shall be void.
10.2 Subject to the limitations on assignment herein, this Agreement
shall be binding upon and inure to the benefit of said successors in interest
and assigns of MEDIMMUNE and IXSYS.
SECTION 11 - Term and Termination.
11.1 Except as otherwise specifically provided herein and unless sooner
terminated pursuant to Section 11.2 or 11.3 of this Agreement, this Agreement
and the licenses and rights granted thereunder shall remain in full force and
effect until MEDIMMUNE has no further royalty obligation hereunder, at which
time MEDIMMUNE shall have a fully paid-up, non-cancelable, nonexclusive license
(i) under the IXSYS KNOW-HOW to research, develop, make, have made, use, import,
export and sell, offer to sell or have sold PRODUCTS and (ii) to make, have made
and use
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the MATERIALS for all of the purposes of Section 11.1(i).
11.2 MEDIMMUNE shall have the right to terminate this Agreement upon
ninety (90) days prior written notice to IXSYS.
11.3 (a) In addition to the right to terminate under Section 11.3(b),
IXSYS shall have the right to terminate this Agreement if and only if MEDIMMUNE
breaches its obligations under Section 6 or 9. If such a breach shall occur,
IXSYS shall provide MEDIMMUNE with written notice of such breach and if such
breach is not cured within thirty (30) days after such written notice, IXSYS may
terminate this Agreement by written notice to MEDIMMUNE, provided such written
notice is given within thirty (30) days after the expiration of such initial
thirty (30) day period.
(b) If, in any calendar year, MEDIMMUNE (or its agent) has not
performed one of the following with respect to a PRODUCT selected by MEDIMMUNE:
(i) expended *** in the calendar year for research and/or
development and/or production which in good faith is directed to a PRODUCT;
(ii) engaged in good faith in a Phase I trial with respect to a
PRODUCT;
(iii) engaged in good faith in a Phase II trial with respect to
a PRODUCT;
(iv) engaged in good faith in a Phase III trial with respect to
a PRODUCT;
(v) good faith preparation and/or good faith review of documents
for filing a Biologics License Application (or its equivalent) in the United
States, Europe or Japan with respect to a PRODUCT;
(vi) good faith review and/or good faith analysis of clinical
protocols and/or data with respect to a PRODUCT including but not limited to
investigating a serious adverse event in a clinical trial;
(vii) engaged in good faith in the manufacturing of GMP ANTIBODY
for use in human clinical trials in the United States, Europe or Japan, provided
however that MEDIMMUNE shall in good faith commence such human clinical trials
of such ANTIBODY within twelve (12) months after commencement of such
manufacturing.
(viii) a Biologics License Application (or its equivalent) is on
file in the United States, Europe or Japan for a PRODUCT;
(ix) a Biologics License Application (or its equivalent) has
been approved for a PRODUCT in the United States, Japan or Europe.
then in such event, as IXSYS' sole and exclusive remedy, within
sixty (60) days after the end of such calendar year, IXSYS shall have the right
to send a written notice to MEDIMMUNE that this Agreement shall be terminated,
and if within sixty (60) days after MEDIMMUNE receives such written notice
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MEDIMMUNE has not cured such failure, this Agreement shall be terminated.
(c) If MEDIMMUNE receives a notice of termination under Section
11.3(a) or 11.3(b), MEDIMMUNE shall have the right to contest such termination
by requesting arbitration under Section 13.2, and if MEDIMMUNE requests such
arbitration, this Agreement shall be terminated only if in such arbitration
there is a final determination that IXSYS has the right to terminate this
Agreement, as provided in this Section 11.3.
11.4 Upon any termination of this Agreement, MEDIMMUNE, at its option,
shall be entitled to sell any completed inventory of PRODUCT which remains on
hand as of the date of the termination, so long as MEDIMMUNE pays to IXSYS the
royalties applicable to said subsequent sales in accordance with the same terms
and conditions as set forth in this Agreement.
11.5 In the event that this Agreement is terminated under Section 11.2
or under Section 11.3 :
(a) MEDIMMUNE shall take all actions necessary to assign and deliver
to IXSYS all remaining quantities of all ANTIBODIES and PRODUCTS developed by or
on behalf of MEDIMMUNE under this Agreement, all clinical and preclinical data
and information regarding such ANTIBODIES and PRODUCTS, and all registrations
and regulatory filings regarding such ANTIBODIES and PRODUCTS that exist as of
the time of termination, in each case to the extent that MEDIMMUNE has
transferable rights thereto.
(b) IXSYS shall agree to pay a reasonable royalty to MEDIMMUNE to
compensate MEDIMMUNE for the relative value of its contributions to ANTIBODIES
and PRODUCT. The parties shall enter into good faith negotiations and attempt to
reach mutual agreement to determine such a reasonable royalty. If such mutual
agreement is not reached within ninety (90) days after commencement of such
negotiations, then the determination shall be submitted to binding arbitration
under Section 13.2.
(c) Any sublicense granted under this Agreement shall remain in full
force and effect as a direct license between IXSYS and the SUBLICENSEE under the
terms and conditions of the sublicense agreement, subject to the SUBLICENSEE
agreeing to be bound to IXSYS under such terms and conditions within thirty (30)
days after IXSYS provides written notice to the SUBLICENSEE of the termination
of this Agreement. At the request of MEDIMMUNE, IXSYS will acknowledge to a
SUBLICENSEE IXSYS' obligations to the SUBLICENSEE under this paragraph.
11.6 The provisions of Sections 4, 9, 11.1, 11.4, 11.5 and 11.6 shall
survive any expiration or termination of this Agreement.
11.7 Upon expiration or termination of this Agreement for any reason,
nothing herein shall be construed to release either party from any obligation
that matured prior to the effective date of such expiration or termination.
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11.8 All rights and licensing granted under or pursuant to this
Agreement by IXSYS to MEDIMMUNE are, and shall irrevocably be deemed to be,
"intellectual property" as defined in Section 101(56) of the Bankruptcy Code. In
the event of the commencement of a case by or against either party under any
Chapter of the Bankruptcy Code, this Agreement shall be deemed an executory
contract and all rights and obligations hereunder shall be determined in
accordance with Section 365(n) thereof. Unless a party rejects this Agreement
and the other party decides not to retain its rights hereunder, the other party
shall be entitled to a complete duplicate of (or complete access to, as
appropriate) all intellectual property and all embodiments of such intellectual
property held by the party and the party shall not interfere with the rights of
the other party, which are expressly granted hereunder, to such intellectual
property and all embodiments of such intellectual property from another entity.
Further, this Agreement shall be deemed, upon presentation to another entity, to
be the same as an express instruction by the party to such other entity to
provide such intellectual property and all embodiments of such intellectual
property directly to the other party. Without limiting the foregoing provisions
in this paragraph, the other party shall be entitled to all
post-bankruptcy-petition improvements, updates, or developments of intellectual
property created hereunder. If such intellectual property is not fully developed
as of the commencement of any bankruptcy case, the other party shall have the
right to complete development of the property.
SECTION 12 - Force Majeure.
12.1 No failure or omission by the parties hereto in the performance of
any obligation of this Agreement (other than an obligation for the payment of
money) shall be a breach of this Agreement, nor shall it create any liability,
if the same shall arise from any cause or causes beyond the reasonable control
of the affected party, including, but not limited to, the following, which for
purposes of this Agreement shall be regarded as beyond the control of the party
in question: acts of God; acts or omissions of any government; any rules,
regulations, or orders issued by any governmental authority or by any officer,
department, agency or instrumentality thereof; fire; storm; flood; earthquake;
accident; war; rebellion; insurrection; riot; invasion; strikes; and lockouts or
the like; provided that the party so affected shall use its commercially
reasonable efforts to avoid or remove such causes or nonperformance and shall
continue performance hereunder with the utmost dispatch whenever such causes are
removed.
SECTION 13 - General Provisions.
13.1 The relationship between IXSYS and MEDIMMUNE is that of independent
contractors. IXSYS and MEDIMMUNE are not joint venturers, partners, principal
and agent, master and servant,
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employer or employee, and have no relationship other than as independent
contracting parties. IXSYS shall have no power to bind or obligate MEDIMMUNE in
any manner. Likewise, MEDIMMUNE shall have no power to bind or obligate IXSYS in
any manner.
13.2 Any matter or disagreement under Section 6.1(d), 6.2, 11.3(c) or
11.5(b), which this Agreement specifies is to be resolved by arbitration shall
be submitted to a mutually selected single arbitrator to so decide any such
matter or disagreement. The arbitrator shall conduct the arbitration in
accordance with the Rules of the American Arbitration Association, unless the
parties agree otherwise. If the parties are unable to mutually select an
arbitrator, the arbitrator shall be selected in accordance with the procedures
of the American Arbitration Association. The decision and award rendered by the
arbitrator shall be final and binding. Judgment upon the award may be entered in
any court having jurisdiction thereof. Any arbitration pursuant to this section
shall be held in San Diego, California or such other place as may be mutually
agreed upon in writing by the parties. The prevailing party in any such
arbitration shall be entitled to recover from the other party all reasonable
attorneys' fees and costs incurred by the prevailing party in connection
therewith.
13.3 This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter thereof and supersedes all prior
agreements in this respect. There shall be no amendments or modifications to
this Agreement, except by a written document which is signed by both parties.
13.4 This Agreement shall be construed and enforced in accordance with
the laws of the State of California without regard to the conflicts of law
principles thereof.
13.5 The headings in this Agreement have been inserted for the
convenience of reference only and are not intended to limit or expand on the
meaning of the language contained in the particular article or section.
13.6 Any delay in enforcing a party's rights under this Agreement or any
waiver as to a particular default or other matter shall not constitute a waiver
of a party's right to the future enforcement of its rights under this Agreement,
excepting only as to an expressed written and signed waiver as to a particular
matter for a particular period of time.
13.7 Any notices given pursuant to this Agreement shall be in writing,
delivered by any means, addressed to the other party at its address indicated
below, or to such other address as the addressee shall have last furnished in
writing to the addresser and (except as otherwise provided in this Agreement)
shall be effective upon receipt by the addressee.
To MEDIMMUNE: MedImmune, Inc.
35 West Watkins Mill Road
Gaithersburg, MD 20878
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Copy to: Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein
6 Becker Farm Road
Roseland, New Jersey 07068
Fax No. (973) 994-1744
Attn: Elliot M. Olstein, Esq.
To IXSYS: Ixsys, Inc.
3520 Dunhill Road
San Diego, CA 92121
Attention: President
Copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street, 16th Floor
San Francisco, California 94104
Attention: Thomas E. Sparks, Jr.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
IXSYS, INC. MEDIMMUNE, INC.
By: /s/ Janine M. Taylor By: /s/ David M. Mott
Name: Janine M. Taylor Name: David M. Mott
Title: President & Chief Operating Title: Vice Chairman &
Officer Chief Financial Officer
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*** CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT 10.5
RESEARCH AND ASSIGNMENT AND LICENSE AGREEMENT
This Research and Assignment and License Agreement (this "Agreement") is
effective as of February 24, 1999 ("the EFFECTIVE DATE") by and between Ixsys,
Inc., a Delaware corporation, having an address at 3520 Dunhill Road, San Diego,
CA 92121 ("IXSYS"), and MedImmune, Inc., a Delaware Corporation, having offices
at 35 West Watkins Mill Road, Gaithersburg, MD 20878 ("MEDIMMUNE").
WHEREAS, MEDIMMUNE desires that IXSYS perform certain research and
development to modify a certain antibody; and
WHEREAS, IXSYS desires to perform such work on the terms and conditions
of this Agreement.
NOW THEREFORE in consideration of the mutual promises and other good and
valuable consideration, the parties agree as follows:
SECTION 1 - DEFINITIONS.
The terms used in this Agreement have the following meaning:
1.1 "AFFILIATE," as applied to a person or entity, means any other
person or entity controlling or controlled by or under common control with such
person or entity. The term "control" means possession of the power to direct or
cause the direction of the management and policies whether through the ownership
of voting securities, by contract or otherwise. The ownership of voting
securities of a person, organization or entity, however, shall not, in and of
itself, constitute "control" for purposes of this definition, unless said
ownership is of a majority of
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the outstanding securities entitled to vote of such person, organization or
entity. Affiliate shall also mean a limited partnership in which a subsidiary of
such person, organization or entity is a general partner.
1.2 "ANTIBODY" means an antibody that specifically binds to ***
(including, but not limited to, variants, chimeric antibodies, humanized
antibodies, recombinant antibodies, grafted antibodies, single chain antibodies,
and the like) developed by IXSYS during the term of the PROGRAM or a fragment of
such an antibody.
1.3 "ASSIGNED MATERIALS AND INFORMATION" means all ANTIBODIES, cell
lines used by IXSYS for producing ANTIBODIES, polynucleotides encoding
ANTIBODIES, assays, vectors and constructs for producing ANTIBODIES, sequence
information regarding such ANTIBODIES and polynucleotides, and the results of
the testing and evaluation of such ANTIBODIES and information and data useful
for the manufacture, making and use of ANTIBODY, in each case which is developed
by IXSYS during the term of the PROGRAM, and only in the case of assays, vectors
and constructs, only to the extent IXSYS or its AFFILIATES has the right during
the term of the PROGRAM to assign such to MEDIMMUNE.
1.4 "ASSIGNED PATENT(S)" means any patent or patent application (or
equivalents thereof, such as extensions or other rights that give the right to
exclude others such as Supplementary Protection Certificates) anywhere in the
world to the extent a claim thereof would be infringed by the manufacture, use,
or sale of a product comprising an ANTIBODY and that is based on ANTIBODY and/or
ASSIGNED MATERIALS AND INFORMATION.
1.5 "DESIGNATED AMOUNT" means the total worldwide sales of products
comprising the EXISTING ANTIBODY sold by or on behalf of MEDIMMUNE for the
twelve-
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month period prior to the time a PRODUCT receives all licensing and pricing
approvals for sale of PRODUCT in a country.
1.6 *** means ***.
1.7 "EXISTING IXSYS PATENT(S)" means any patent or patent application
(or equivalents thereof, such as extensions or other rights that give the right
to exclude others such as Supplementary Protection Certificates) anywhere in the
world to the extent the claims of which would be infringed by the manufacture,
use or sale of a product comprising an ANTIBODY, and only to the extent that it
is either owned by or licensed to IXSYS (with the right to grant sublicenses) or
as to which IXSYS otherwise has licensable rights, in each case, as of the
EFFECTIVE DATE.
1.8 "FIRST COMMERCIAL SALE" means, in each country, (a) the first sale
of a PRODUCT by MEDIMMUNE, its AFFILIATE or SUBLICENSEE following approval of
its marketing by the appropriate governmental agency for the country in which
the sale is to be made, or (b) when governmental approval is not required, the
first commercial sale of a PRODUCT by MEDIMMUNE, its AFFILIATE or SUBLICENSEE in
that country.
1.9 "FTE" means one full time equivalent scientific investigator,
together with all reasonably necessary materials, equipment and facilities used
thereby.
1.10 "MATERIALS" means ANTIBODIES, cell lines used or developed by IXSYS
for producing ANTIBODIES, polynucleotides encoding ANTIBODIES, and the assays,
vectors and constructs for producing ANTIBODIES, in each case only to the extent
owned by or licensed to IXSYS (with the right to grant sublicenses) or as to
which IXSYS otherwise has transferable
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rights, and in the possession and control of IXSYS, in each case, that exists as
of the EFFECTIVE DATE.
1.11 "NET SALES" means, with respect to any PRODUCT, the invoiced sales
price of such PRODUCT sold by MEDIMMUNE, its AFFILIATES and SUBLICENSEES to
independent customers who are not AFFILIATES, less (a) actual and customary
credits, allowances, discounts and rebates to, and chargebacks from the account
of, such independent customers for spoiled, damaged, out-dated, rejected or
returned PRODUCT; (b) actual freight and insurance costs incurred in
transporting such PRODUCT to such customers; (c) actual and customary cash,
quantity and trade discounts; (d) sales, use, value-added and taxes or
governmental charges (excluding what is commonly known as income taxes) incurred
in connection with the exportation or importation of such PRODUCT; (e) the cost
to MEDIMMUNE of the devices for dispensing or administering such PRODUCT as well
as diluents or similar materials which accompany such PRODUCT as it is sold and
(f) reasonable allowance for bad debt, all of the above in accordance with
Generally Accepted Accounting Principles. For purposes of determining NET SALES,
a sale shall have occurred when an invoice therefor shall be generated or the
PRODUCT shipped for delivery. Sales of PRODUCTS by MEDIMMUNE, an AFFILIATE or
SUBLICENSEE to any AFFILIATE or SUBLICENSEE which is a reseller thereof shall be
excluded, and only the subsequent sale of such PRODUCTS by AFFILIATES or
SUBLICENSEES to unrelated parties shall be deemed NET SALES hereunder.
1.12 "PRODUCT" means a product comprising (i) an ANTIBODY, the
manufacture, use or sale of which infringes a VALID PATENT CLAIM under the
ASSIGNED PATENTS or under the EXISTING IXSYS PATENTS as to which MEDIMMUNE
retains a license under this Agreement, (ii) an ANTIBODY assigned to MEDIMMUNE
by IXSYS under this Agreement, or
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(iii) an ANTIBODY which is derived from an ANTIBODY assigned to
MEDIMMUNE under this Agreement.
1.13 "PROGRAM" means the research and development program described
generally in Section 2.1.
1.14 "ROYALTY PERIOD" means, with respect to each PRODUCT in each
country in the LICENSED TERRITORY, (a) if the manufacture, use, offer for sale,
sale or import of such PRODUCT in such country at the time of the FIRST
COMMERCIAL SALE infringes a VALID PATENT CLAIM (if in an issued patent) but for
the license granted by this Agreement, the royalty period continues for as long
as such VALID PATENT CLAIM remains in effect and (if in an issued patent) is
infringed thereby but for the license granted by this Agreement, or (b)
otherwise, *** years from the date of the FIRST COMMERCIAL SALE of such
PRODUCT in such country.
1.15 ***
1.16 "SUBLICENSEE" means any AFFILIATE or THIRD PARTY that is granted a
sublicense by MEDIMMUNE under this Agreement.
1.17 "THIRD PARTY(IES)" means a person or entity other than IXSYS or
MEDIMMUNE or any of their AFFILIATES.
1.18 The term "VALID PATENT CLAIM" shall mean either (a) a claim of an
issued and unexpired patent included within the ASSIGNED PATENTS or the EXISTING
IXSYS PATENTS, which has not been held permanently revoked, unenforceable or
invalid by a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, and
which has not been admitted to be invalid or unenforceable through reissue or
disclaimer or otherwise or (b) a claim of a pending patent
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application included within the ASSIGNED PATENTS or the EXISTING IXSYS PATENTS,
which claim was filed in good faith and has not been abandoned or finally
disallowed without the possibility of appeal or refiling of such application,
the subject matter of which has not been pending for more than five (5) years,
including the pendency of any prior application.
1.19 The use herein of the plural shall include the singular, and the
use of the masculine shall include the feminine.
1.20 All dollars are United States Dollars.
SECTION 2 - THE PROGRAM
2.1 (a) IXSYS shall perform a program of research and development in
accordance with this Section 2 to produce modified antibodies to the
***, and shall use its commercially reasonable efforts to produce a modified
antibody of the *** that *** as compared to ***, as measured in the *** model.
(b) The parties shall prepare a mutually acceptable written workplan
for the PROGRAM. Any such workplan shall be modified and supplemented from time
to time only by the mutual written agreement of the parties.
(c) The research and development work to be performed by IXSYS under
the PROGRAM shall not be performed by a THIRD PARTY without the written approval
of MEDIMMUNE.
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(d) IXSYS shall allocate not less than *** FTEs to conduct the
PROGRAM and at the request of MEDIMMUNE upon sixty (60) days' prior written
notice, IXSYS shall be required to allocate up to *** FTEs to conduct the
PROGRAM, provided that once the FTEs are increased, MEDIMMUNE will not have
the right to decrease the number of FTEs.
(e) The PROGRAM shall commence on the date thirty (30) days after
the EFFECTIVE DATE and continue for a term of *** thereafter provided however
at the request of MEDIMMUNE, and upon sixty (60) days' prior written notice
to IXSYS, the term shall be extended for up to *** in *** increments.
2.2 It is understood that MEDIMMUNE intends to measure the potency of
ANTIBODY obtained from IXSYS in the *** model to determine the potency thereof
with a view toward developing and commercializing such an ANTIBODY. It is
further understood and agreed that ANTIBODY obtained from IXSYS that is
tested, if any, shall be determined by MEDIMMUNE, within its sole
and absolute discretion, that MEDIMMUNE, within its sole and absolute
discretion, shall determine whether or not to develop and/or commercialize a
PRODUCT and which, if any, PRODUCT shall be developed and commercialized and in
which, if any, countries it should be developed and commercialized.
2.3 (a) MEDIMMUNE shall pay IXSYS at the rate equal to *** per FTE
required to be allocated to the PROGRAM as set forth above, payable in equal
quarterly installments of *** per FTE per quarter in advance on the
EFFECTIVE DATE and each three (3)
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month anniversary thereof during the term of the PROGRAM for the period of
Section 2.1(e) which amount covers both direct and indirect expenses. If the
number of FTEs is increased in any quarter, the pro-rata amount for such quarter
for such increase shall be paid for the remainder of such quarter (and provided
that such payment shall be due on the effective date of such increase if the
notice and effective date of such increase is in the same calendar quarter).
(b) MEDIMMUNE shall not be required to make any payments to IXSYS
for research that exceeds the aggregate amount described in Section 2.3(a), and
IXSYS shall not be required to perform research or development under the PROGRAM
that exceeds such aggregate amount, unless agreed to in writing by both parties.
2.4 Within ten (10) days after the EFFECTIVE DATE, MEDIMMUNE shall
provide IXSYS with such quantity (as reasonably sufficient to enable IXSYS to
conduct the PROGRAM) of the ***, polynucleotides encoding the *** and ***, the
*** and together with any other information and data which the parties mutually
agree is reasonably necessary for IXSYS to conduct the PROGRAM. Additionally,
during the term of the PROGRAM, MEDIMMUNE shall provide IXSYS, at MEDIMMUNE's
sole cost, with such technical assistance as IXSYS reasonably requests regarding
the use of such assay under the PROGRAM.
2.5 During the term of the PROGRAM, IXSYS shall permit representatives
of MEDIMMUNE, upon reasonable notice during normal business hours at MEDIMMUNE's
expense, to visit the facilities where IXSYS is conducting the PROGRAM and
during such visits shall make employees of IXSYS, who are performing research
and development under the
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<PAGE> 9
PROGRAM, reasonably available to representatives of MEDIMMUNE to discuss such
research and development and the results thereof.
2.6 Not later less than once each calendar quarter during the term of
the PROGRAM, and not more than thirty (30) days after conclusion of the term of
the PROGRAM, IXSYS, at the cost and expense of IXSYS, shall transfer to
MEDIMMUNE the ASSIGNED MATERIALS AND INFORMATION and any other MATERIALS not
previously transferred to MEDIMMUNE hereunder.
2.7 For a period of six (6) months after the conclusion of the term of
the PROGRAM, IXSYS, at the cost and expense of IXSYS, shall provide MEDIMMUNE
with such technical assistance as reasonably requested by MEDIMMUNE with respect
to the use of the ASSIGNED MATERIALS AND INFORMATION, and MATERIALS hereunder.
2.8 Except as permitted by MEDIMMUNE, during the term of the PROGRAM and
for a period of *** years thereafter, IXSYS and its AFFILIATES shall not (1)
research, develop, make, have made, use or sell any antibody or any antibody
fragment directed to *** or any polynucleotide encoding the foregoing, (2)
perform research or development work for a THIRD PARTY with respect to any such
antibody, fragment or polynucleotide , or (3) research, develop, make, have
made, use or sell or grant rights to a THIRD PARTY with respect to any such
antibody, fragment or polynucleotide that was conceived or reduced to practice
during the term of the PROGRAM or within a period of *** years thereafter.
2.9 IXSYS shall have the right to publish the results of IXSYS' work
under the PROGRAM; provided, however, that IXSYS shall provide MEDIMMUNE the
opportunity to
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<PAGE> 10
review any proposed manuscripts or any other proposed disclosure describing such
work sixty (60) days prior to their submission for publication or other proposed
disclosure. MEDIMMUNE and IXSYS shall discuss whether or not such publication or
disclosure should occur and it is expressly understood that MEDIMMUNE shall have
the sole right to make a final determination as to whether or not such
publication or disclosure shall occur provided that such determination is not
unreasonable. It shall not be unreasonable to deny publication on the basis that
the information proposed to be published is not generally available to the
public and may aid a competitor in developing a competitive product.
SECTION 3 - ASSIGNMENT AND LICENSE GRANTS.
3.1 (a) IXSYS hereby grants to MEDIMMUNE and MEDIMMUNE hereby accepts
from IXSYS a sole and exclusive worldwide right and license (or sublicense, as
applicable) (1) under and to EXISTING IXSYS PATENTS to research, develop, make,
have made, use, import, export and sell, offer to sell or have sold PRODUCTS and
(2) to make, have made and to use MATERIALS for all the purposes of Section
3.1(a)(1). Notwithstanding anything to the contrary in this Agreement, the
rights and licenses granted to MEDIMMUNE under this Agreement exclude any right
or license (express or implied) under any IXSYS patent rights or know-how
regarding the generation, discovery or modification of antibody libraries,
antibodies or fragments thereof, generally.
(b) To the extent that the rights and licenses granted to MEDIMMUNE
under Section 3.1(a) is a sublicense under a license agreement between IXSYS and
a THIRD PARTY, the rights and licenses granted to MEDIMMUNE under such
sublicense are limited to the extent that IXSYS has the right to grant
sublicenses under such license agreement and such sublicense
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is subject to the terms, conditions and restrictions of such license agreement
that are applicable to a sublicensee thereunder. MEDIMMUNE shall not take or
omit to take any action the effect of which would cause IXSYS to be in breach of
IXSYS' obligations under such license agreements (without regard to any
applicable cure or notice requirements thereof).
3.2 MEDIMMUNE shall have the right to grant sublicenses under the
licenses and sublicenses granted under Section 3.1 (with the right to grant
further sublicenses, subject to any terms, conditions and restrictions on
further sublicensing under any license agreement under which MEDIMMUNE is a
sublicensee) to its AFFILIATES and THIRD PARTIES. Each such sublicense shall be
subject to the terms and conditions of this Agreement.
3.3 The licenses granted hereunder include the right of MEDIMMUNE, its
AFFILIATES and SUBLICENSEES to grant to the purchaser thereof the right to use
and/or resell a purchased PRODUCT for which a royalty has been paid hereunder on
NET SALES of such PRODUCT (determined in accordance with Section 1.11), without
payment of any further royalty to IXSYS.
3.4 (a) IXSYS agrees to assign and hereby assigns to MEDIMMUNE all
right, title and interest in and to the ASSIGNED MATERIALS AND INFORMATION
together with all ASSIGNED PATENTS and other intellectual property rights
arising therefrom.
(b) IXSYS agrees to cooperate with MEDIMMUNE and cause its employees
to cooperate with MEDIMMUNE and to perform all acts, at MEDIMMUNE's request on
reasonable notice and during normal business hours, as reasonably necessary (i)
to perfect MEDIMMUNE's ownership interest in and to the ASSIGNED MATERIALS AND
INFORMATION together with all ASSIGNED PATENTS and other intellectual property
rights arising therefrom, and (ii) to facilitate the preparation, filing,
prosecution and enforcement of the
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ASSIGNED PATENTS. MEDIMMUNE shall reimburse IXSYS on demand for the reasonable
cost to IXSYS (at the rate set forth in Section 2.3(a) plus all out-of-pocket
expenses) incurred in connection therewith.
(c) IXSYS hereby reserves the nonexclusive, nontransferable right to
use information and data that are included in ASSIGNED MATERIALS AND INFORMATION
for its own internal research use; provided, however, that IXSYS shall not use
the ASSIGNED MATERIALS AND INFORMATION to make, have made, use or sell any
antibody directed to ***, or perform research or development work for a THIRD
PARTY with respect to any such antibody.
SECTION 4 - CONFIDENTIALITY.
4.1 During the term of this Agreement, IXSYS agrees not to provide or
disclose to a THIRD PARTY any MATERIALS without the written permission of
MEDIMMUNE.
4.2 After the date of this Agreement, subject to Section 2.9, IXSYS
agrees not to provide or disclose to a THIRD PARTY any ASSIGNED MATERIALS AND
INFORMATION without the written permission of MEDIMMUNE.
4.3 During the term of this Agreement, it is contemplated that each
party will disclose to the other party confidential information which is owned
or controlled by the party providing such information or which that party is
obligated to maintain in confidence and which is designated by the party
providing such information as confidential ("Confidential Information"). Each
party shall have the right to refuse to accept the other party's Confidential
Information. Each party agrees to retain the other party's Confidential
Information in confidence, to limit disclosure of any such Confidential
Information to its officers, directors, employees, consultants,
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sublicensees and permitted assigns on a need to know basis, to use the other
party's Confidential Information only for the purposes of this Agreement, and
not to disclose any such Confidential Information to any other person or entity
without the prior written consent of the party providing such Confidential
Information. For the avoidance of doubt ASSIGNED MATERIALS AND INFORMATION are
Confidential Information of MEDIMMUNE.
4.4 The obligations of confidentiality and non-use of Sections 4.1, 4.2
and 4.3 will not apply to:
(i) Confidential Information generally known to the public prior
to its disclosure hereunder; or
(ii) Confidential Information that subsequently becomes known to
the public by some means other than a breach of this Agreement;
(iii) Confidential Information that is subsequently disclosed to
the receiving party by a third party having a lawful right to make such
disclosure; or
(iv) is approved for release by the parties.
4.5 Neither party shall disclose any terms or conditions of this
Agreement to any third party without the prior consent of the other party;
provided, however, that a party may disclose the terms or conditions of this
Agreement, (a) on a need-to-know basis to its legal and financial advisors to
the extent such disclosure is reasonably necessary in connection with such
party's activities expressly permitted by this Agreement and ordinary and
customary business operations, and (b) to a third party in connection with (i)
an equity investment in such party, (ii) a merger, consolidation, change in
control or similar transaction by such party, or (iii) the transfer or sale of
all or substantially all of the assets of such party. Notwithstanding the
foregoing, prior
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to execution of this Agreement the parties have agreed upon the substance of
information that may be used to describe the terms and conditions of this
transaction, and each party may disclose such information, as modified by mutual
written agreement of the parties, without the consent of the other party.
4.6 The obligations of this Section 4 shall not apply to the extent that
a party is required to disclose information by applicable law, regulation or
bona fide legal process, provided that the party required to make the disclosure
takes reasonable steps to restrict and maintain confidentiality of such
disclosure and provides reasonable prior notice to the other party.
4.7 Notwithstanding the foregoing, MEDIMMUNE shall have the right to
disclose Confidential Information of IXSYS to a THIRD PARTY with whom MEDIMMUNE
has or proposes to enter into a business relationship and who undertakes an
obligation of confidentiality and non-use with respect to such information, at
least as restrictive as the obligation under this Section 4.
4.8 The parties' obligations under this Section 4 shall terminate five
(5) years after the expiration or termination of this Agreement.
SECTION 5 - ROYALTIES.
5.1 During the ROYALTY PERIOD, MEDIMMUNE shall pay royalties to IXSYS
for PRODUCTS as follows:
(a) *** of that portion of NET SALES of PRODUCTS in a calendar
year up to the DESIGNATED AMOUNT;
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(b) *** of that portion of NET SALES of PRODUCTS in a calendar
year above the DESIGNATED AMOUNT.
The cumulative NET SALES for a calendar year shall be calculated
based on worldwide NET SALES.
5.2 In the event that a PRODUCT is sold in combination with a
therapeutically active component that is not a PRODUCT (such combination being a
"Combination Product"), then NET SALES of such Combination Product upon which a
royalty is paid shall be subject to the following adjustment. If the PRODUCT and
the other therapeutically active component are sold separately in a country,
then NET SALES of such Combination Product in such country upon which a royalty
is paid shall be multiplied by the fraction A/A+B, where A equals the average
sales price of such PRODUCT sold separately in such country, and B equals the
average sales price of the other therapeutically active component sold
separately in such country. Otherwise, the parties shall enter into good faith
negotiations and attempt to reach mutual agreement to determine an appropriate
adjustment to the NET SALES of such Combination Product in a country to reflect
the relative contributions of the PRODUCT and the other therapeutically active
component to the value of the Combination Product in such country. If such
mutual agreement is not reached within ninety (90) days after commencement of
such negotiations, then the NET SALES of such Combination Product in such
country shall be determined by binding arbitration under Section 11.2.
5.3 MEDIMMUNE shall keep, and shall cause each of its AFFILIATES and
SUBLICENSEES to keep, full and accurate books of account containing all
particulars that may be necessary for the purpose of calculating all royalties
payable to IXSYS. Such books of account, with all necessary supporting data,
shall be kept at their principal place of business, and
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for the three (3) years next following the end of the calendar year to which
each pertains, shall be open for inspection by an independent certified
accountant selected by IXSYS and reasonably acceptable to MEDIMMUNE upon
reasonable notice during normal business hours at IXSYS' expense for the sole
purpose of verifying royalty statements or compliance with this Agreement, but
in no event more than once in each calendar year. All information and data
offered shall be used only for the purpose of verifying royalties and shall be
treated as MEDIMMUNE Confidential Information subject to the obligations of this
Agreement.
5.4 With each quarterly payment, MEDIMMUNE shall deliver to IXSYS a full
and accurate accounting of the calculation of the royalties owing hereunder to
include at least the following information:
(a) Quantity of each PRODUCT subject to royalty sold (by country) by
MEDIMMUNE, its AFFILIATES and SUBLICENSEES;
(b) NET SALES for each PRODUCT (by country);
(c) The calculation of the gross royalties (before deductions) for
each PRODUCT (by country) and any deductions, offsets and credits therefrom; and
(d) Total royalties payable to IXSYS for each PRODUCT (by country)
and the total royalties payable to IXSYS for all PRODUCTS (for all countries).
5.5 In each year the amount of royalty due shall be calculated quarterly
as of March 31, June 30, September 30 and December 31 (each being the last day
of an "ACCOUNTING PERIOD") and shall be paid quarterly within the sixty (60)
days next following such date. Every such payment shall be supported by the
accounting prescribed in Section 5.4 and shall be made in United States
currency. Whenever for the purpose of calculating royalties conversion from any
foreign currency shall be required, such conversion shall be at the average of
the rate of
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exchange (local currency per US$1) published in the Western Edition of The Wall
Street Journal under the caption "Currency Trading" for the last business day of
each month during the applicable ACCOUNTING PERIOD.
5.6 If the transfer of or the conversion into United States Dollar
equivalent of any remittance due hereunder is not lawful or possible in any
country, such remittance shall be made by the deposit thereof in the currency of
the country to the credit and account of IXSYS or its nominee in any commercial
bank or trust company located in that country, prompt notice of which shall be
given to IXSYS. IXSYS shall be advised in writing in advance by MEDIMMUNE and
provide to MEDIMMUNE a nominee, if so desired.
5.7 Any tax required to be withheld by MEDIMMUNE under the laws of any
foreign country for the account of IXSYS shall be promptly paid by MEDIMMUNE for
and on behalf of IXSYS to the appropriate governmental authority, and MEDIMMUNE
shall furnish IXSYS with proof of payment of such tax. Any such tax actually
paid on IXSYS' behalf shall be deducted from royalty payments due IXSYS.
5.8 Only one royalty shall be due and payable under each of the
applicable subsections under this Section 5 for the manufacture, use and sale of
a PRODUCT irrespective of the number of patents or claims thereof which cover
the manufacture, use and sale of such PRODUCT.
5.9 (a) MEDIMMUNE shall pay to IXSYS the following milestone payments
upon the occurrence of the following events with respect to a PRODUCT:
EVENT PAYMENT
(i) Demonstration in the ***
model that a PRODUCT has a ***
as compared to ***
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*** $ ***
(ii) Demonstration in the ***
model that a PRODUCT has a ***
as compared to *** $ ***
(iii) Filing an IND (or its foreign equivalent) for a
PRODUCT $ ***
(iv) Obtains approval of a Biologics License Application
(or its foreign equivalent) for a PRODUCT $ ***
(b) The milestone payments under Section 5.9(a) are due and payable
sixty (60) days after the applicable milestone occurs.
(c) *** of all milestone payments paid under Section 5.9(a)
are creditable against up to *** of each royalty payment that is to be made
pursuant to Section 5.1 until the full amount of such credit has been taken.
(d) The total payment under Section 5.9(a)(i) and 5.9(a)(ii) shall
not exceed ***, and the total milestone payments for any and all PRODUCT
shall not exceed ***.
SECTION 6 - WARRANTIES.
6.1 Each of IXSYS and MEDIMMUNE warrants and represents to the other
that:
(a) it has the corporate power and authority and the legal right to
enter into this Agreement and to perform its obligations hereunder;
(b) it has taken all necessary corporate action on its part to
authorize the execution and delivery of this Agreement and the performance of
its obligations hereunder; and
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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(c) this Agreement has been duly executed and delivered on its
behalf, and constitutes a legal, valid, binding obligation, enforceable against
it in accordance with its terms.
6.2 IXSYS represents and warrants to MEDIMMUNE that:
(a) it has not previously granted and, prior to expiration or
termination of this Agreement, will not grant any rights in the EXISTING IXSYS
PATENTS, ASSIGNED PATENTS, MATERIALS, and ASSIGNED MATERIALS AND INFORMATION
that conflict with the rights and licenses granted to MEDIMMUNE herein;
(b) all persons performing research by or on behalf of IXSYS under
the PROGRAM will be obligated to assign to IXSYS (for re-assignment to MEDIMMUNE
hereunder), the ownership of ASSIGNED MATERIALS AND INFORMATION, the ASSIGNED
PATENTS and all other intellectual property rights arising therefrom.
6.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTIONS 6.1
and 6.2, NEITHER PARTY MAKES ANY REPRESENTATION OR EXTENDS ANY WARRANTIES OF ANY
KIND EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, OR VALIDITY
OF ANY PATENT RIGHTS ISSUED OR PENDING.
SECTION 7 - INDEMNIFICATION.
7.1 MEDIMMUNE agrees to indemnify and hold harmless IXSYS, its
directors, officers, employees and agents (collectively, the "Indemnitees") from
and against all losses, liabilities, damages and expenses (including reasonable
attorneys' fees and costs) incurred in connection with any claims, demands,
actions or other proceedings by any third party arising
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from (a) the research, development, manufacture, use or sale of ANTIBODIES or
PRODUCTS by MEDIMMUNE, its AFFILIATES or SUBLICENSEES, (b) the use of PRODUCTS
by any purchasers thereof, (c) the use by MEDIMMUNE, its AFFILIATES or
SUBLICENSEES of the EXISTING IXSYS PATENTS, the ASSIGNED MATERIALS AND
INFORMATION or the ASSIGNED PATENTS, (d) any act or omission by MEDIMMUNE, its
AFFILIATES OR SUBLICENSEES the effect of which would cause IXSYS to be in breach
of its obligations under the license agreements described in Section 3.1(b)
(without regard to any applicable cure or notice requirements thereof, or (e)
patent infringement by IXSYS during the PROGRAM based on a claim that an
ANTIBODY or ligand or assay provided by MEDIMMUNE to IXSYS infringes a patent of
a THIRD PARTY.
7.2 If any such claims or actions are made, IXSYS shall be defended at
MEDIMMUNE's sole expense by counsel selected by MEDIMMUNE and reasonably
acceptable to IXSYS provided that IXSYS may, at its own expense, also be
represented by counsel of its own choosing.
7.3 MEDIMMUNE's indemnification under Section 7.1 shall not apply to the
extent any loss, liability, damage or expense is attributable to the gross
negligence or intentional misconduct of the Indemnitees.
7.4 MEDIMMUNE may not settle any such claim, demand, action or other
proceeding or otherwise consent to an adverse judgment in any such action or
other proceeding that diminishes the rights or interests of the Indemnitees
without the express written consent of the Indemnitees.
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7.5 IXSYS shall notify MEDIMMUNE promptly of any claim, demand, action
or other proceeding under Section 7.1 and shall reasonably cooperate with all
reasonable requests of MEDIMMUNE with respect thereto.
SECTION 8 - ASSIGNMENT; SUCCESSORS.
8.1 This Agreement shall not be assigned or otherwise transferred (in
whole or in part, whether voluntarily, by operation of law or otherwise) by
either of the parties without the prior written consent of the other party
(which consent shall not be unreasonably withheld); provided, however, that
either party may, without such consent, assign this Agreement and its rights and
obligations hereunder to an AFFILIATE or in connection with the transfer or sale
of all or substantially all of its business, or in the event of its merger,
consolidation, change in control or similar transaction, provided that such
assignment by IXSYS does not cause the termination of the rights and licenses
granted to MEDIMMUNE under this Agreement. Any permitted assignee shall assume
all obligations of its assignor under this Agreement. Any purported assignment
or transfer in violation of this Section 8.1 shall be void.
8.2 Subject to the limitations on assignment herein, this Agreement
shall be binding upon and inure to the benefit of said successors in interest
and assigns of MEDIMMUNE and IXSYS.
SECTION 9 - TERM AND TERMINATION.
9.1 Except as otherwise specifically provided herein and unless sooner
terminated pursuant to Section 9.2 or 9.3 of this Agreement, this Agreement and
the licenses and rights granted thereunder shall remain in full force and effect
until MEDIMMUNE has no further
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royalty obligation hereunder at which time MEDIMMUNE shall have a fully paid up,
non-cancelable, nonexclusive license to make, have made and use MATERIALS to
research, develop, make, have made, use, import, export, sell, offer to sell, or
have sold PRODUCTS.
9.2 MEDIMMUNE shall have the right to terminate this Agreement upon
ninety (90) days prior written notice to IXSYS.
9.3 IXSYS shall have the right to terminate this Agreement if and only
if MEDIMMUNE breaches its obligations under Section 5 or 7. If such a breach
shall occur, IXSYS shall provide MEDIMMUNE with written notice of such breach
and if such breach is not cured within thirty (30) days after such written
notice, IXSYS may terminate this Agreement by written notice to MEDIMMUNE,
provided such written notice is given within thirty (30) days after the
expiration of such initial thirty (30) day period.
9.4 Upon any termination of this Agreement, MEDIMMUNE, at its option,
shall be entitled to sell any completed inventory of PRODUCT which remains on
hand as of the date of the termination, so long as MEDIMMUNE pays to IXSYS the
royalties applicable to said subsequent sales in accordance with the same terms
and conditions as set forth in this Agreement.
9.5 In the event that this Agreement is terminated under Section 9.2 or
9.3, any sublicense granted under this Agreement shall remain in full force and
effect as a direct license between IXSYS and the SUBLICENSEE under the terms and
conditions of the sublicense agreement, subject to the SUBLICENSEE agreeing to
be bound to IXSYS under such terms and conditions within thirty (30) days after
IXSYS provides written notice to the SUBLICENSEE of the termination of this
Agreement. At the request of MEDIMMUNE, IXSYS will acknowledge to a SUBLICENSEE
IXSYS' obligations to the SUBLICENSEE under this paragraph.
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9.6 The provisions of Sections 2.8, 2.9, 3.4(c), 4, 7, 9.4, 9.5 and 9.6
shall survive any expiration or termination of this Agreement.
9.7 Upon expiration or termination of this Agreement for any reason,
nothing herein shall be construed to release either party from any obligation
that matured prior to the effective date of such expiration or termination.
9.8 All rights and licensing granted under or pursuant to this Agreement
by IXSYS to MEDIMMUNE are, and shall irrevocably be deemed to be, "intellectual
property" as defined in Section 101(56) of the Bankruptcy Code. In the event of
the commencement of a case by or against either party under any Chapter of the
Bankruptcy Code, this Agreement shall be deemed an executory contract and all
rights and obligations hereunder shall be determined in accordance with Section
365(n) thereof. Unless a party rejects this Agreement and the other party
decides not to retain its rights hereunder, the other party shall be entitled to
a complete duplicate of (or complete access to, as appropriate) all intellectual
property and all embodiments of such intellectual property held by the party and
the party shall not interfere with the rights of the other party, which are
expressly granted hereunder, to such intellectual property and all embodiments
of such intellectual property from another entity. Further, this Agreement shall
be deemed, upon presentation to another entity, to be the same as an express
instruction by the party to such other entity to provide such intellectual
property and all embodiments of such intellectual property directly to the other
party. Without limiting the foregoing provisions in this paragraph, the other
party shall be entitled to all post-bankruptcy-petition improvements, updates,
or developments of intellectual property created hereunder. If such intellectual
property is not fully developed as of the commencement of any bankruptcy case,
the other party shall have the right to complete development of the property.
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SECTION 10 - FORCE MAJEURE.
10.1 No failure or omission by the parties hereto in the performance of
any obligation of this Agreement (other than an obligation for the payment of
money) shall be a breach of this Agreement, nor shall it create any liability,
if the same shall arise from any cause or causes beyond the reasonable control
of the affected party, including, but not limited to, the following, which for
purposes of this Agreement shall be regarded as beyond the control of the party
in question: acts of God; acts or omissions of any government; any rules,
regulations, or orders issued by any governmental authority or by any officer,
department, agency or instrumentality thereof; fire; storm; flood; earthquake;
accident; war; rebellion; insurrection; riot; invasion; strikes; and lockouts or
the like; provided that the party so affected shall use its commercially
reasonable efforts to avoid or remove such causes or nonperformance and shall
continue performance hereunder with the utmost dispatch whenever such causes are
removed.
SECTION 11 - GENERAL PROVISIONS.
11.1 The relationship between IXSYS and MEDIMMUNE is that of independent
contractors. IXSYS and MEDIMMUNE are not joint venturers, partners, principal
and agent, master and servant, employer or employee, and have no relationship
other than as independent contracting parties. IXSYS shall have no power to bind
or obligate MEDIMMUNE in any manner. Likewise, MEDIMMUNE shall have no power to
bind or obligate IXSYS in any manner.
11.2 Any matter or disagreement under Section 5.2, which this Agreement
specifies is to be resolved by arbitration shall be submitted to a mutually
selected single arbitrator to so decide any such matter or disagreement. The
arbitrator shall conduct the arbitration in
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<PAGE> 25
accordance with the Rules of the American Arbitration Association, unless the
parties agree otherwise. If the parties are unable to mutually select an
arbitrator, the arbitrator shall be selected in accordance with the procedures
of the American Arbitration Association. The decision and award rendered by the
arbitrator shall be final and binding. Judgment upon the award may be entered in
any court having jurisdiction thereof. Any arbitration pursuant to this section
shall be held in San Diego, California or such other place as may be mutually
agreed upon in writing by the parties. The prevailing party in any such
arbitration shall be entitled to recover from the other party all reasonable
attorneys' fees and costs incurred by the prevailing party in connection
therewith.
11.3 This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter thereof and supersedes all prior
agreements in this respect. There shall be no amendments or modifications to
this Agreement, except by a written document which is signed by both parties.
11.4 This Agreement shall be construed and enforced in accordance with
the laws of the State of California without regard to the conflicts of law
principles thereof.
11.5 The headings in this Agreement have been inserted for the
convenience of reference only and are not intended to limit or expand on the
meaning of the language contained in the particular article or section.
11.6 Any delay in enforcing a party's rights under this Agreement or any
waiver as to a particular default or other matter shall not constitute a waiver
of a party's right to the future enforcement of its rights under this Agreement,
excepting only as to an expressed written and signed waiver as to a particular
matter for a particular period of time.
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11.7 Any notices given pursuant to this Agreement shall be in writing,
delivered by any means, addressed to the other party at its address indicated
below, or to such other address as the addressee shall have last furnished in
writing to the addressor and (except as otherwise provided in this Agreement)
shall be effective upon receipt by the addressee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
IXSYS, INC. MEDIMMUNE, INC.
By: /s/ Janine M. Taylor By: /s/ David M. Mott
Name: Janine M. Taylor Name: David M. Mott
Title: President & Chief Title: Vice Chairman &
Operating Officer Chief Financial Officer
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*** CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT 10.6
SELECTION AGREEMENT
This Selection Agreement (this "Agreement") is effective as of February 24, 1999
("the EFFECTIVE DATE") by and between Ixsys, Inc., a Delaware corporation,
having an address at 3520 Dunhill Road, San Diego, CA 92121 ("IXSYS"), and
MedImmune, Inc. a Delaware Corporation, having offices at 35 West Watkins Mill
Road, Gaithersburg, MD 20878 ("MEDIMMUNE").
WHEREAS, MEDIMMUNE desires to have IXSYS perform certain research and
development with respect to certain antibodies yet to be determined; and
WHEREAS, IXSYS desires to perform such research and development on the terms and
conditions of this Agreement. NOW THEREFORE in consideration of the mutual
promises and other good and valuable consideration, the parties agree as
follows:
SECTION 1 - Antibody Selection.
1.1 Within twenty four (24) months after the EFFECTIVE DATE, MEDIMMUNE shall
designate by written notice to IXSYS, two (2) antibodies for which MEDIMMUNE
desires to have IXSYS perform separate research and development programs (each,
a "PROGRAM") to modify such antibodies.
1.2 The written notice described in Section 1.1 for each PROGRAM shall specify
the following:
(a) the identity and sequence of the antibody;
(b) the identity of the desired target ligand;
(c) the desired assay by which to measure the specificity and affinity of the
antibody and modifications to such antibody developed under the applicable
PROGRAM;
(d) the personnel resources (specified as the number of full time equivalent
personnel) to be expended by Ixsys under the applicable PROGRAM, which shall not
be less than *** or more than *** without the prior written consent of IXSYS;
and
(e) the term of the applicable PROGRAM, which shall not be less than *** months
or more than *** months without the prior written consent of IXSYS.
1.3 Within thirty (30) days after MEDIMMUNE delivers to IXSYS the written notice
described in Section 1.1 for a PROGRAM, the parties shall duly execute and
deliver a Research and Assignment and License Agreement in the form attached
hereto as Appendix A, with the blanks on Exhibit 1 thereto completed as provided
above and only those modifications as the parties mutually agree in writing.
SECTION 2 - Assignment; Successors.
2.1 This Agreement shall not be assigned or otherwise transferred (in whole or
in part, whether voluntarily, by operation of law or otherwise) by either of the
parties without the prior written consent of the other party (which consent
shall
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not be unreasonably withheld); provided, however, that either party may, without
such consent, assign this Agreement and its rights and obligations hereunder in
connection with the transfer or sale of all or substantially all of its
business, or in the event of its merger, consolidation, change in control or
similar transaction. Any permitted assignee shall assume all obligations of its
assignor under this Agreement. Any purported assignment or transfer in violation
of this Section 2.1 shall be void.
2.2 Subject to the limitations on assignment herein, this Agreement shall be
binding upon and inure to the benefit of said successors in interest and assigns
of MEDIMMUNE and IXSYS.
SECTION 3 - General Provisions.
3.1 The relationship between IXSYS and MEDIMMUNE is that of independent
contractors. IXSYS and MEDIMMUNE are not joint venturers, partners, principal
and agent, master and servant, employer or employee, and have no relationship
other than as independent contracting parties. IXSYS shall have no power to bind
or obligate MEDIMMUNE in any manner. Likewise, MEDIMMUNE shall have no power to
bind or obligate IXSYS in any manner.
3.2 This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter thereof and supersedes all prior agreements in
this respect. There shall be no amendments or modifications to this Agreement,
except by a written document which is signed by both parties.
3.3 This Agreement shall be construed and enforced in accordance with the laws
of the State of California without regard to the conflicts of law principles
thereof.
3.4 The headings in this Agreement have been inserted for the convenience of
reference only and are not intended to limit or expand on the meaning of the
language contained in the particular article or section.
3.5 Any delay in enforcing a party's rights under this Agreement or any waiver
as to a particular default or other matter shall not constitute a waiver of a
party's right to the future enforcement of its rights under this Agreement,
excepting only as to an expressed written and signed waiver as to a particular
matter for a particular period of time.
3.6 Any notices given pursuant to this Agreement shall be in writing, delivered
by any means, addressed to the other party at its address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and (except as otherwise provided in this Agreement) shall be
effective upon receipt by the addressee.
To MEDIMMUNE: MedImmune, Inc.
35 West Watkins Mill Road
Gaithersburg, MD 20878
Copy to: Carella, Byrne, Bain, Gilfillan,
Cecchi, Stewart & Olstein
6 Becker Farm Road
Roseland, New Jersey 07068
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Fax No. (973) 994-1744
Attn: Elliot M. Olstein, Esq.
To IXSYS: Ixsys, Inc.
3520 Dunhill Road
San Diego, CA 92121
Attention: President
Copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street, 16th Floor
San Francisco, California 94104
Attention: Thomas E. Sparks, Jr.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
IXSYS, INC. MEDIMMUNE, INC.
By: /s/ Janine M. Taylor By: /s/ David M. Mott
Name: Janine M. Taylor Name: David M. Mott
Title: President & Chief Title: Vice Chairman &
Operating Officer Chief Financial Officer
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*** CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT
HAVE BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.
EXHIBIT 10.7
LICENSE AGREEMENT
by and between
THE SCRIPPS RESEARCH INSTITUTE,
a California nonprofit
public benefit corporation
and
IXSYS, INC.
a Delaware corporation
<PAGE> 2
LICENSE AGREEMENT
This License Agreement is entered into and made effective as of this
20th day of May, 1994, by and between THE SCRIPPS RESEARCH INSTITUTE, a
California nonprofit public benefit corporation ("Scripps") located at 10666
North Torrey Pines Road, La Jolla, California 92037, and IXSYS, INC., a Delaware
corporation ("Licensee") located at 3550 Dunhill Street, San Diego, California
92121, with respect to the facts set forth below.
RECITALS
A. Scripps is engaged in fundamental scientific biomedical and
biochemical research including research relating to cell adhesion, angiogenesis
and tumor biology.
B. Licensee is engaged in research, development and commercialization of
certain products for the diagnosis, prevention and treatment of certain
diseases, states and conditions.
C. Scripps has disclosed to Licensee certain technology relating to the
murine monoclonal antibody *** and the use of antibodies as inhibitors of
angiogenesis (collectively, the "Technology").
D. Licensee desires to develop derivatives of the monoclonal antibody
*** and possibly other antibodies, as inhibitors of angiogenesis.
E. Scripps has the exclusive right to grant a license to the Technology
subject to certain rights of the U.S. Government to use such technology for its
own purposes, resulting from the receipt by Scripps of certain funding from the
U. S. Government.
F. Scripps desires to grant to Licensee, and Licensee wishes to acquire,
an exclusive worldwide right and license under Scripps' rights in the Technology
subject to the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions
set forth herein, Scripps and Licensee hereby agree as follows:
1. Definitions. Capitalized terms shall have the meaning set forth
below.
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1.1 Affiliate. The term "Affiliate" shall mean any entity which
directly or indirectly controls, is controlled by or is under common control
with Licensee. The term "control" as used herein means the possession of the
power to direct or cause the direction of the management and the policies of an
entity, whether through the ownership of not less than forty percent (40%) of
the outstanding voting securities or by contract or otherwise.
1.2 Confidential Information. The term "Confidential
Information" shall mean any and all proprietary or confidential information of
Scripps or Licensee which may be exchanged between the parties at any time and
from time to time during the term of this Agreement. Information shall not be
considered confidential to the extent that it:
a. Is publicly disclosed through no fault of any party hereto,
either before or after it becomes known to the receiving party; or
b. Was known to the receiving party prior to the date of this
Agreement, which knowledge was acquired independently and not from another party
hereto (or such party's employees); or
c. Is subsequently disclosed without any obligation of
confidentiality to the receiving party in good faith by a third party who has a
right to make such disclosure; or
d. Has been published by a third party as a matter of right.
1.3 Field. The term "Field" shall mean the diagnosis, prevention
and treatment of any disease, states or conditions in humans, by use of any
antibody or antibody fragment, but excluding the use of (a) ***, and (b) any
other non-immunoglobulin molecules except molecules conjugated to any antibody
or antibody fragment, if the molecules conjugated thereto are not themselves
inhibitors of alphaV-beta3 integrins.
1.4 Hybridoma ***. The term "Hybridoma ***" shall mean the
cell line *** deposited with the American Type Culture Collection.
1.5 Licensed Product. The term "Licensed Product" shall mean any
product which (a) if made, used or sold absent the license granted hereby would
infringe the valid claim of one or more valid issued patent(s) included within
the Scripps Patent Rights, or (b) cannot be developed, manufactured, used or
sold without utilizing any part of the Scripps Technology.
1.6 ***. The term "***" shall mean the *** integrin
murine antibody produced by Hybridoma *** and fragments of said murine
antibody.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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1.7 *** Gene. The term "*** Gene" shall mean a nucleic acid
encoding all or a portion of ***.
1.8 *** Sequence Information. The term "*** Sequence
Information" shall mean the nucleotide sequence embodied in an *** Gene
isolated from Hybridoma *** and the amino acid residue sequence information
embodied in ***.
1.9 Major Country. The term "Major Country" shall mean France,
Germany, Italy, Japan, the United Kingdom and the United States.
1.10 Net Sales. The term "Net Sales" shall mean, with respect to
any Licensed Product, the invoiced sales price of such Licensed Product sold by
Licensee, its Affiliates and sublicensees to independent customers who are not
Affiliates, less (a) credits, allowances, discounts and rebates to, and
chargebacks from the account of, such independent customers for spoiled,
damaged, out-dated, rejected or returned Licensed Product; (b) actual freight
and insurance costs incurred in transporting such Licensed Product in final form
to such customers; (c) cash, quantity and trade discounts; (d) sales, use,
value-added and taxes or governmental charges (excluding what is commonly known
of as income taxes) incurred in connection with the exportation or importation
of such Licensed Product in final form; and (e) the cost to Licensee of the
devices for dispensing or administering such Licensed Product as well as
diluents or similar materials which accompany such Licensed Product as it is
sold. For purposes of determining Net Sales, a sale shall be deemed to have
occurred when an invoice therefor shall be generated or the Licensed Product
shipped for delivery. Sales of Licensed Products by Licensee, or an Affiliate or
sublicensee of Licensee to any Affiliate or sublicensee which is a reseller
thereof shall be excluded, and only the subsequent sale of such Licensed
Products by Affiliates or sublicensees of Licensee to unrelated parties shall be
deemed Net Sales hereunder.
1. 11 Scripps Angiogenesis Technology. The term "Scripps
Angiogenesis Technology" shall mean so much of the technology as is proprietary
to Scripps disclosed in United States Patent Application Serial No. 08/210,715,
entitled "Methods and Compositions Useful for Inhibition of Angiogenesis" filed
March 14, 1994, a copy of which is attached hereto and incorporated herein by
reference.
1.12 Scripps LM609 Technology. The terms "Scripps ***
Technology" shall mean, collectively, Hybridoma ***, ***, *** Gene and
*** Sequence information.
1.13 Scripps Patent Rights. The term "Scripps Patent Rights"
shall mean (a) U.S. Patent Application Serial No. 08/210,715, entitled "Methods
and Compositions Useful for Inhibition of Angiogenesis" filed March 14, 1994,
together with all foreign counterparts thereof; (b) the patents proceeding from
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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such applications, and (c) all divisionals, continuations, continuation-in-part,
reissues, renewals, reexaminations, and extensions thereof, so long as said
patents have not been held invalid and/or unenforceable by a court of competent
jurisdiction from which there is no appeal or, if appealable, from which no
appeal has been taken. The foregoing notwithstanding, Scripps Patent Rights
shall not include any claim that covers subject matter not disclosed in said
United States Patent Application Serial No. 08/210,715.
1.14 Scripps Technology. The term "Scripps Technology" shall
mean the Scripps *** Technology and the Scripps Angiogenesis Technology,
whether or not the same is eligible for protection under the patent laws of the
United States or elsewhere, and whether or not any such technology would be
enforceable as a trade secret or the copying of which would be enjoined or
restrained by a court as constituting unfair competition.
2. License Terms and Conditions.
2.1 Grant of License. Scripps hereby grants to Licensee an
exclusive, worldwide license, including the right to sublicense, under the
Scripps Patent Rights and the Scripps Technology to make, to have made, to use,
and to sell Licensed Products in the Field, subject to the terms of this
Agreement. Promptly upon execution of this Agreement, Scripps shall provide
Licensee with all information available to Scripps regarding the Scripps Patent
Rights and the Scripps Technology.
2.2 Initial License Fee. In partial consideration for the
exclusive license granted pursuant to Section 2.1 hereof, Licensee shall pay to
Scripps a nonrefundable license fee upon execution of this Agreement in the
amount of *** Dollars (***), and *** shares of Ixsys common stock with rights
and restrictions substantially equivalent to other current common stock
shareholders. The license fee described in this Section is consideration for the
grant and continuation of the license hereunder, and Scripps shall have no
obligation to return any portion of such license fee, notwithstanding any
failure by Licensee to develop any Licensed Product or market any Licensed
Product commercially, and notwithstanding the volume of sales of any such
Licensed Product.
2.3 Milestone Payments. As additional consideration for the
license granted to Licensee under this Agreement, Licensee shall pay Scripps the
following milestone payments upon the first occurrence of each event set forth
below, which shall be creditable against future royalties owing to Scripps under
Section 2.4 below; provided, however, that Licensee shall not be obligated to
pay any milestone payment for more than one Licensed Product.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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2.3.1 *** upon commencement of Phase 1 clinical trials
for a Licensed Product in the United States (or their equivalent in any other
Major Country); and
2.3.2 *** upon completion of Phase 3 clinical trials
for a Licensed Product in the United States (or their equivalent in any other
Major Country); and
2.3.3 *** upon receipt of the required marketing
approval, and pricing approval (if any), from the FDA (or from the governing
health authority of any other Major Country) for a Licensed Product.
2.4 Royalties. As additional consideration for the exclusive
license granted pursuant to Section 2.1 hereof, Licensee shall pay to Scripps a
continuing royalty on a country-by-country basis in the amount of (a) ***
percent *** of Net Sales of Licensed Products which if sold in such country
would infringe the valid claim of one or more valid issued patent(s) included
within the Scripps Patent Rights, and (b) *** percent *** of Net Sales of
Licensed Products in all other countries.
2.5 Term of License. Unless terminated sooner in accordance
with the provisions of this Agreement, the term of this license shall expire
when the last of the royalty obligations set forth in Section 2.8 has expired.
2.6 Quarterly Payments. Royalties shall be payable by Licensee
quarterly, within ninety (90) days after the end of each calendar quarter, based
upon the Net Sales of Licensed Products during such preceding calendar quarter,
commencing with the calendar quarter in which the first commercial sale of any
Licensed product is made.
2.7 Sublicense. Licensee shall have the sole and exclusive right
to grant sublicenses to any party with respect to the rights conferred upon
Licensee under this Agreement, provided, however, that any such sublicense shall
be subject in all respects to the restrictions, exceptions, royalty obligations,
milestone payments, reports, termination provisions, and other provisions
contained in this Agreement (but not including the payment of a license fee
pursuant to Section 2.2 hereof). Licensee shall pay Scripps, or cause its
Affiliate or sublicensee to pay Scripps, the same royalties on all Net Sales of
such Affiliate or sublicensee the same as if said Net Sales had been made by
Licensee. Each Affiliate and sublicensee shall report its Net Sales to Scripps
through Licensee, which Net Sales shall be aggregated with any Net Sales of
Licensee for purposes of determining the Net Sales upon which royalties are to
be paid to Scripps.
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION
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2.8 Duration of Royalty Obligations. The royalty obligations of
Licensee as to each Licensed Product shall terminate concurrently with the
expiration of the last to expire of Scripps Patent Rights utilized by or in such
Licensed Product in each such country or, with respect to Licensed Products not
utilizing any Scripps Patent Rights, ten (10) years after the date of first
commercial sale of such Licensed Product in such country.
2.9 Reports. Licensee shall furnish to Scripps at the same time
as each royalty payment is made by Licensee, a detailed written report of Net
Sales of the Licensed Products and the royalty due and payable thereon,
including a description of any offsets or credits deducted therefrom, on a
product-by-product and country-by-country basis, for the calendar quarter upon
which the royalty payment is based.
2.10 Records. Licensee shall keep, and cause its Affiliates and
sublicensees to keep, full, complete and proper records and accounts of all
sales of Licensed Products in sufficient detail to enable the royalties payable
on Net Sales of each Licensed Product to be determined. Scripps shall have the
right to appoint an independent certified public accounting firm of
nationally-recognized standing approved by Licensee, which approval shall not be
unreasonably withheld, to audit the records of Licensee and its Affiliates as
necessary to verify the royalties payable pursuant to this Agreement. Such audit
shall be at Scripps's expense; provided, however, that if the audit discloses
that Scripps was underpaid royalties with respect to any Licensed Product by at
least eight percent (8%) for any calendar quarter, then Licensee shall reimburse
Scripps for any such audit costs. Scripps may exercise its right of audit no
more frequently than once in any calendar year. The accounting firm shall
disclose to Scripps only information relating to the accuracy of the royalty
payments. No other information shall be shared. Licensee and its Affiliates
shall preserve and maintain all such records required for audit for a period of
three (3) years after the calendar quarter to which the record applies.
2.11 Foreign Sales. The remittance of royalties payable on sales
outside the United States shall be payable to Scripps in United States Dollar
equivalents calculated using the average buying rate for such currency quoted in
the continental terms method of quoting exchange rates (local currency per US$1)
as published in the United States in The Wall Street Journal under the caption
"Currency Trading" on each of the last business day of each month in the quarter
for which the royalties are payable. If the transfer of or the conversion into
the United States Dollar equivalents of any such remittance in any such instance
is not lawful or possible, the payment of such part of the royalties as is
necessary shall be made by the deposit thereof, in the currency of the country
where the sale was made on which the royalty was based to the credit and account
of Scripps or its nominee in any commercial bank or trust company of Scripps's
choice located in
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that country, prompt written notice of which shall be given by Licensee to
Scripps.
2.12 Foreign Taxes. Any tax required to be withheld by Licensee
under the laws of any foreign country for the accounts of Scripps shall be
promptly paid by Licensee for and on behalf of Scripps to the appropriate
governmental authority, and Licensee shall use its best efforts to furnish
Scripps with proof of payment of such tax together with official or other
appropriate evidence issued by the applicable government authority. Any such tax
actually paid on Scripps's behalf shall be deducted from royalty payments due
Scripps.
3. Obligations Related to Commercialization.
3.1 Commercial Development obligation. In order to maintain the
license granted hereunder in force, Licensee shall use reasonable efforts and
due diligence to develop the Scripps Patent Rights and the Scripps Technology
which are licensed hereunder into commercially viable Licensed Products, as
promptly as is reasonably and commercially feasible, and thereafter to produce
and sell reasonable quantities of Licensed Products. Licensee shall keep Scripps
generally informed as to Licensee's progress in such development, production and
sale, including its efforts, if any, to sublicense the Scripps Patent Rights and
the Scripps Technology and Licensee shall deliver to Scripps a semiannual
written report. In the event Scripps has a reasonable basis to believe that
Licensee is not using reasonable efforts and due diligence as required
hereunder, upon notice by Scripps to Licensee which specifies the basis for such
belief, Scripps and Licensee shall negotiate in good faith to attempt to
mutually resolve the issue. In the event Scripps and Licensee cannot agree upon
any matter related to Licensee's commercial development obligations, the parties
agree to utilize arbitration pursuant to Section 9.2 hereof in order to resolve
the matter. If the arbitrator determines that Licensee has not complied with its
obligations hereunder, and such default is not fully cured within sixty (60)
days after the arbitrator's decision, Scripps may terminate Licensee's rights
under this Agreement.
3.2 Governmental Approvals and Marketing of Licensed Products.
Licensee shall be responsible for obtaining all necessary governmental approvals
for the development, production, distribution, sale and use of any Licensed
Product, at Licensee's expense, including, without limitation, any safety
studies. Licensee shall have sole responsibility for any warning labels,
packaging and instructions as to the use of Licensed Products and for the
quality control for any Licensed Product.
3.3 Indemnity. Licensee hereby agrees to indemnify, defend and
hold harmless Scripps and any parent, subsidiary or other affiliated entity and
their trustees, officers, employees, scientists and agents from and against any
liability or expense arising from any product liability claim asserted by any
third
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party as to any Licensed Product or any third party claims arising from the use
of the Scripps Patent Rights and the Scripps Technology by Licensee, its
Affiliates or sublicensees pursuant to this Agreement. Such indemnity and
defense obligation shall apply to any product liability or other claims,
including without limitation, personal injury, death or property damage, made by
employees, subcontractors, sublicensees, or agents of Licensee, as well as any
member of the general public. Scripps promptly shall notify Licensee of any
claim for which Scripps intends to claim such indemnification, and Licensee
shall have the right to participate in, or to assume, the defense and settlement
thereof, with counsel selected by Licensee. The indemnity agreement in this
Section 3.3 shall not apply to amounts paid in settlement of any loss,
liability, claim or action if such settlement is effected without the consent of
Licensee, which consent shall not be withheld unreasonably. Scripps, its
employees and agents shall cooperate fully with Licensee and its legal
representatives in the investigation and defense of any action, claim or
liability covered by this indemnification. Licensee shall use its reasonable
best efforts to have Scripps and any parent, subsidiary or other affiliated
entity and their trustees, officers, employees, scientists and agents named as
additional insured parties on any product liability insurance policies
maintained by Licensee, its Affiliates and sublicensees applicable to Licensed
Products, to the extent available to Licensee on commercially reasonable terms
and conditions.
3.4 Patent Marking. To the extent required by applicable law,
Licensee shall mark all Licensed Products or their containers in accordance with
the applicable patent marking laws.
3.5 No Use of Name. The use of the name "The Scripps Research
Institute", "Scripps", or any variation thereof in connection with the
advertising or sale of Licensed Products, except as required by applicable law,
regulation or judicial order, is expressly prohibited.
3.6 U.S. Manufacture. To the extent required by applicable
United States laws, if at all, Licensee agrees that Licensed Products will be
manufactured in the United States, or its territories, subject to such waivers
as may be required, or obtained, if at all, from the United States Department of
Health and Human Services, or its designee.
3.7 Foreign Registration. Licensee agrees to register this
Agreement with any foreign governmental agency which requires such registration,
and Licensee shall pay all costs and legal fees in connection therewith. In
addition, Licensee shall assure that all foreign laws affecting this Agreement
or the sale of Licensed Products are satisfied in all material respects.
4. Limited Warranty. Scripps hereby represents and warrants that it has
full right and power to enter into this Agreement, it is the sole owner of the
Scripps Patent Rights and
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the Scripps Technology, and it has not granted any license or other right
therein or thereto in favor of any third party, except (a) a license granted in
favor of E. Merck, a German general partnership, for use outside the Field, and
(b) those rights required by law to be granted in favor of the United States
Government. SCRIPPS MAKES NO OTHER WARRANTIES CONCERNING THE SCRIPPS PATENT
RIGHTS AND THE SCRIPPS TECHNOLOGY COVERED BY THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AS TO THE SCRIPPS PATENT RIGHTS AND THE SCRIPPS TECHNOLOGY
OR ANY LICENSED PRODUCT. SCRIPPS MAKES NO WARRANTY OR REPRESENTATION THAT ANY
LICENSED PRODUCT WILL BE FREE FROM AN INFRINGEMENT ON PATENTS OR OTHER
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, OR THAT NO THIRD PARTIES ARE IN
ANY WAY INFRINGING THE SCRIPPS PATENT RIGHTS AND THE SCRIPPS TECHNOLOGY. SCRIPPS
MAKES NO WARRANTY OR REPRESENTATION AS TO THE VALIDITY OR SCOPE OF SCRIPPS
PATENT RIGHTS.
5. Interests in Intellectual Property Rights.
5.1 Preservation of Title. Scripps shall retain full ownership
and title to the Scripps Patent Rights and the Scripps Technology and shall use
its reasonable best efforts to preserve and maintain such full ownership and
title, subject to Licensee fully performing all of its obligations under this
Agreement.
5.2 Governmental Interest. Licensee and Scripps acknowledge that
Scripps has received, and expects to continue to receive, funding from the
United States Government in support of Scripps's research activities. Licensee
and Scripps acknowledge and agree that their respective rights and obligations
pursuant to this Agreement shall be subject to Scripps's obligations and the
rights of the United States Government, if any, which arise or result from
Scripps's receipt of research support from the United States Government,
including without limitation, the grant by Scripps to the United States of a
non-exclusive, irrevocable, royalty-free license to the Scripps Patent Rights
and the Scripps Technology licensed hereunder for governmental purposes.
5.3 Reservation of Rights. Scripps reserves the right to use for
any non-commercial research purposes and the right to allow other nonprofit
institutions to use for any non-commercial research purposes any Scripps
Technology and Scripps Patent Rights licensed hereunder, without Scripps or such
other institutions being obligated to pay Licensee any royalties or other
compensation, provided that each such other institution shall be bound by
Scripps then existing standard Materials Transfer Agreement and/or
Confidentiality Agreement.
5.4 Patent Prosecution and Maintenance. Scripps shall be
responsible for and shall control the preparation, filing, prosecution
(including, but not limited to, interference, opposition, reissue and reexam
proceedings) and maintenance of all patents and patent applications (the "Patent
Matters") included
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within the Scripps Patent Rights. Licensee acknowledges and agrees that the
license granted hereunder is in part consideration for Licensee's assumption of
the past and future costs and expenses associated with the Patent Matters as
described herein. Licensee shall reimburse Scripps (a) fifty percent (50%) of
its reasonable past and future costs and expenses incurred in performance of
Patent Matters related to patents and patent applications (i) that are within
Scripps Patent Rights, and (ii) under which E. Merck holds a license for use
outside the Field, and (b) one hundred (100%) of, its past and future reasonable
costs and expenses incurred in performance of Patent Matters related to patents
and patent application that are within Scripps Patent Rights but which are not
licensed to a third party for use outside the Field. Such reimbursement shall be
due and payable within sixty (60) days after Licensee receives a reasonably
detailed statement describing the costs and expenses. In the event Licensee
elects to discontinue payment for the filing, prosecution and/or maintenance of
any patent application and/or patent within Scripps Patent Rights, any such
patent application or patent shall be excluded from the definition of Scripps
Patent Rights and from the scope of the license granted under this Agreement,
and all rights relating thereto shall revert to Scripps and may be freely
licensed by Scripps. Licensee shall give Scripps at least sixty (60) days prior
written notice of such election. No such notice shall have any effect on
Licensee's obligations to pay expenses incurred up to the effective date of such
election. Scripps shall give Licensee an opportunity to review and comment on
the text of each patent application subject to this Section 5.4 before filing,
and shall consider all reasonable requests of Licensee made in good faith
regarding the claims thereof and the foreign countries in which to file and
prosecute patent applications and maintain patents. Scripps shall supply
Licensee with a copy of each such patent application as filed, together with
notice of its filing date and serial number, and with copies of all other
filings, submissions or correspondence to or with the applicable governmental
authorities. In the event that Scripps intends to abandon any patent application
without filing a continuation of same within Scripps Patent Rights, Scripps
shall provide IXSYS with the opportunity to prosecute such patent on Scripps'
behalf.
5.5 Notification of infringement. Each party shall notify the
other party of any infringement known to such party of the Scripps Patent Rights
and shall provide the other party with the available evidence, if any, of such
infringement.
5.6 Enforcement of Patent Rights. With respect to any
infringement in the Field, Licensee, at its sole expense, shall have the right
to determine the appropriate course of action to enforce the Scripps Patent
Rights or otherwise abate the infringement thereof, to take (or refrain from
taking) appropriate action to enforce the Scripps Patent Rights, to control any
litigation or other enforcement action and to enter into, or permit, the
settlement of any such litigation or other enforcement action with respect to
the Scripps Patent Rights, and shall
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consider, in good faith, the interests of Scripps in so doing. If Licensee does
not, within one hundred twenty (120) days of receipt of notice from Scripps,
abate the infringement or file suit to enforce the Scripps Patent Rights against
at least one infringing party in the Field, Scripps shall have the right to take
whatever action it deems appropriate to enforce the Scripps Patent Rights in the
Field; provided, however, that, within thirty (30) days after receipt of notice
of Scripps' intent to file such suit, Licensee shall have the right to jointly
prosecute such suit and to fund up to one-half (1/2) the costs of such suit. The
party controlling any such enforcement action shall not settle the action or
otherwise consent to an adverse judgment in such action that diminishes the
rights or interests of the non-controlling party without the prior written
consent of the other party. All monies recovered upon the final judgment or
settlement of any such suit to enforce the Scripps Patent Rights in the Field
shall be shared, after reimbursement of expenses, by Scripps and Licensee with
Scripps receiving the higher of a pro rata share based on the respective
percentages of costs borne by each in such suit or four percent (4%) of said
recovered monies. Notwithstanding the foregoing, Scripps and Licensee shall
fully cooperate with each other in the planning and execution of any action to
enforce the Scripps Patent Rights.
5.7 Ownership, The patent applications filed and the patents
obtained by Scripps pursuant to Section 5.4 hereof shall be owned solely by
Scripps, assigned to Scripps and deemed a part of Scripps Patent Rights.
5.8 Scripps Right to Pursue Patent. If at any time during the
term of this Agreement, Licensee's rights with respect to Scripps Patent Rights
are terminated, Scripps shall have the right to take whatever action Scripps
deems appropriate to obtain or maintain the corresponding patent protection as
its own expense.
6. Confidentiality and Publication.
6.1 Treatment of Confidential information. The parties agree
that during the term of this Agreement, and for a period of five (5) years after
this Agreement terminates, a party receiving Confidential Information of the
other party will (i) maintain in confidence such Confidential Information, (ii)
not disclose such Confidential Information to any third party without prior
written consent of the other party and (iii) not use such Confidential
Information for any purpose except those permitted by this Agreement.
The confidentiality obligations contained in this Section 6.1
shall not apply to the extent that the receiving party (the "Recipient") is
required (i) to disclose Confidential Information by law, order or regulation of
a governmental agency or a court of competent jurisdiction, or (ii) to disclose
Confidential Information to any governmental agency for purposes
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of obtaining approval to test or market a product, provided in either case that
the Recipient shall provide written notice thereof to the other party and
sufficient opportunity to object to any such disclosure or to request
confidential treatment thereof. Notwithstanding any other provision of this
Agreement, Licensee may disclose Confidential Information of Scripps to any
person or entity with whom Licensee has, or is proposing to enter into, a
business relationship, as long as such person or entity has entered into a
confidentiality agreement with Licensee.
Scripps shall treat all financial and other reports provided by
Licensee and all financial information subject to review under this Agreement as
confidential, and shall cause its accounting firm to retain all such financial
information in confidence.
6.2 Publications. Nothing in this Agreement shall prohibit a
party from publishing its own Confidential Information.
6.3 Publicity. Except as otherwise provided herein or required
by law, no party shall originate any publication, news release or other public
announcement, written or oral, whether in the public press, stockholders'
reports, or otherwise, regarding the terms of this Agreement, without the prior
written approval of the other party, which approval shall not be unreasonably
withheld.
7. Term and Termination.
7.1 Term. Unless terminated sooner in accordance with the terms
set forth herein, this Agreement, and the license granted hereunder, shall
expire on the expiration of Licensee's obligations to pay royalties to Scripps
as provided in Section 2.8 hereof. Nothwithstanding the foregoing, if applicable
government regulations require a shorter term and/or a shorter term of
exclusivity than provided for herein, then the term of this License Agreement
shall be so shortened or this License Agreement shall be amended to provide for
a non-exclusive license, and, in such event, the parties shall negotiate in good
faith to reduce approximately the royalties payable as set forth under the
section heading "Royalties" hereof.
7.2 Termination Upon Default. Any one or more of the following
events shall constitute an event of default hereunder: (i) the failure of a
party to pay any amounts when due hereunder and the expiration of thirty (30)
days after receipt of a written notice requesting the payment of such amount;
and (ii) the failure of a party to perform any obligation required of its to be
performed hereunder, and the failure to cure within ninety (90) days after
receipt of notice from the other party specifying in reasonable detail the
nature of such default. Upon the occurrence of any event of default, the
non-defaulting party may deliver to the defaulting party written notice of
intent to terminate, such
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termination to be effective upon the date set forth in such notice.
Such termination rights shall be in addition to and not in
substitution for any other remedies that may be available to the non-defaulting
party. Termination pursuant to this Section 7.2 shall not relieve the defaulting
party from liability and damages to the other party for breach of this
Agreement. Waiver by either party of a single default or a succession of
defaults shall not deprive such party of any right to terminate this Agreement
arising by reason of any subsequent default.
7.3 Termination Upon Bankruptcy or Insolvency. This Agreement
may be terminated by Scripps giving written notice of termination to Licensee
upon (a) the voluntary filing of bankruptcy of Licensee or appointment of a
receiver of all or substantially all of Licensee's assets, or making by Licensee
of any assignment for the benefit of creditors, or (b) the institution of any
proceedings against Licensee under any bankruptcy law which continues
undismissed or unstated for a period of ninety (90) days. Termination shall be
effective upon the date specified in such notice.
7.4 Rights Upon Expiration. Neither party shall have any further
rights or obligations upon the expiration of this Agreement upon its regularly
scheduled expiration date with respect to this Agreement, other than the
obligation of Licensee to make any and all reports and payments for the final
quarter period. Provided, however, that upon such expiration, (a) each party
shall be required to continue to abide by its non-disclosure and non-use
obligations as described in Section 6.1, (b) Licensee shall have a fully-paid
non-exclusive irrevocable worldwide license under the Scripps Technology
hereunder, and (c) Licensee shall continue to abide by its obligation to
indemnify Scripps as described in Section 3.3 and by its obligations under
Section 5.2 hereof.
7.5 Rights Upon Termination. Notwithstanding any other provision
of this Agreement, upon any termination of this Agreement prior to the regularly
scheduled expiration date of this Agreement, the license granted hereunder shall
terminate. Except as otherwise provided in Section 7.6 of this Agreement with
respect to work-in-progress, upon such termination, Licensee shall have no
further right to develop, manufacture or market any Licensed Product, or to
otherwise use the Scripps Patent Rights or any Scripps Technology not otherwise
includable therein. Any such termination shall not relieve either party from any
obligations accrued to the date of such termination. Upon such termination, each
party shall be required to abide by its nondisclosure and non use obligations as
described in Section 6.1, and Licensee shall continue to abide by its
obligations to indemnify Scripps as described in Section 3.3. Upon any such
termination, Licensee shall promptly return all materials, samples, documents
and information which constitute or disclose Scripps Patent Rights or
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Scripps Technology; provided, however, that Licensee shall not be obligated to
provide Scripps with proprietary information of Licensee.
7.6 Work-in-Progress. Upon any such early termination of the
license granted hereunder in accordance with this Agreement, Licensee shall be
entitled to finish any work-in-progress and to sell any completed inventory of a
Licensed Product covered by such license which remain on hand as of the date of
the termination, so long as Licensee pays to Scripps the royalties applicable to
said subsequent sales in accordance with the terms and conditions as set forth
in this Agreement, provided that no such sales shall be permitted after the
expiration of six (6) months after the date of termination.
8. Assignment; Successors.
8.1 Assignment. Neither this Agreement nor any rights granted
hereunder may be assigned or transferred by Licensee except to an Affiliate of
Licensee, without the prior written consent of Scripps; provided, however, that
Licensee may, without such consent, assign this Agreement and its rights and
obligations hereunder in connection with the transfer or sale of all or
substantially all of its business, or in the event of its merger or
consolidation or change in control or similar transaction.
8.2 Binding Upon Successors and Assigns. Subject to the
limitations on assignment herein, this Agreement shall be binding upon and inure
to the benefit of any successors in interest and assigns of Scripps and
Licensee. Any such successor or assignee of Licensee's interest shall expressly
assume in writing the performance of all the terms and conditions of this
Agreement to be performed by Licensee.
9. General Provisions.
9.1 Independent Contractors. The relationship between Scripps
and Licensee is that of independent contractors. Scripps and Licensee are not
joint ventures, partners, principal and agent, master and servant, employer or
employee, and have no other relationship other than independent contracting
parties. Scripps and Licensee shall have no power to bind or obligate each other
in any manner, other than as is expressly set forth in this Agreement.
9.2 Arbitration. Any controversy or claim originated by either
party and arising out of or relating to this Agreement, or the breach thereof,
shall be settled by binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"), and the
procedures set forth below. In the event of any inconsistency between the Rules
of AAA and the procedures set forth below, the procedures set forth below
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shall control. Judgment upon the award rendered by the arbitrators may be
enforced in any court having jurisdiction thereof.
9.2.1 Location. The location of the arbitration shall be
in the County of San Diego.
9.2.2 Selection of Arbitrators. The arbitration shall be
conducted by a panel of three neutral arbitrators who are independent and
disinterested with respect to the parties, this Agreement, and the outcome of
the arbitration. Each party shall appoint one neutral arbitrator, and these two
arbitrators so selected by the parties shall then select the third arbitrator.
If one party has given written notice to the other party as to the identity of
the arbitrator appointed by the party, and the party thereafter makes a written
demand on the other party to appoint its designated arbitrator within the next
ten days, and the other party fails to appoint its designated arbitrator within
ten days after receiving said written demand, then the arbitrator who has
already been designated shall appoint the other two arbitrators.
9.2.3 Discovery. Unless the parties mutually agree in
writing to some additional and specific pre-hearing discovery, the only
pre-hearing discovery shall be (a) reasonably limited production of relevant
documents, and (b) the identification of witnesses to be called at the hearing,
which identification shall give the witness's name, general qualifications and
position, and a brief statement as to the general scope of the testimony to be
given by the witness. The arbitrators shall decide any disputes and shall
control the process concerning these pre-hearing discovery matters. Pursuant to
the Rules of AAA, the parties may subpoena witnesses and documents for
presentation at the hearing.
9.2.4 Case Management. Prompt resolution of any dispute
is important to both parties; and the parties agree that the arbitration of any
dispute shall be conducted expeditiously. The arbitrators are instructed and
directed to assume case management initiative and control over the arbitration
process (including scheduling of events, pre-hearing discovery and activities,
and the conduct of the hearing), in order to complete the arbitration as
expeditiously as is reasonably practical for obtaining a just resolution of the
dispute.
9.2.5 Remedies. The arbitrators may grant any legal or
equitable remedy or relief that the arbitrators deem just and equitable, to the
same extent that remedies or relief could be granted by a state or federal
court, provided however, that no punitive damages may be awarded. No action may
be maintained seeking punitive damages. The decision of any two of the three
arbitrators appointed shall be binding upon the parties.
9.2.6 Expenses. The expenses of the arbitration,
including the arbitrators' fees, expert witness fees, and attorney's fees, may
be awarded to the prevailing party, in the
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discretion of the arbitrators, or may be apportioned between the parties in any
manner deemed appropriate by the arbitrators. Unless and until the arbitrators
decide that one party is to pay for all (or a share) of such expenses, both
parties shall share equally in the payment of the arbitrators' fees as and when
billed by the arbitrators.
9.3 Entire Agreement; Modification. This Agreement sets forth
the entire agreement and understanding between the parties as to the subject
matter hereof. There shall be no amendments or modifications to this Agreement,
except by a written document which is signed by both parties.
9.4 California Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of California.
9.5 Headings. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
9.6 Severability. Should any one or more of the provisions of
this Agreement be held invalid or unenforceable by a court of competent
jurisdiction, it shall be considered severed from this Agreement and shall not
serve to invalidate the remaining provisions thereof. The parties shall make a
good faith effort to replace any invalid or unenforceable provision with a valid
and enforceable one such that the objectives contemplated by them when entering
this Agreement may be realized.
9.7 No Waiver. Any delay in enforcing a party's rights under
this Agreement or any waiver as to a particular default or other matter shall
not constitute a waiver of such party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.
9.8 Name. Whenever there has been an assignment or a sublicense
by Licensee as permitted by this Agreement, the term "Licensee" as used in this
Agreement shall also include and refer to, if appropriate, such assignee or
sublicensee.
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9.9 Notices. Any consent, notice or report required or permitted
to be given or made under this Agreement by one of the parties hereto to the
other party shall be in writing, delivered personally or by facsimile (and
promptly confirmed by personal delivery, U.S. first class mail or courier), U.S.
first class mail or courier, postage prepaid (where applicable), addressed to
such other party at its address indicated below, or to such other address as the
addressee shall have last furnished in writing to the addressor and (except as
otherwise provided in this Agreement) shall be effective upon receipt by the
addressee.
For Scripps: The Scripps Research Institute
10666 North Torrey Pines Road
La Jolla, California 92037
Attention: Industrial Liaison officer
Fax No.: (619) 554-9910
For Licensee: Ixsys, Inc.
3550 Dunhill Street
San Diego, California 92121
Attention: Michael Hanifin
Fax No.: (619) 597-4950
with a copy to: Pillsbury Madison & Sutro
235 Montgomery Street, 15th Floor
San Francisco, California 94104
Attention: Thomas E. Sparks, Jr.
Fax: (415) 983-7396
9.10 Compliance with U.S. Laws. Nothing contained in this
Agreement shall require or permit Scripps or Licensee to do any act inconsistent
with the requirements of any United States law, regulation or executive order as
the same may be in effect from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized representatives as of the date set forth above.
SCRIPPS: LICENSEE:
THE SCRIPPS RESEARCH INSTITUTE IXSYS, INC.
By: /s/ Arnie LaGuardia By: /s/ Bob Littlewood
-------------------------------- ---------------------------------
Title: SR. Vice President Title: President & CEO
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<PAGE> 19
EXHIBIT A
DISCLOSURE OF SCRIPPS TECHNOLOGY
*** TECHNOLOGY
Collectively Hybridoma ***, *** Gene,
*** and *** Sequence Information
SCRIPPS ANGIOGENESIS TECHNOLOGY
Disclosed in U.S. Patent Application Serial
Number 08/210,715, entitled "Methods and
Compositions Useful for Inhibition of Angiogenesis"
Together with all foreign counterparts,
Thereof; The Patent Proceeding from,
such applications and all divisionals,
reexaminations and extensions Thereof
*** CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 1
EXHIBIT 10.8
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
COLLABORATION AGREEMENT
This COLLABORATION AGREEMENT (the "Agreement") dated as of November 29,
1999 (the "Effective Date"), is entered into between Ixsys, Inc., a Delaware
corporation ("Ixsys"), having a place of business at 3520 Dunhill Street, San
Diego, CA 92121, and Bio-Management Inc., a Nevada corporation
("Bio-Management"), having a place of business at Four Hook Road, Sharon Hill,
PA 19079.
NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the terms defined in the Article 1 shall
have the respective meanings set forth below:
1.1 "Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person. A Person shall be regarded as in control of another
Person if it owns, or directly or indirectly controls, at least forty percent
(40%) of the voting stock or other ownership interest of the other Person, or if
it directly or indirectly possesses the power to direct or cause the direction
of the management and policies of the other Person by any means whatsoever.
1.2 "BLA" shall mean a Biologics License Application, Product License
Application, New Drug Application, or other application for marketing approval
of a product for use in any human or veterinary therapeutic application
submitted to the applicable governing health authority of any country.
1.3 "Candidate Molecules" shall mean, collectively, monoclonal antibody
("mAb") HUIV26 and mAb HUI77 as provided by Bio-Management to Ixsys hereunder.
1.4 "Confidential Information" shall mean, with respect to a party, all
information of any kind whatsoever (including without limitation, data,
compilations, formulae, models, patent disclosures, procedures, processes,
projections, protocols, results of experimentation and testing, specifications,
strategies and techniques), and all tangible and intangible embodiments thereof
of any kind whatsoever (including without limitation, apparatus, compositions,
documents, drawings, machinery, patent applications, records, reports), which is
disclosed by such party to the other party and is marked, identified as or
otherwise acknowledged to be confidential at the time of disclosure to the other
party. Notwithstanding the foregoing, Confidential Information of a party shall
not include information which the other party can establish by written
documentation (a) to have been publicly known prior to disclosure of such
information by the disclosing party to the other party, (b) to have become
publicly known, without fault on the part of the other party, subsequent to
disclosure of such information by the disclosing party to the other party, (c)
to have been received by the other party at any time from a source, other than
the disclosing party, rightfully having possession of and the right to disclose
such information, (d) to
<PAGE> 2
have been otherwise known by the other party prior to disclosure of such
information by the disclosing party to the other party, or (e) to have been
independently developed by employees or agents of the other party without access
to or use of such information disclosed by the disclosing party to the other
party.
1.5 "Derived" or "derived" shall mean obtained, developed, created,
synthesized, designed, derived or resulting from, based upon or otherwise
generated (whether directly or indirectly, or in whole or in part).
1.6 "Field" shall mean human and veterinary therapeutic and diagnostic
applications.
1.7 "First Commercial Sale" shall mean, with respect to any Product, the
first sale of such Product by a party, its Affiliates or sublicensees to
customers who are not Affiliates in any country after all applicable marketing
and pricing approvals (if any) have been granted by the applicable governing
health authority of such country.
1.8 "FDA" shall mean the United States Food and Drug Administration, or
the successor thereto.
1.9 "IND" shall mean an Investigational New Drug application, or any
other filing with the governing regulatory of any country to commence clinical
testing of a product for use in any human or veterinary therapeutic application
submitted to the applicable governing health authority of any country.
1.10 "Materials" shall mean the Candidate Molecules, DNA sequence
information and the cDNA to encode Candidate Molecules and the hybridoma cell
lines expressing the Candidate Molecules.
1.11 "Net Sales" shall mean, with respect to each Product, the gross
sales price charged by Bio-Management, its Affiliates and sublicensees or Ixsys,
its Affiliates and sublicensees for sales of such Product to non-Affiliate
customers, less, to the extent such amounts are deducted by the customer from
the amounts paid to the seller: (i) normal and customary trade, cash and quality
credits, discounts, refunds or government rebates; (ii) credits for claims,
allowances or returns; retroactive price reductions; chargebacks or the like;
and (iii) sales taxes, duties and other governmental charges (including value
added tax), but excluding what is commonly known as income taxes. Net Sales
shall not include sales among Bio-Management, its Affiliates and sublicensees or
Ixsys its Affiliates and sublicensees for resale, provided that Net Sales shall
include the amounts invoiced by Bio-Management, its Affiliates and sublicensees
or Ixsys its Affiliates and sublicensees to Third Parties on the resale of such
Products.
1.12 "Person" shall mean an individual, corporation, partnership,
limited liability company, trust, business trust, association, joint stock
company, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, governmental authority or any other form of entity not
specifically listed herein.
1.13 "Phase II Clinical Trial" shall mean a human clinical trial in any
country that is intended to initially evaluate the effectiveness of a product
for a particular indication or
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<PAGE> 3
indications in patients with the disease or indication under study, or that
would otherwise satisfy requirements of 21 CFR 312.21(b) , or its foreign
equivalent.
1.14 "PMA" shall mean a Product Marketing Application, 510(k)
application or other application for marketing approval of a product for use in
any human or veterinary diagnostic application submitted to the applicable
governing health authority of any country.
1.15 "Product" shall mean any product for use in the Field, which is a
composition that incorporates one or more Program Antibodies or is derived from
one or more Program Antibodies.
1.16 "Program" shall mean the collaborative research program described
in Section 3.1 below to optimize and humanize the Candidate Molecules, and to
use the Program Antibodies (as defined below) to evaluate their diagnostic and
therapeutic potential.
1.17 "Program Antibody" shall mean the optimized and humanized
compositions of matter developed under the Program, and the cDNA encoding such
compositions of matter, delivered to Bio-Management hereunder.
1.18 "Program Invention" shall mean any invention, discovery,
composition, technology, data or information (whether or not patentable), made
or conceived by employees or others on behalf of Ixsys, Bio-Management or both
in the performance of the Program during the term of the Program, excluding
Program Antibodies.
1.19 "Research Plan" shall mean the written research work plan
established by the parties pursuant to Section 3.2 below, as modified from time
to time pursuant to Section 3.2.
1.20 "Third Party" shall mean any Person other than Ixsys,
Bio-Management and their respective Affiliates.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other party as follows:
2.1 Corporate Existence. Such party is a corporation duly organized,
validly existing and in good standing under the laws of the state in which it is
incorporated.
2.2 Authorization and Enforcement of Obligations. Such party (a) has the
corporate power and authority and the legal right to enter into this Agreement
and to perform its obligations hereunder, and (b) has taken all necessary
corporate action on its part to authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder. This Agreement has
been duly executed and delivered on behalf of such party, and constitutes a
legal, valid, binding obligation, enforceable against such party in accordance
with its terms.
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<PAGE> 4
2.3 Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other Persons required to be obtained by such
party in connection with this Agreement have been obtained.
2.4 No Conflict. The execution and delivery of this Agreement and the
performance of such party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations and (b) do not
conflict with, or constitute a default under, any contractual obligation of such
party.
2.5 DISCLAIMER OF WARRANTIES. NEITHER PARTY MAKES ANY REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE MATERIALS (INCLUDING BUT NOT
LIMITED TO THE CANDIDATE MOLECULES), INCLUDING WITHOUT LIMITATION ANY WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE
PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY OTHER PERSON.
ARTICLE 3
THE PROGRAM
3.1 Collaborative Research. The goal of the Program is: (a) humanize and
optimize Candidate Molecules, and (b) to perform certain preclinical
development.
3.2 Conduct of Program. An initial Research Plan is attached as Schedule
A. Either party may recommend changes to the Research Plan at any time during
the Program Term. Such change shall only be effective if in a written amendment
duly executed by the parties.
3.3 Specific Obligations of Bio-Management. Bio-Management shall provide
Ixsys with sufficient quantities of the Materials, sufficient quantities of a
single soluble antigen per Candidate Molecule for purposes of screening and
affinity determination (such single soluable antigen per Candidate molecule
shall be specified in writing prior to the transfer of the Materials to Ixsys),
antigens to which the Materials are directed, and any Bio-Management technology
necessary or useful for the humanization and optimization in accordance with the
Program, and any information known and available to Bio-Management concerning
the storage of the Materials that may be unique or peculiar to the Materials.
Bio-Management shall use its commercially reasonable efforts to perform its
obligations under the Program in accordance with the Research Plan.
Bio-Management shall perform its obligations under the Program in accordance
with high scientific and professional standards, and in compliance with all
material respects within the requirements of applicable laws and regulations and
shall provide all reasonable assistance to Ixsys in connection with Ixsys'
performance of the Program.
3.4 Specific Obligations of Ixsys. Ixsys shall optimize and humanize the
Candidate Molecules as set forth in the Research Plan. Ixsys shall use its
commercially reasonable efforts to perform its obligations under the Program in
accordance with the Research Plan. Ixsys shall provide the personnel, materials,
equipment and other resources required to conduct its obligations under the
Program. Ixsys shall perform its obligations under the Program in
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<PAGE> 5
accordance with high scientific and professional standards, and in compliance in
all material respects with the requirements of applicable laws and regulations.
3.5 Materials. Ixsys shall use the Materials solely for purposes of
conducting the Program, at its address listed above, under commercially and
scientifically reasonable containment conditions, and not for any commercial,
business or other use or purpose, without the prior express written consent of
Bio-Management. Notwithstanding anything to the contrary in this Agreement,
Ixsys shall not transfer or provide access to the Materials to any Third Party,
without the prior express written consent of Bio-Management. Ixsys shall not
transfer or transport the Materials from its address identified above to any
other location. Ixsys shall limit access to the Materials to those of its
employees working on its premises, to the extent such access is reasonably
necessary in connection with its activities as expressly authorized by this
Agreement; provided, however that each such employee shall be bound by
confidentiality obligations at least as stringent as those in Section 5.1.
3.6 Funding of the Program. In consideration of Ixsys' performance of
its obligations under the Research Plan or the identification of a Program
Antibody *** of the Candidate Molecule from which that Program Antibody was
derived ***, Bio-Management shall pay to Ixsys the amounts set forth in Schedule
B.
3.7 Term of the Program. Unless earlier terminated as provided herein,
the term of the Program and this Agreement shall begin on the Effective Date and
continue for the subsequent *** (the "Program Term"). ***.
3.8 Results.
3.8.1 Reports. Within thirty (30) days following the end of the
initial seven (7) month period of the Program, within thirty (30) days following
the expiration or termination of the Program (if extended), and within thirty
(30) days after the end of each six (6) month period thereafter for the
following ten (10) years, each Party shall prepare, and provide to the other
party, a reasonably detailed written report which shall describe the work
performed by such party during that period, and the results achieved, to date
under this Agreement, together with copies of all data resulting from the tests
and evaluation performed by such party to date under the Agreement. Such reports
shall include, without limitation, pre-clinical animal studies of efficacy,
toxicity and immunogenicity; and regulatory filings such as Investigational New
Drug ("IND") applications, and Phase I, Phase II and Phase III FDA reports.
3.8.2 Records. Each party shall maintain records, in sufficient
detail and in good scientific manner appropriate for patent purposes, which
shall be complete and accurate and shall fully and properly reflect all work
done and results achieved in the performance of the Program. 3.8.3
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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3.8.3 Inspection of Records. Each party shall have the right,
during normal business hours and on reasonable written notice, to inspect and
copy such records of the other party regarding the work done and results
achieved in the performance of the Program, to the extent reasonably necessary
to enable such party to conduct its obligations under the Program or to exercise
its rights hereunder. Each party shall maintain such records of the other party
(together with the information contained therein) in confidence in accordance
with Article 5 below and shall not use such records (or information) except to
the extent otherwise permitted by this Agreement.
3.9 Program Leaders. Each party shall appoint a person (a "Program
Leader") to coordinate its part of the Program. The Program Leaders shall be the
primary contacts between the parties with respect to the Program. Each party
shall notify the other within thirty (30) days after the date of this Agreement
of the appointment of its Program Leader and shall notify the other party as
soon as practicable upon changing this appointment.
3.10 Subcontracts. Ixsys may not subcontract portions of the Program to
be performed by it in the normal course of its business without the prior
written consent of Bio-Management.
3.11 *** Program Antibodies. ***. Ixsys shall not use the Program
Antibodies, or the suboptimized and humanized compositions of matter derived by
Ixsys from the Candidate Molecules under the Program (or the cDNA encoding such
compositions of matter), for any purpose other than the performance of its
obligations under this Agreement.
3.12 Materials and Program Antibodies. The parties hereby acknowledge
that the Materials and the Program Antibodies are experimental in nature and
that they are provided "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE
USE OF THE MATERIALS OR THE PROGRAM ANTIBODIES WILL NOT INFRINGE OR VIOLATE ANY
PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.
3.13 Each party hereby represents that all employees and other persons
acting on its behalf in performing its obligations under the program shall be
obligated under a binding written agreement to assign to it, or as it shall
direct, all Inventions made or conceived by such employees or other persons.
3.14 Prosecution, Maintenance and Enforcement.
3.14.1 *** Campbell & Flores LLP, or another intellectual
property counsel with biotechnology expertise specifically in the field of human
antibodies, shall be appointed by mutual agreement between the parties and
retained as
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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the intellectual property counsel for the prosecution and maintenance of all
patent applications and patents which claim Program Antibodies.
3.14.2 Bio-Management hereby assigns to Ixsys all right, title
and interest in the Program Inventions and all patent rights and other
intellectual property rights therein. Ixsys shall have the right, at its sole
discretion, to control the preparation, filing, prosecution, maintenance and
enforcement of all patent applications and patents which claim Program
Inventions. Nothing in this Section 3.14.2 shall relieve Ixsys from its
confidentiality obligations set forth in Article 5 below.
ARTICLE 4
CONSIDERATION
4.1 Financial Terms.
4.1.1 Notice of First Commercial Sale. Within thirty (30) days
following the First Commercial Sale for each Product in each country, and within
thirty (30) days after the occurrence of each of the milestone events described
in Section 4.1.4 below, Bio-Management shall give written notice to Ixsys
thereof.
4.1.2 Royalties. In consideration for the sale of Program
Antibodies to Bio-Management pursuant to Section 3.11 above, Bio-Management
shall pay to Ixsys royalty equal to *** percent (***%) of Net Sales of Products
sold by Bio-Management, its Affiliates and sublicensees; provided, however, in
the event that ***, Bio-Management shall pay to Ixsys a royalty equal to ***
percent (***%) of Net Sales of Products sold by Bio-Management, its Affiliates
and sublicensees.
4.1.3 Length of Royalty Obligations. Bio-Management's obligation
to pay royalties with respect to each Product in such country shall commence on
the First Commercial Date for such Product in such country, and shall continue
for such Product in such country until the date ten (10) years from the First
Commercial Sale.
4.1.4 Milestone Payments.
a. Within thirty (30) days after the first occurrence of
each of the following milestone events with respect to each Product for use in
any human or veterinary therapeutic application, Bio-Management shall pay to
Ixsys the applicable non-refundable, non-creditable milestone payment set forth
below:
*** upon submission of the first IND for such Product
*** upon enrollment of the first patient in the first Phase II
Clinical Trial for such Product
*** upon submission of the first BLA for such Product
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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*** upon receipt of the first marketing approval (and pricing
approval,
if any is required for commercial sale) for such Product If any milestone event
listed in this Section 4.1.4(a) is achieved with respect to a Product for use in
any human or veterinary therapeutic application, and at such time any one or
more of the milestone events previously listed in this Section 4.1.4(a) has not
been achieved with respect to such Product, then at the time of the payment of
the milestone payment for such achieved milestone event, Bio-Management shall
pay to Ixsys the previously listed and unpaid payments for such unmet milestone
events. At the time of the First Commercial Sale of a Product for use in any
human or veterinary therapeutic application, if any one or more of the milestone
events listed in this Section 4.1.4(a) has not been achieved with respect to
such Product, then within thirty (30) days after the First Commercial Sale of
such Product, Bio-Management shall pay to Ixsys all payments for such unmet
milestone events for such Product.
b. Within thirty (30) days after the first occurrence of
each of the following milestone events with respect to each Product for use in
any human or veterinary diagnostic application, Bio-Management shall pay to
Ixsys the applicable non-refundable, non-creditable milestone payment set forth
below:
*** upon initiation of the first clinical trials of a Product
intended to gather data to be incorporated into a PMA for such
Product
*** upon submission of the first PMA for such Product
If any milestone event listed in this Section 4.1.4(b) is achieved with
respect to a Product for use in any human or veterinary diagnostic application,
and at such time any one or more of the milestone events previously listed in
this Section 4.1.4(b) has not been achieved with respect to such Product, then
at the time of the payment of the milestone payment for such achieved milestone
event, Bio-Management shall pay to Ixsys the previously listed and unpaid
payments for such unmet milestone events. At the time of the First Commercial
Sale of a Product for use in any human or veterinary diagnostic application, if
any one or more of the milestone events listed in this Section 4.1.4(b) has not
been achieved with respect to such Product, then within thirty (30) days after
the First Commercial Sale of such Product, Bio-Management shall pay to Ixsys all
payments for such unmet milestone events for such Product.
c. Within thirty (30) days after Bio-Management first
grants or transfers to, or authorizes, any other Person any license or other
right to conduct research (other than basic research conducted at academic or
non-profit institutions), develop or commercialize any Product, Bio-Management
shall pay to Ixsys the applicable non-refundable, non-creditable milestone
payment of *** per Product.
d. Notwithstanding anything to the contrary in this
Agreement, Bio-Management shall not be obligated to pay each milestone payment
set forth above more than once with respect to each milestone event described
above, beyond one series of milestone payments as encompassed by the provisions
of this Section 4.14, for all such Products derived from the same Candidate
Molecule.
4.2 Royalty Reports and Payment Terms.
4.2.1 Royalty Reports. Within thirty (30) days after the end of
each calendar quarter during the term of this Agreement following the First
Commercial Sale of a Product by Bio-Management, its Affiliate, licensees or
sublicensee, Bio-Management shall furnish to Ixsys a written report showing in
reasonably specific detail, on a Product-by-Product and country-by-
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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country basis, (a) the gross sales of all Products sold by Bio-Management, its
Affiliates, licensees, and sublicensees during such calendar quarter and the
calculation of Net Sales from such gross sales; (b) the calculation of the
royalties, if any, which shall have accrued based upon such Net Sales; (c) the
withholding taxes, if any, required by law to be deducted with respect to such
sales; and (d) the exchange rates, if any, used in determining the amount of
United States dollars.
4.2.2 With respect to sales of Products invoiced in United
States dollars, all such amounts shall be expressed in United States dollars.
With respect to sales of Products invoiced in a currency other than United
States dollars, all such amounts shall be expressed both in the currency in
which the distribution is invoiced and in the United States dollar equivalent.
The United States dollar equivalent shall be calculated using the exchange rate
(local currency per US$1) published in The Wall Street Journal, Western Edition,
under the heading "Currency Trading," on each of the last business day of each
month during the applicable calendar quarter.
4.2.3 Bio-Management shall keep complete and accurate records in
sufficient detail to properly reflect all gross sales and Net Sales and to
enable the royalties payable to be determined.
4.3 Audits.
4.3.1 Upon the written request of Ixsys and not more than once
in each calendar year, Bio-Management shall permit an independent certified
public accounting firm of nationally recognized standing, selected by Ixsys and
reasonably acceptable to Bio-Management, at Ixsys' expense, to have access
during normal business hours to such of the records of Bio-Management as may be
reasonably necessary to verify the accuracy of the royalty reports hereunder for
any year ending not more than thirty-six (36) months prior to the date of such
request. The accounting firm shall disclose to Ixsys only whether the reports
are correct or not and the specific details concerning any discrepancies. No
other information shall be shared.
4.3.2 If such accounting firm concludes that additional
royalties were owed during the audited period, Bio-Management shall pay the
additional royalties within thirty (30) days of the date Ixsys delivers to
Bio-Management such accounting firm's written report so concluding. The fees
charged by such accounting firm shall be paid by Ixsys; provided, however, if
the audit discloses that the royalties payable by Bio-Management for such period
are more than *** percent *** of the royalties actually paid for such period,
then Bio-Management shall pay the reasonable fees and expenses charged by such
accounting firm.
4.3.3 Ixsys shall treat all financial information subject to
review under this Section 4.3 as confidential, and shall cause its accounting
firm to retain all such financial information in confidence.
4.3.4 Payment Terms. All royalties shown to have accrued by each
royalty report provided for under Section 4.1 above shall be payable on the date
such royalty report is due. Payment of royalties in whole or in part may be made
in advance of such due date.
4.3.5 Payment Method. All payments by Bio-Management to Ixsys
under this Agreement shall be paid in United States dollars, and all such
payments shall be originated from
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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<PAGE> 10
a United States bank located in the United States and made by bank wire transfer
in immediately available funds to such account as Ixsys shall designate before
such payment is due.
4.3.6 Exchange Control. If at any time legal restrictions
prevent the prompt remittance of part or all royalties with respect to any
country where the Product is sold, Bio-Management shall have the right, at its
option, to make such payments by depositing the amount thereof in local currency
to Ixsys' account in a bank or other depository in such country. If the royalty
rate specified in this Agreement should exceed the permissible rate established
in any country, the royalty rate for sales in such country shall be adjusted to
the highest legally permissible or government-approved rate.
4.3.7 Withholding Taxes. Bio-Management shall be entitled to
deduct the amount of any withholding taxes, value-added taxes or other taxes,
levies or charges with respect to such amounts, other than United States taxes,
payable by Bio-Management, or any taxes required to be withheld by
Bio-Management, to the extent Bio-Management pays to the appropriate
governmental authority on behalf of Ixsys such taxes, levies or charges.
Bio-Management shall use reasonable efforts to minimize any such taxes, levies
or charges required to be withheld on behalf of Ixsys by Bio-Management.
Bio-Management promptly shall deliver to Ixsys proof of payment of all such
taxes, levies and other charges, together with copies of all communications from
or with such governmental authority with respect thereto.
ARTICLE 5
CONFIDENTIALITY
5.1 Confidential Information. During the term of this Agreement, and for
a period of five (5) years following the expiration or earlier termination
hereof, each party shall maintain in confidence all Confidential Information
disclosed by the other party, and shall not use, disclose or grant the use of
the Confidential Information except on a need-to-know basis to those directors,
officers, employees, consultants, clinical investigators, contractors,
sublicensees, distributors or permitted assignees, to the extent such disclosure
is reasonably necessary in connection with such party's activities as expressly
authorized by this Agreement. To the extent that disclosure is authorized by
this Agreement, prior to disclosure, each party hereto shall obtain agreement of
any such Person to hold in confidence and not make use of the Confidential
Information for any purpose other than those permitted by this Agreement. Each
party shall notify the other promptly upon discovery of any unauthorized use or
disclosure of the other party's Confidential Information.
5.2 Terms of this Agreement. Except as otherwise provided in Section 5.1
above, neither party shall disclose any terms or conditions of this Agreement to
any Third Party without the prior written consent of the other party.
Notwithstanding the foregoing, prior to execution of this Agreement, the parties
shall agree upon the substance of information that can be used to describe the
terms of this transaction, and each party may disclose such information, as
modified by mutual agreement from time to time, without the other party's
consent.
5.3 Permitted Disclosures. The confidentiality obligations contained in
this Article 5 shall not apply to the extent that the receiving party (the
"Recipient") is required (a) to disclose
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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information by law, order or regulation of a governmental agency or a court of
competent jurisdiction, or (b) to disclose information to any governmental
agency for purposes of obtaining approval to test or market a Product, provided
in either case that the Recipient shall provide written notice thereof to the
other party and sufficient opportunity to object to any such disclosure or to
request confidential treatment thereof.
5.4 Notice of Publication. During the term of the Agreement, Ixsys and
Bio-Management each acknowledge the other party's interest in publishing certain
of its results to obtain recognition within the scientific community and to
advance the state of scientific knowledge. Each party also recognizes the mutual
interest in obtaining valid patent protection and protecting business interests.
Consequently, either party, its employees or consultants wishing to make a
publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed by such party as part of the Program
(the "Publishing Party") shall transmit to the other party (the "Reviewing
Party") a copy of the proposed written publication at least forty-five (45) days
prior to the presentation. The Reviewing Party shall have the right (a) to
propose modifications to the publication for patent reasons, (b) to request a
reasonable delay in publication in order to protect patentable information and
(c) to edit the publication in a manner reasonably acceptable to the Publishing
Party to protect its Confidential Information.
ARTICLE 6
DILIGENCE
Bio-Management shall use its best efforts to actively research, develop
and obtain regulatory approvals to market in major markets throughout the world
at least one Product hereunder as expeditiously as possible, and following such
approval to maximize sales of such Product. Without limiting the foregoing,
Bio-Management shall meet the following diligence milestones by the dates set
forth below:
6.1 Filing of IND. Bio-Management, its licensees or sublicensees shall
file an IND with the U.S. FDA for one or more Products under this Agreement
within five (5) years of the Effective Date. After the filing of an IND for a
Product, Bio-Management, its licensees or sublicensees, shall be required to
have an active IND and to be actively and diligently conducting clinical trials
in pursuit of regulatory approval for such Product in the U. S. until such
Product may be sold commercially in the U.S.
6.2 Conduct of Clinical Trials. Bio-Management, its licensees or
sublicensees shall use its best efforts to conduct, as soon as commercially
practicable, such human clinical trials as are necessary or desirable to obtain
all regulatory approvals to develop and commercialize in the U.S. each Product
for which an IND has been filed.
6.3 Obtain Regulatory Approvals. Bio-Management, its licensees or
sublicensees shall use its best efforts to obtain, as soon as commercially
practicable, regulatory approval to market in the U.S. at least one Product, and
(b) shall obtain regulatory approval to market in the United States at least one
Product within ten (10) years after the Effective Date.
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ARTICLE 7
TERM AND TERMINATION
7.1 Expiration. Unless terminated earlier pursuant to Section 7.2 below,
this Agreement shall expire on the expiration of Bio-Management's obligations to
pay royalties under this Agreement.
7.2 Termination for Cause. A party may terminate this Agreement upon or
after the breach of any material provision of this Agreement by the other party,
if the breaching party has not cured such breach within thirty (30) days after
notice thereof from the other party; provided, however, that if the breach is
due to Bio-Management's failure to pay under Article 4 or Section 3.6, Ixsys
shall provide an additional notice of failure to pay and allow Bio-Management a
second thirty (30) day period to cure such breach. ***.
7.3 Effect of Expiration and Termination. Expiration or termination of
this Agreement shall not relieve the parties of any obligation accruing prior to
such expiration or termination. The provisions of Articles 2, 5, 8, and Sections
3.8.1, 3.12, 7.4 and 9.11 shall survive the expiration or termination of this
Agreement.
7.4 Effect of Certain Breaches. In addition to all other rights and
remedies available by law or otherwise, in the event of a breach of the
provisions of Section 3.6 or Article 4 or 6 above, Ixsys shall have the right to
terminate the Agreement pursuant to Section 7.2 thereof. In the event of such
termination, Bio-Management shall grant to Ixsys an exclusive license under all
Bio-Management's patent rights relating to Program Antibodies, Products and the
use of thereof in the Field. In addition, Bio-Management shall deliver to Ixsys
copies of all data and information in Bio-Management's control resulting from
research related to the Program Antibodies and Products, and shall assign and
deliver to Ixsys all copies of any and all regulatory filings related to Program
Antibodies and Products. In consideration of the foregoing, Ixsys shall pay to
Bio-Management the following: (a) *** percent (***%) of cash consideration
received by Ixsys or its Affiliates in consideration for sublicenses (including
modified or renegotiated sublicenses) granted thereunder (excluding royalties on
sales) and (b) with respect to sales, all royalties received on Net Sales of
Products covered by Bio-Management's patents on Program Antibodies or Products
except for *** percent (***%) of which shall be retained by Ixsys; provided,
however, that in the event that Ixsys sells Products directly, Ixsys shall only
pay to Bio-Management a royalty equal to *** percent (***%) of Net Sales on
Products sold by Ixsys. In the event that such termination occurs and an
exclusive license to Ixsys is granted pursuant to this Section 7.4 and
Bio-Management previously has granted license or sublicense rights to any third
party, Ixsys shall enter into a license or sublicense, as the case may be, on
substantially the same terms provided that such third party agrees in writing to
be bound by all of the terms and conditions therein.
ARTICLE 8
INDEMNITY
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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8.1 Indemnity.
8.1.1 By Ixsys. Ixsys shall indemnify and hold Bio-Management
harmless, and hereby forever releases and discharges Bio-Management, from and
against all losses, liabilities, damages and expenses (including reasonable
attorneys' fees and costs) resulting from all claims, demands, actions and other
proceedings by any Third Party to the extent arising from (a) the breach of any
representation, warranty or covenant of Ixsys under this Agreement, (b) the use
of the Materials by Ixsys or, its Affiliates, or (c) the gross negligence or
willful misconduct of Ixsys, its Affiliates or licensees in the performance of
its obligations, and its permitted activities, under this Agreement.
8.1.2 By Bio-Management. Bio-Management shall indemnify and hold
Ixsys harmless, and hereby forever releases and discharges Ixsys, from and
against all losses, liabilities, damages and expenses (including reasonable
attorneys' fees and costs) resulting from all claims, demands, actions and other
proceedings by any Third Party to the extent arising from (a) the breach of any
representation, warranty or covenant of Bio-Management under this Agreement, (b)
the use of the Materials by Bio-Management, its Affiliates or licensees (other
than Ixsys), (c) the making, using or selling of Products (including claims,
demands, actions or other proceedings based on strict liability), or (d) the
gross negligence or willful misconduct of Bio-Management, its Affiliates or
licensees (other than Ixsys) in the performance of its obligations, and its
permitted activities, under this Agreement.
8.2 Procedure. A party (the "Indemnitee") that intends to claim
indemnification under this Article 8 shall promptly notify the other party (the
"Indemnitor") of any claim, demand, action or other proceeding for which the
Indemnitee intends to claim such indemnification. The Indemnitor shall have the
right to participate in, and to the extent the Indemnitor so desires jointly
with any other indemnitor similarly noticed, to assume the defense thereof with
counsel selected by the Indemnitor; provided, however, that the Indemnitee shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the Indemnitor, if representation of the Indemnitee by the counsel retained
by the Indemnitor would be inappropriate due to actual or potential differing
interests between the Indemnitee and any other party represented by such counsel
in such proceedings. The indemnity obligations under this Article 8 shall not
apply to amounts paid in settlement of any claim, demand, action or other
proceeding if such settlement is effected without the prior express written
consent of the Indemnitor, which consent shall not be unreasonably withheld or
delayed. The failure to deliver notice to the Indemnitor within a reasonable
time after notice of any such claim or demand, or the commencement of any such
action or other proceeding, if prejudicial to its ability to defend such claim,
demand, action or other proceeding, shall relieve such Indemnitor of any
liability to the Indemnitee under this Article 8 with respect thereto, but the
omission so to deliver notice to the Indemnitor shall not relieve it of any
liability that it may have to the Indemnitee otherwise than under this Article
8. The Indemnitor may not settle or otherwise consent to an adverse judgment in
any such claim, demand, action or other proceeding, that diminishes the rights
or interests of the Indemnitee without the prior express written consent of the
Indemnitee, which consent shall not be unreasonably withheld or delayed. The
Indemnitee, its employees and agents, shall reasonably cooperate with the
Indemnitor and its legal representatives in the investigation of any claim,
demand, action or other proceeding covered by this Article 8.
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8.3 Insurance. Each party shall maintain insurance with respect to the
development, manufacture and sales of Products by such party, its Affiliates or
sublicensees in such amounts as such party customarily maintains with respect to
the development, manufacture and sales of its other products. Each party shall
maintain such insurance for so long as it continues to develop, manufacture or
sell Products, and thereafter for so long as it customarily maintains insurance
for itself covering the development, manufacture and sales of its other
products.
ARTICLE 9
MISCELLANEOUS
9.1 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties to the other shall be
in writing and addressed to such other party at its address indicated below, or
to such other address as the addressee shall have last furnished in writing to
the addressor, and shall be effective upon receipt by the addressee.
If to Ixsys: Ixsys, Inc.
3520 Dunhill Street
San Diego, California 92121
Attention: Lawrence E. Bloch, M.D., M.B.A.
with a copy to: Pillsbury Madison & Sutro LLP
235 Montgomery Street, 16th Floor
San Francisco, California 94104
Attention: Thomas E. Sparks, Jr.
If to Bio-Management: Bio-Management Inc.
Four Hook Road
Sharon Hill, PA 19079
Attention: Mr. Raymond A. Mirra, Jr.
with a copy to: Bio-Management Inc.
Four Hook Road
Sharon Hill, PA 19079
Attention: Joseph A. Troilo, Jr.
9.2 Assignment. Except as otherwise expressly provided under this
Agreement neither this Agreement nor any right or obligation hereunder may be
assigned or otherwise transferred (whether voluntarily, by operation of law or
otherwise), without the prior express written consent of the other party;
provided, however, that either party may, without such consent, assign this
Agreement and its rights and obligations hereunder in connection with the
transfer or sale of all or substantially all of its business related to this
Agreement or in the event of its merger, consolidation, change in control or
similar transaction. Any permitted assignee shall assume all obligations of its
assignor under this Agreement. Any purported assignment or transfer in violation
of this Section 9.2 shall be void.
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9.3 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of law principles thereof.
9.4 Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof. All express or implied
representations, agreements and understandings, either oral or written,
heretofore made are expressly superseded by this Agreement. This Agreement may
be amended, or any term hereof modified, only by a written instrument duly
executed by both parties.
9.5 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
9.6 Independent Contractors. Each party hereby acknowledges that the
parties shall be independent contractors and that the relationship between the
parties shall not constitute a partnership, joint venture or agency. Neither
party shall have the authority to make any statements, representations or
commitments of any kind, or to take any action, which shall be binding on the
other party, without the prior consent of the other party to do so.
9.7 Waiver. The waiver by a party of any right hereunder, or of any
failure to perform or breach by the other party hereunder, shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by the
other party hereunder whether of a similar nature or otherwise.
9.8 Force Majeure. A party shall neither be held liable or responsible
to the other party, nor be deemed to have defaulted under or breached this
Agreement, for failure or delay in fulfilling or performing any obligation under
this Agreement (other than an obligation for the payment of money) to the
extent, and for so long as, such failure or delay is caused by or results from
causes beyond the reasonable control of such party including but not limited to
fire, floods, embargoes, war, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party.
9.9 Other Activities. Except as otherwise expressly provided in this
Agreement, nothing in this Agreement shall preclude either party from conducting
other programs (either for its own benefit or with or for the benefit of any
other Person) to conduct research, or to develop or commercialize products or
services, for use in any field.
9.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.11 Arbitration. All controversies or claims under this Agreement, the
enforcement or interpretation hereof, or because of an alleged breach, default
or misrepresentation under the provisions hereof, shall be settled by final and
binding arbitration in San Diego, California in accordance with the
then-existing commercial arbitration rules (the "Rules") of the American
Arbitration Association ("AAA"), and judgment upon the award rendered by the
arbitrators may
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be entered in any court having jurisdiction thereof; provided, however, that the
law applicable to any controversy shall be the law of the State of California,
regardless of its or any other jurisdiction's choice of law principles. In any
arbitration pursuant to this Agreement, the award or decision shall be rendered
by the majority of the members of a Board of Arbitration consisting of three (3)
members, one of whom shall be appointed by each party and the third of whom
shall be the chairman of the panel and shall be appointed be mutual agreement of
said two party-appointed arbitrators. In the event of a failure of said two
arbitrators to agree within sixty (60) days after the commencement of the
arbitration proceeding upon the appointment of the third arbitrator, the third
arbitrator shall be appointed by the AAA in accordance with the Rules. In the
event that either party shall fail to appoint an arbitrator within thirty (30)
days after the commencement of the arbitration proceedings, such arbitrator
shall be appointed by the AAA in accordance with the Rules. Notwithstanding the
foregoing, the parties may apply to any court of competent jurisdiction for a
temporary restraining order, as necessary, without breach of this arbitration
agreement and without abridgement of the powers of the arbitrator. In no event
shall the demand for arbitration be made after the date when institution of a
legal or equitable proceeding based on such claim, dispute or other matter in
question would be barred by the applicable statute of limitation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Bio-Management, Inc. Ixsys, Inc.
Signature: /s/ Raymond A. Mirra, Jr. Signature: /s/ Lawrence E. Bloch
-------------------------- -----------------------------
Name: Mr. Raymond A. Mirra, Jr. Name: Lawrence E. Bloch, M.D., M.B.A
Title: Vice President Title: Vice President of Business
Development
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<PAGE> 17
SCHEDULE A
RESEARCH PLAN
A. Antibody Cloning
a. Sequence murine antibody DNA
i. Use specific primers if protein sequence is
known
ii. Design degenerate signal sequence primers if
protein sequence is unknown
b. Express chimeric antibody (human constant region fused
with murine variable region)
i. Clone murine antibody into Ixsys' phage
expression system
B. Assay Development and Validation
a. Determine antigen labeling/detection system using murine
monoclonal antibody (ELISA format)
b. Establish and optimize capture lift parameters using
chimeric construct
c. Establish and optimize capture ELISA parameters using
chimeric construct
d. Establish and optimize direct ELISA parameters
e. Validate all assays to demonstrate:
i. Time- and concentration-dependence of signal
ii. Saturability of signal
iii. Specificity of signal (competable)
C. Design and Synthesis of Humanization/Optimization Libraries
***
***
***
***
***
***
***
D. Screening
a. High density capture lift screening of libraries
b. Plaque purification of optimal clones
c. Capture ELISA characterization of clones identified in
capture lift screening
d. Direct ELISA characterization of highest affinity clones
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 18
E. Characterization
a. DNA sequencing to identify framework motif and
beneficial CDR mutations
b. Transfer best clones to expression vector
c. Purify variants
d. Determine precise affinity constants using BIAcore
e. Transfer to Bio-Management 2 mg of the best humanized
Fab variant (bacterially expressed)
F. Affinity Maturation
***
***
***
***
***
***
G. Iterative Affinity Maturation
***
***
***
***
H. Deliverables
a. Transfer to Bio-Management the DNA sequence encoding the
Fab of the best humanized and optimized variant
b. Transfer to Bio-Management the vector expressing the Fab
of the best humanized and optimized variant
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
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SCHEDULE B
PROJECT FUNDING
1. Fixed Fee. Bio-Management shall pay to Ixsys *** each for the
humanization and optimization of each of the two (2) Candidate Molecules, to be
paid *** starting from the Effective Date. Payments shall be due within thirty
(30) days.
2. Milestone Payments. Bio-Management shall pay to Ixsys milestone
payments equal to *** per Program Antibody *** which that Program Antibody was
derived ***. These milestone payments shall be paid within days *** following
the demonstration of the Program Antibody *** of the Candidate Molecule from
which that Program Antibody was derived.***
* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 1
EXHIBIT 10.9
LEASE
BY AND BETWEEN
GENERAL ATOMICS AND IXSYS, INC
1. PARTIES, RECITALS, AND GENERAL AGREEMENT. This Lease, dated, for reference
purposes only, June 1, 1993 is made by and between General Atomics, a California
Corporation (herein called "Lessor") (Refer to Paragraph 47) and IXSYS, Inc., a
Delaware Corporation (herein called "Lessee")
RECITALS:
Under terms of a Lease dated March 21, 1990 and six subsequent amendments,
Lessee occupies approximately 6605 net square feet of improved laboratory and
office space in Building 2, at 3550 General Atomics Court.
Lessee desires to expand its premises and agrees to relocate its operations to
Lessor's buildings at 3520 (Building 6) and 3550 Dunhill Street (Building 3)
located in the Sorrento West Industrial Park.
Lessee desires to terminate its Lease for the premises at 3550 General Atomics
Court as soon as relocation is completed.
Specialty Laboratories, Inc. a tenant occupying approximately 14,000 gross
square feet in Building 6, under lease with Lessor, has laboratory space surplus
to its needs and desires to terminate its Lease and sell its leasehold and
personal property interest to the Lessee.
Lessor desires to accommodate the Specialty Laboratories, Inc. lease termination
in favor of leasing to Lessee all the vacated Specialty Laboratories premises
and the majority of 11,000 gross square feet of administrative space in Building
3.
Lessee desires to have Lessor install and finance certain leasehold improvements
in both Buildings 3 and 6.
Lessee desires to lease said space for a period of five years commencing with
completion of installation of certain leasehold improvements in the space termed
"first-in space".
PARTIES THEREFORE AGREE AS FOLLOWS:
Lessor shall make best effort to make certain that Specialty Laboratories
diligently pursues vacating Building 6 premises by mid-July 1993.
Lessor shall make best effort to prepare design, have leasehold improvements
installed and prepare spaces in Buildings 3 and 6 for Lessee's possession by
September 15, 1993.
Lessor agrees to finance certain leasehold improvements over the term of the
Lease at 12 percent interest to be paid back as added rent by Lessee over the
period remaining on the term of the Lease. Lessee shall have the option to
directly pay for part or all of the leasehold improvements, rather than finance
improvements through Lessor.
Lessee agrees to diligently pursue the specification of needed leasehold
improvements required to be installed prior to taking possession.
Lessee shall make the determination of acceptability of Building 6 Laboratories
(vacated by Specialty Laboratories, Inc.) as it relates to biological hazards
created by the current tenant and confirm its decision regarding need for
decontamination. Determination shall be made prior to Lessor agreeing to
termination of current tenant's lease.
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<PAGE> 2
Lessee shall take possession of the Sorrento West premises as soon as the
"first-in" leasehold improvements are completed, about September 15, 1993.
Lessee shall relocate its operation from Building 2, 3550 General Atomics Court,
and surrender the premises to Lessor in accordance with the Lease dated March
21, 1990. Execution of the Lease of Buildings 3 and 6 is considered formal
notice of Lessee's intent to terminate.
Lessee shall negotiate the terms of an agreement and make a direct purchase of
Specialty Laboratories, Inc. building leasehold interest. Lessee shall provide
Lessor written confirmation of purchase in the form of a contract. Lessee shall
assume responsibility for this leasehold interest pursuant to Paragraphs 6.3 and
7.2(c) of this Lease as if Lessee had installed said leasehold improvements.
Lessee shall negotiate the terms of an agreement and make direct purchase, if it
so desires, of Specialty Laboratories, Inc. personal property and fixture
inventory. Lessee shall provide Lessor written confirmation of purchase in the
form of a contract with attached inventory listing items purchased. Lessee shall
assume responsibility for personal property and fixture installation and removal
pursuant to Paragraph 7.2(c) of this Lease as if Lessee had installed said
equipment.
Lessor shall not be responsible to guarantee or secure the Specialty
Laboratories, Inc. ownership interest of building leasehold improvements, or of
fixtures and personal property purchased by Lessee.
Lessor grants Lessee permission to access the Lessor's Torrey Pines Industrial
Center for use of the central cafeteria, private road (Tower Road), fitness
center and outside recreation center all in accordance with Lessor's site access
and use regulations. This privilege shall not be construed as part of the common
area under Paragraph 2 of the Lease. (Refer to Exhibit A-5).
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<PAGE> 3
STANDARD INDUSTRIAL LEASE -- MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. LESSOR hereby LEASES to LESSEE and LESSEE LEASES from LESSOR
for the term, at the rental, and upon all of the conditions set forth herein,
real property situated in the County of San Diego, State of California commonly
known as approximately 9626 GSF of improved office space in Building 3 at 3550
Dunhill Street and approximately 14,000 GSF of improved laboratory space in
Building 6 at 3520 Dunhill Street located and described on Exhibits A-1, A-2,
A-3, A-4, & A-5, herein referred to as the "PREMISES", as may be outlined on an
Exhibit attached hereto, including rights to the Common AREAS as hereinafter
specified but not including any rights to the roof of the PREMISES or to any
Building in the Industrial Center. The PREMISES are a portion of a building,
herein referred to as the "Building." The PREMISES, the Building, the Common
AREAS, the land upon which the same are located, along with all other buildings
and improvements thereon, are herein collectively referred to as the "Industrial
Center."
2.2 VEHICLE PARKING. LESSEE shall be entitled to 71 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common AREAS
designated by LESSOR for parking. LESSEE shall not use more parking spaces than
said number. Said parking spaces shall be used only 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 are
herein referred to as "Oversized Vehicles."
2.2.1 LESSEE shall not permit or allow any vehicles that belong to or
are controlled by LESSEE or LESSEE'S employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in AREAS other than those
designated by LESSOR for such activities.
2.2.2 If LESSEE permits or allows any of the prohibited activities
described in paragraph 2.2 of this LEASE, 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.
2.3 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 that are provided and designated by the LESSOR from
time to time for the general non-exclusive use of LESSOR, LESSEE and of other
LESSEES of the Industrial Center and their RESPECTIVE EMPLOYEES, suppliers,
shippers, customers and invitees, including parking AREAS, loading and unloading
AREAS, trash AREAS, roadways, sidewalks, walkways, parkways, driveways and
landscaped AREAS.
2.4 COMMON AREAS -- LESSEE'S RIGHTS. LESSOR hereby grants to LESSEE, for
the benefit of LESSEE and its employees, suppliers, shippers, 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.
2.5 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. LESSEE
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers 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.
2.6 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 and walkways; (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; (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.
2.6.1 LESSOR shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that LESSEE is entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this LEASE shall be for approximately five (5) years
commencing on Refer to Paragraph 49 and ending on Refer to Paragraph 49 unless
sooner terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason LESSOR cannot deliver possession of the PREMISES to LESSEE on said
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 be obligated to
pay rent or perform any other obligation of LESSEE under the terms of this
LEASE, except as may be otherwise provided in this LEASE, until possession of
the PREMISES IS TENDERED TO LESSEE; provided, however, that if LESSOR shall not
have delivered possession of the PREMISES within one hundred twenty (120) days
from said commencement date, LESSEE may, at LESSEE'S option, by notice in
writing to LESSOR within ten (10) days thereafter, cancel 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.
3.3 EARLY POSSESSION. If LESSEE occupies the PREMISES prior to said
commencement date, such occupancy shall be subject to all provisions of this
LEASE, such occupancy shall not advance the termination DATE, and LESSEE shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. LESSEE shall pay to LESSOR, as BASE RENT for the PREMISES,
without any offset or deduction, except as may be otherwise expressly provided
in this LEASE, on the 1st day of each month of the term hereof, monthly payments
in advance of $17,011, Seventeen Thousand Eleven Dollars. LESSEE shall pay
LESSOR upon execution hereof $17,011 as BASE RENT for the first month. Rent for
any period during the term hereof which is for less than one month shall be a
pro rata portion of the BASE RENT. Rent shall be payable in lawful money of the
United States to LESSOR at the address stated herein or to such other persons or
at such other places as LESSOR may designate in writing.
4.2 OPERATING EXPENSES. LESSEE shall pay to LESSOR during the term hereof,
in addition to the BASE RENT, LESSEE'S Share, as hereinafter defined, of all
Operating Expenses, as hereinafter defined, during EACH CALENDAR YEAR of the
term of this LEASE, in accordance with the following provisions:
(a) "LESSEE'S SHARE" is defined, for purposes of this LEASE, AS
__________ percent. Bldg. 3 - 46.24%, Bldg. 6 - 58.06%,
Industrial Ctr - 91.92%.
(b) "OPERATING EXPENSES" is defined, for purposes of this LEASE, as
all costs incurred by LESSOR, if any, for:
(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 and fences and gates;
(bb) TRASH DISPOSAL SERVICES;
(cc) TENANT DIRECTORIES;
(dd) FIRE DETECTION SYSTEMS including sprinkler system
maintenance and repair;
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<PAGE> 4
(ee) SECURITY SERVICES;
(ff) Any other SERVICE to be provided by LESSOR that is
ELSEWHERE in this LEASE STATED TO BE AN "OPERATING
EXPENSE;"
(ii) Any deductible portion of an insured loss concerning any
of the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by LESSOR under
paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by LESSOR
under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common AREAS.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses 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 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 Operating
Expenses and the same shall be payable monthly or quarterly, as LESSOR shall
designate, during each twelve-month period of the LEASE term, on the same day
as the BASE RENT is due hereunder, in the event that LESSEE PAYS LESSOR's
ESTIMATE OF LESSEE'S SHARE OF OPERATING EXPENSES as aforesaid. 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
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 entitled to credit the amount of
such overpayment against LESSEE'S Share of Operating Expenses next falling
due. If LESSEE'S payments under this paragraph 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 execution hereof
$24,100 Refer to Paragraph 48 as security for LESSEE'S faithful performance of
LESSEE'S obligations hereunder. If LESSEE fails to pay rent or other charges
due hereunder, or otherwise defaults with respect to any provision of this
LEASE, LESSOR may use, apply or, retain all or any portion of said deposit for
the payment of any rent or other charge in default or for the payment of any
other sum to which LESSOR may become obligated by reason of LESSEE'S default, or
to compensate LESSOR for any loss or damage which LESSOR may suffer thereby. If
LESSOR so uses or applies all or any portion of said deposit, LESSEE shall
within ten (10) days after written demand therefor deposit cash with LESSOR in
an amount sufficient to restore said deposit to the full amount then required of
LESSEE. If the monthly rent shall, from time to time, increase during the term
of this LEASE, LESSEE shall, at the time of such increase, deposit with LESSOR
additional money as a security deposit so that the total amount of the security
deposit held by LESSOR 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 4. LESSOR shall not be required to keep said security
deposit separate from its general accounts. If LESSEE performs all of LESSEE'S
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by LESSOR, shall be returned, without payment of interest or other
increment for its use, to LESSEE (or, at LESSOR's option, to the last assignee,
if any, of LESSEE'S interest hereunder) at the expiration of the term hereof,
and after LESSEE has vacated the PREMISES. No trust relationship is created
herein BETWEEN LESSOR and LESSEE with respect to said SECURITY DEPOSIT.
6. USE.
6.1 USE. THE PREMISES SHALL BE USED AND OCCUPIED only for office, R&D,
and manufacturing for biomedical products in compliance with M1A zoning under
the City of San Diego Municipal Code or any other use which is reasonably
comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) LESSOR warrants to LESSEE that the PREMISES, in the state
existing on the date that the LEASE term commences, but without regard to the
use for which LESSEE will occupy the PREMISES, does not violate any covenants or
restrictions of record, or any applicable building code, regulation of ordinance
in effect on such LEASE term commencement date. In the EVENT IT IS DETERMINED
THAT THIS WARRANTY HAS BEEN VIOLATED, then it shall be the obligation of the
LESSOR, after written notice from LESSEE, to promptly, AT LESSOR'S SOLE COST AND
EXPENSE, rectify any such violation. In the event LESSEE DOES NOT GIVE TO LESSOR
WRITTEN NOTICE of the VIOLATION of this WARRANTY WITHIN SIX MONTHS FROM THE DATE
that the LEASE term commences, the correction of the same shall be the
obligation of the LESSEE at LESSEE'S sole cost. The warranty contained in this
paragraph 6.2(a) shall be of no force or effect if, prior to the date of this
LEASE, LESSEE WAS AN OWNER or OCCUPANT of the PREMISES and, in such event,
LESSEE shall correct any such violation at LESSEE'S sole cost.
(b) Except as provided in paragraph 6.2(a) LESSEE shall, AT LESSEE'S
EXPENSE, promptly comply with all APPLICABLE STATUTES, ORDINANCES, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the PREMISES and the occupation and use by LESSEE of the PREMISES
and of the Common AREAS. LESSEE shall not use nor permit the use of the PREMISES
or the Common AREAS in any manner that will tend to create waste or a nuisance
or shall tend to disturb other occupants of the Industrial Center. Refer to
Paragraph 52.
6.3 CONDITION OF PREMISES.
(a) LESSOR shall deliver the PREMISES to LESSEE clean and free of
debris on the LEASE commencement date (unless LESSEE is already in possession)
and LESSOR warrants to LESSEE that the plumbing, lighting, air conditioning,
heating, and loading doors that existed in the PREMISES prior to installing
LEASEhold improvements and remain subsequent shall be in good operating
condition on the LEASE commencement date. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of LESSOR,
after receipt of written notice from LESSEE setting forth with specificity the
nature of the violation, to promptly, at LESSOR's sole cost, rectify such
violation. LESSEE'S failure to give such written notice to LESSOR within six
months after the LEASE commencement date shall cause the conclusive presumption
that LESSOR has complied with all of LESSOR's obligations hereunder. The
warranty contained in this paragraph 6.3(a) shall be of no force or effect if
prior to the date of this LEASE. LESSEE was an owner or occupant of the
PREMISES.
(b) Except as otherwise provided in this LEASE, LESSEE hereby accepts the
PREMISES in their condition existing as of the LEASE commencement date or the
date that LESSEE takes possession of the PREMISES, whichever is earlier, subject
to all applicable zoning, municipal county and state laws, ordinances and
regulations governing and regulating the use of the PREMISES, and any covenants
or restrictions of record, and accepts this LEASE subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. LESSEE
acknowledges that neither LESSOR nor LESSOR's agent has made any representation
or warranty as to the present or future suitability of the PREMISES for the
conduct of LESSEE'S business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (LESSEE'S Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of LESSEE, LESSEE'S employees, suppliers, shippers, customers, or
invitees, in which event LESSEE shall repair the damage, LESSOR, at LESSOR's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the PREMISES, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common AREAS and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. LESSOR shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall LESSOR be required to maintain, repair or replace windows,
doors or plate glass of the PREMISES. LESSOR shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from LESSEE of the need for such repairs. LESSEE expressly waives
the benefits 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 PREMISES in good order, condition
and repair. LESSOR shall not be liable for damages or loss of any kind or nature
by reason of LESSOR's failure to furnish any Common AREA Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of LESSOR.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraph 6 (Use), 7.1 (LESSOR's
Obligations, and 9 (Damage or Destruction), LESSEE, at LESSEE'S expense, shall
keep in good order, condition and repair the PREMISES and every part thereof
(whether or not the damaged portion of the PREMISES or the means of repairing
the same are reasonably or readily accessible to LESSEE) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (LESSEE shall procure and maintain, at LESSEE'S
EXPENSE, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the PREMISES, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the PREMISES. LESSOR reserves
the right to procure and maintain the ventilating and air conditioning system
maintenance contract and if LESSOR so elects, LESSEE shall reimburse LESSOR,
upon demand, for the cost thereof.
(b) If LESSEE fails to perform LESSEE'S obligations under this
paragraph 7.2 or under any other paragraph of this LEASE, LESSOR may enter upon
the PREMISES after ten (10) days' prior written notice to LESSEE (except in the
case of emergency, in which no notice shall be required), perform such
obligations on LESSEE'S behalf and put the PREMISES in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to LESSER
together with LESSEE'S next BASE RENT installment.
(c) On the last day of the term hereof, or on any sooner termination,
LESSEE shall surrender the PREMISES to LESSOR in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. 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. LESSEE shall
repair any damage to the PREMISES occasioned by the installation or removal of
LESSEE'S trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this LEASE. LESSEE shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the PREMISES in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) LESSEE shall not, without LESSOR's prior written consent which
will not be unreasonably withheld or delayed make any alterations, improvements,
additions, or Utility Installations in, on, or about the PREMISES, or the
Industrial Center except for nonstructural alterations to the PREMISES not
exceeding $2,500 in cumulative costs, during the term of this LEASE. In any
event, whether or not in excess of $2,500 in cumulative cost, LESSEE shall make
no change or alteration to the
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<PAGE> 5
exterior of the PREMISES nor the exterior of the Building nor the Industrial
Center without LESSOR's prior written consent. As used in this paragraph 7.3 the
term "Utility Installation" shall mean carpeting, window coverings, air lines,
power panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing, and fencing. LESSOR may require that LESSEE remove
any or all of said alterations, improvements, additions or Utility Installations
at the expiration of the term, and restore the PREMISES and the Industrial
Center to their prior condition. LESSOR may require LESSEE to provide LESSOR, at
LESSEE'S sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure LESSOR
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should LESSEE make any alterations, improvements,
additions or Utility Installations without the prior approval of LESSOR, LESSOR
may, at any time during the term of this LEASE, require that LESSEE remove any
or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the PREMISES or the Industrial Center that LESSEE shall desire to
make and which requires the consent of the LESSOR shall be presented to LESSOR
in written form, with proposed detailed plans. If LESSOR shall give its consent,
the consent shall be deemed conditioned upon LESSEE acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
LESSOR prior to the commencement of the work and the compliance by LESSEE of all
conditions of said permit in a prompt and expeditious manner.
(c) 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 in
the PREMISES, which claims are or may be secured by any mechanic's or
materialmen's lien against the PREMISES, or the Industrial Center, or any
interest therein. LESSEE shall give LESSOR not less than ten (10) days' notice
prior to the commencement of any work in the PREMISES, and LESSOR shall have the
right to post notices of non-responsibility in or on the PREMISES or the
Building 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 itself and LESSOR 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 or the Industrial Center upon the
condition that if LESSOR shall require, LESSEE shall furnish to LESSOR a surety
bond satisfactory to LESSOR in an amount equal to such contested lien claim or
demand indemnifying LESSOR against liability for the same and holding the
PREMISES and the Industrial Center free from the effect of such lien or claim.
In addition, LESSOR may require LESSEE to pay LESSOR's attorney's fees and costs
in participating in such action if LESSOR shall decide it is to LESSOR's best
interest to do so.
(d) All alterations, improvements, additions and Utility
Installations which may be made on the PREMISES, shall be the property of
LESSOR and shall remain upon and be surrendered with the PREMISES at the
expiration of the LEASE term, unless LESSOR requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
LESSEE'S machinery and equipment, other than that which is affixed to the
PREMISES so that it cannot be removed without material damage to the PREMISES,
and other than Utility Installations, shall remain the property of LESSEE and
may be removed by LESSEE subject to the provisions of paragraph 7.2.
7.4 UTILITY ADDITIONS. LESSOR reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of LESSOR or LESSEE, or any other LESSEE of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with LESSEE'S use of the PREMISES.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. LESSEE shall, at LESSEE'S expense,
obtain and keep in force during the term of this LEASE a policy of Combined
Single Limit Bodily Injury and Property Damage insurance insuring LESSEE and
LESSOR against any liability arising out of the use, occupancy or maintenance of
the PREMISES and the Industrial Center. Such insurance shall be in an amount not
less than $1,000,000.00 per occurrence. The policy shall insure performance by
LESSEE of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of LESSEE hereunder.
8.2 LIABILITY INSURANCE -- LESSOR. LESSOR shall obtain and keep in force
during the term of this LEASE a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring LESSOR, but not LESSEE, against any
liability arising out of the ownership, use, occupancy, or maintenance of the
Industrial Center in an amount not less than $1,000,000.00 per occurrence.
8.3 PROPERTY INSURANCE. LESSOR shall obtain and keep in force during the
term of this LEASE a policy or policies of insurance covering loss or damage to
the Industrial Center improvements, but not LESSEE'S personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the PREMISES) special extended perils
("all risk", as such term is used in the insurance industry), plate glass
insurance and such other insurance as LESSOR deems advisable. In addition,
LESSOR shall obtain and keep in force, during the term of this LEASE, a policy
of rental value insurance covering a period of one year, with loss payable to
LESSOR, which insurance shall also cover all Operating Expenses for said period.
In the event that the PREMISES shall suffer an insured loss as defined in
paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance
policies relating to the PREMISES shall be paid by LESSEE.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this LEASE has commenced, LESSEE shall not be
responsible for paying LESSEE'S Share of any increase in the property insurance
premium for the Industrial Center specified by LESSOR's insurance carrier as
being caused by the use, acts or omissions of any other LESSEE of the Industrial
Center, or by the nature of such other LESSEE'S occupancy which create an
extraordinary or unusual risk.
(b) LESSEE, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this LEASE if the increase
is specified by LESSOR's insurance carrier as being caused by the nature of
LESSEE'S occupancy or any act or omission of LESSEE.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the PREMISES, as set
forth in the most current issue of "Best's Insurance Guide." LESSEE shall not do
so or permit to be done anything which shall invalidate the insurance policies
carried by LESSOR. LESSEE shall deliver to LESSOR copies of liability insurance
policies required under paragraph 8.1 or certificates evidencing the existence
and amounts of such insurance within seven (7) days after the commencement date
of this LEASE. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to LESSOR. LESSEE shall, at least thirty (30) days prior to the
expiration of such policies, furnish LESSOR with renewals or "binders" thereof.
LESSEE'S insurance policies shall name LESSOR as additional insured.
8.6 WAIVER OF SUBROGATION. LESSEE and LESSOR each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the PREMISES, whether due to the negligence
of LESSOR or LESSEE or their agents, employees, contractors and/or invitees.
LESSEE and LESSOR shall, upon obtaining the policies of insurance required give
notice to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this LEASE.
8.7 INDEMNITY.
(a) LESSEE shall indemnify and hold harmless LESSOR from and against
any and all claims arising from LESSEE'S use of the Industrial Center, or from
the conduct of LESSEE'S business or from any activity, work or things done,
permitted or suffered by LESSEE in or about the PREMISES or elsewhere and shall
further indemnify and hold harmless LESSOR from and against any and all claims
arising from any breach or default in the performance of any obligation on
LESSEE'S part to be performed under the terms of this LEASE, or arising from any
act or omission of LESSEE, or any of LESSEE'S agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon, and in case any action or proceeding be brought against LESSOR by
reason of any such claim. 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. LESSEE, as a material part of the
consideration to LESSOR, hereby assumes all risk of damage to property of LESSEE
or injury to persons, in, upon or about the Industrial Center arising from any
cause and LESSEE hereby waives all claims in respect thereof against LESSOR.
(b) Refer to page 11.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. LESSEE hereby agrees that LESSOR
shall not be liable for injury to LESSEE'S business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
LESSEE, LESSEE'S employees, invitees, customers, or any other person in or about
the PREMISES or the Industrial Center, nor shall LESSOR be liable for injury to
the person of LESSEE, LESSEE'S employees, agents or contractors, 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, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the PREMISES or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
LESSEE. LESSOR shall not be liable for any damages arising from any act or
neglect of any other LESSEE, occupant or user of the Industrial Center, nor from
the failure of LESSOR to enforce the provisions of any other LEASE of the
Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the PREMISES are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the PREMISES.
(b) "Premises Total Destruction" shall mean if the PREMISES are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the PREMISES.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the PREMISES are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent of the then replacement cost of the
Building.
(d) "Premises Building Total Destruction" shall mean if the Building
of which the PREMISES are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
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(g) "Insured Loss" shall mean damage or destruction which was covered
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss
an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Partial Damage
or Premises Building Partial Damage, then Lessor shall, at Lessor's expense,
repair such damage to the Premises, but not Lessee's fixtures, equipment or
tenant improvements within 120 days, notwithstanding delays caused by local,
state, and federal regulations, and this Lease shall continue in full force and
effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, 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 the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
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
intention to repair such damage at Lessee's expense, without reimbursement from
Lessor, in which event this Lease shall continue in full force and effect, and
Lessee shall proceed to make such repairs as soon as reasonably possible. If
Lessee does not give such notice within such 10-day period this Lease shall be
cancelled and terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraph 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classification of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (iii) give
written notice to Lessee within thirty (30) days after the date of occurrence
of such damage of Lessor's intention to cancel and terminate this Lease, in
which case this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage, whether or not an
Insured Loss, which falls within the classification of Premises Partial Damage,
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is
to be exercised at all, no later than twenty (20) days after the occurrence of
an Insured Loss falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving
written notice to Lessee of Lessor's election to do so within ten (10) days
after the expiration of said twenty (20) day period, notwithstanding any term
or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall commence such repair or
restoration within ninety (90) days after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payment made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Industrial Center subject to reimbursement
by Lessee of Lessee's Share of such taxes in accordance with the provision of
paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
place upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Industrial Center or any portion thereof
by any authority having the direct or indirect power to tax, including any
city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the Industrial Center or
in any portion thereof, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Industrial Center.
The term "real property tax" shall also include any tax, fee, levy, assessment
or charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (v) which is imposed by reason of this
transaction, any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately assessed,
Lessee's Share of the real property tax liability 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 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 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease of in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold or delay. Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a breach of this Lease without the need for notice to Lessee under
paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from
the merger or consolidation with Lessee or to any person or entity which
acquires all the assets of Lessee as a going concern of the business that is
being conducted on the Premises, all of which are referred to as "Lessee
Affiliate," provided that before such assignment shall be effective said
assignee shall assume, in full, the obligations of Lessee under this Lease. Any
such assignment shall not, in any
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way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no
assignment shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the Base Rent and Lessee's Share of Operating
Expenses, and to perform all other obligations to be performed by Lessee
hereunder. Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of rent shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the breach of
any of the terms or conditions of this paragraph 12 or this Lease. Consent to
one assignment shall not be deemed consent to any subsequent assignment. In the
event of default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly against
Lessee without the necessity of exhausting remedies against said assignee.
Lessor may consent to subsequent assignments of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease heretofore or hereafter made
by Lessee, and Lessor may collect such rent and income and apply same toward
Lessee's obligations under that Lease; provided, however, that until a default
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may receive, collect and enjoy the rents accruing under such sublease. Lessor
shall not, by reason of this 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 default exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor, and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against such
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and until
it has been approved in writing by Lessor. In entering into any sublease, Lessee
shall use only such form of sublease as is satisfactory to Lessor, and once
approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by third
parties, then a sublease, and Lessor's consent thereto, shall not be effective
unless said guarantors give their written consent to such sublease and the terms
thereof.
(d) The consent by Lessor to any subletting shall not release Lessee from
its obligations or alter the primary liability of Lessee to pay the rent and
perform and comply with all of the obligations of Lessee to be performed under
this Lease.
(e) The consent by Lessor to any subletting shall not constitute a consent
to any subsequent subletting by Lessee or to any assignment or subletting by the
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 on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or anyone else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default 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 Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(h) Each and every consent required of Lessee under a sublease shall also
require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by Lessee
shall not constitute an acknowledgement that no default then exists under this
Lease of the obligations to be performed by Lessee nor shall such consent be
deemed a waiver of any then existing default, except as may be otherwise stated
by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within ten (10)
days after service of said notice of default upon sublessee, and the sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $450.00 for each such request.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to
Pay Rent or Quit shall also constitute the notice required by this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee to
observe or perform any of the covenants, conditions or provisions of this Lease
to be observed or performed by Lessee, other than described in paragraph (b)
above, where such failure shall continue for a period of thirty (30) days after
written notice thereof from Lessor to Lessee; provided, however, that if the
nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for a cure, then Lessee shall not be deemed to be in default
if Lessee commenced with such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee upon applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute hereto (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. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor
by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, was
materially false.
13.2 REMEDIES. In the event of any such material default by Lessee, Lessor
may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(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 all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonably attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(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. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligations; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion.
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13.4 LATE CHARGES. LESSEE hereby acknowledges that late payment by
LESSEE to LESSOR of Base Rent. LESSEE'S Share of Operating Expenses or 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 on LESSOR by the terms of any mortgage or
trust deed covering the Property. Accordingly, if any installment of Base Rent.
Operating Expenses, or any 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 6% of such over due 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 ate charge by
LESSOR shall in no event constitute a waiver of LESSEE'S default 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
any of the aforesaid monetary obligations of LESSEE, then Base Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding paragraph 4.1 or any other provision of this LEASE to the
contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power fall of which are herein called "condemnation"),
this LEASE shall terminate as to the parts so taken as of the date the
condemning authority takes title or possession, whichever first occurs, if
more than ten percent of the floor area of the Premises, or more than
twenty-five percent of that portion of the Common Areas designated as parking
for the Industrial Center is taken by condemnation. LESSEE may, at LESSEE'S
option to be exercised in writing only 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 elect as to the portion
of the premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises No reduction of rent shall occur if the only area taken
is that which does not have the Premises located thereon. 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 in value of the leasehold or for the taking of the fee, or as
severance damages, provided however, that LESSEE shall be entitled to any award
for loss of or damage to LESSEE'S trade fixtures and removable personal
property in the event that this LEASE is not terminated by reason of such
condemnation. LESSOR shall to the extent of severance damages received by
LESSOR in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that LESSEE has been
reimbursed therefor by the condemning authority. LESSEE shall pay any amount in
excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this LEASE by both parties. LESSOR shall pay to
N/A Refer to Paragraph 51 Licensed real estate broker(s), a fee as set forth in
a separate agreement between LESSOR and said broker(s), or in the event there
is no separate agreement between LESSOR and said broker(s), the sum of $ None,
for brokerage services rendered by said broker(s) to LESSOR in this transaction.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this LEASE is unmodified and in full force and
elect (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 the responding party's knowledge any
uncured defaults of the part of the requesting party, 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 or of the business
of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this LEASE by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this LEASE is in full force and elect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance and (iii) if
LESSOR is the requesting party, not more than one month's rent has been paid in
advance.
(c) If LESSOR desires of finance, refinance, or sell the Property, or
any part thereof, LESSEE hereby agrees to deliver to any lender or purchaser
designated by LESSOR such financial statements of LESSEE as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years financial statements of LESSEE. 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 only
General Atomics, and in the event of any transfer of such title or interest,
LESSOR herein named (and in case of any subsequent transfers then the grantor)
shall be relieved from and after the date of such transfer of all liability as
respects LESSOR'S obligations thereafter to be performed, provided that any
funds in the hands of LESSOR or the then grantor at the time of such transfer,
in which LESSEE has an interest, shall be delivered to the grantee. The
obligations contained in this LEASE to be performed by LESSOR shall, subject as
aforesaid, be binding on LESSOR'S successors and assigns, only during their
respective periods of ownership.
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. Except as expressly herein provided,
any amount due to LESSOR not paid when due shall bear interest at the maximum
rate then allowable by law from the date due. Payment of such interest shall
not excuse or cure any default by LESSEE under this LEASE, provided, however
that interest shall not be payable on late charges incurred by LESSEE nor on
any amounts upon which late charges are paid by LESSEE.
20. TIME OF ESSENCE. Time is of the essence with respect to the
obligations to be performed under this LEASE.
21. ADDITIONAL RENT. All monetary obligations of LESSEE to LESSOR under the
terms of this LEASE, including but not limited to LESSEE'S Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS AMENDMENTS. This LEASE contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This LEASE may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this LEASE. LESSEE hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction
nor the LESSOR or any employee or agents of any of said persons has made any
oral or written warranties or representations to LESSEE relative to the
condition or use by LESSEE of the Premises or the Property and LESSEE
acknowledges that LESSEE assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during
the term of this LEASE except as otherwise specifically stated in this LEASE.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
LESSEE or to LESSOR at the address noted below the signature of the respective
parties as the case may be. Either party may by 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
notice purposes. 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 notice to
LESSEE.
24. WAIVERS. No waiver by LESSOR or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by LESSEE of
the same or any other provision. LESSOR'S consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of LESSOR'S consent to
or approval of any subsequent act by LESSEE. The acceptance of rent hereunder
by LESSOR shall not be a waiver of any preceding breach by LESSEE of any
provision hereof, other than the failure of LESSEE to pay the particular rent
so accepted, regardless of LESSOR'S knowledge of such preceding breach at the
time of acceptance of such rent.
26. HOLDING OVER. If LESSEE, with LESSOR'S consent remains in possession of
the Premises or any part thereof after the expiration of the term hereof such
occupancy shall be a tenancy from month to month upon all the provisions of
this LEASE pertaining to the obligations of LESSEE, but all Options, if any,
granted under the terms of this LEASE shall be deemed terminated and be of no
further effect during said month to month tenancy. Such continued tenancy shall
be at a rate of 125% of the amount paid by the LESSEE the last month of the term
thereof.
MULTI TENANT -- MODIFIED NET
(c) American Industrial Real Estate Association 1981
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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. Each provision of this LEASE performable by
LESSEE shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by LESSEE and subject to the provisions of paragraph
17, this LEASE shall bind the parties, their personal representatives,
successors and assigns. This LEASE shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this LEASE
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. SUBORDINATION.
(a) This LEASE, and any Option granted hereby, at LESSOR'S option, shall
be subordinate to any ground LEASE, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, LESSEE'S right to quiet possession of the
Premises shall not be disturbed if LESSEE is not in default and so long as
LESSEE shall pay the rent and observe and perform all of the provisions of this
LEASE, unless this LEASE is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground LESSOR shall elect to have this LEASE and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground LEASE, and shall give written notice thereof to LESSEE, this LEASE and
such Options shall be deemed prior to such mortgage, deed of trust or ground
LEASE, whether this LEASE or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground LEASE or the date of recording
thereof.
(b) LESSEE agrees to execute any reasonable documents required to
effectuate an attornment, a subordination or to make this LEASE or any Option
granted herein prior to the lien of any mortgage, deed of trust or ground LEASE,
as the case may be. LESSEE'S failure to execute such documents within ten (10)
days after written demand shall constitute a material default by LESSEE
hereunder without further notice to LESSEE or, at LESSOR'S option, LESSEE does
hereby make, constitute and irrevocably appoint LESSOR as LESSEE'S
attorney-in-fact and in LESSEE'S name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. LESSOR and LESSOR'S agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or LESSEES, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as LESSOR may deem necessary or desirable.
LESSOR may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and LESSOR may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For LEASE" signs.
All activities of LESSOR pursuant to this paragraph shall be without abatement
of rent, nor shall LESSOR have any liability to LESSEE for the same.
33. AUCTIONS. LESSEE shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
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 Premises or the Industrial
Center without LESSOR'S prior written consent. Under no circumstances shall
LESSEE place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this LEASE by LESSEE, or a
mutual cancellation thereof, or a termination by LESSOR, shall not work a
merger, and shall, at the option of LESSOR, terminate all or any existing
subtenancies or may, at the option of LESSOR, operate as an assignment to LESSOR
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this LEASE the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this LEASE, said
guarantor shall have the same obligations as LESSEE under this LEASE.
38. QUIET POSSESSION. Upon LESSEE paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
LESSEE'S part to be observed and performed hereunder, LESSEE shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this LEASE. The individuals executing this LEASE on behalf of
LESSOR represent and warrant to LESSEE that they are fully authorized and
legally capable of executing this LEASE on behalf of LESSOR and that such
execution is binding upon all parties holding an ownership interest in the
Property.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (2) the option to LEASE expansion space.
39.2 OPTIONS PERSONAL. Each Option granted to LESSEE in this LEASE is
personal to the original LESSEE and may be exercised only by the original LESSEE
while occupying the Premises who does so without the intent of thereafter
assigning this LEASE or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than LESSEE, provided, however, that an Option may be
exercised by or assigned to any LESSEE Affiliate as defined in paragraph 12.2 of
this LEASE. The Options, if any, herein granted to LESSEE are not assignable
separate and apart from this LEASE, nor may any Option be separated from this
LEASE in any manner, either by reservation or otherwise.
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
option to extend or renew this LEASE has been so 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 time
commencing from the date LESSOR gives to LESSEE a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the date after a monetary obligation to LESSOR is due from LESSEE and unpaid
(without any necessity for notice thereof to LESSEE) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 13.1(a), 13.1(d), or 13.1(e) (with LESSOR to give notice of such
default to LESSEE), nor (iv) in the event that LESSOR has given to LESSEE three
or more notices of default under paragraph 13.1(b), or paragraph 13.1(c),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that LESSEE attempts to exercise the subject
Option.
(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) LESSEE fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that LESSOR gives notice to LESSEE of such default and/or
LESSEE fails thereafter to diligently prosecute said cure to completion, or
(iii) LESSEE commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of LESSOR to give notice of such default to
LESSEE), or (iv) LESSOR gives to LESSEE three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. SECURITY MEASURES. LESSEE hereby acknowledges that LESSOR shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. LESSEE assumes all
responsibility for the protection of LESSEE, its agents, and invitees and the
property of LESSEE and of LESSEE'S agents and invitees from acts of third
parties. Nothing herein contained shall prevent LESSOR, at LESSOR'S sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
41. EASEMENTS. LESSOR reserves to itself the right, from time to time, to grant
such easements, rights and dedications that LESSOR deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by LESSEE. LESSEE shall sign any of the
aforementioned documents upon request of LESSOR and failure to do so shall
constitute a material default of this LEASE by LESSEE without the need for
further notice to LESSEE.
42. 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.
MULTI TENANT -- MODIFIED NET
(c) American Industrial Real Estate Association 1981
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43. AUTHORITY. If Lessee 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 behalf of said entity. If Lessee is a corporation, trust
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed by Lessor
and Lessee.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
47 through 54 which constitute a part of this Lease and Exhibits A-1
through A-5.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY 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.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL.
NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION RELATING THERETO THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE.
LESSOR LESSEE
GENERAL ATOMICS IXSYS, INC.
By By
------------------------- -------------------------
By Director Facilities By Director Facilities
------------------------- -------------------------
Executed on June 30, 1993 Executed on June 30, 1993
---------------- ----------------
(Corporate Seal) (Corporate Seal)
ADDRESS FOR NOTICES AND RENT ADDRESS
- -------------------------------- -------------------------------
- -------------------------------- -------------------------------
- -------------------------------- -------------------------------
For these forms write the American Industrial Real Estate Association, 350
South Figueroa St. Suite 275, Los Angeles, CA 90071 (213) 687-8777
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8.7 (b) Lessor shall indemnify and hold harmless from and against
any and all claims arising from any work or things done, permitted or suffered
by Lessor in or about the Premises arising from any act or omission of Lessor or
any of Lessor's agents, contractors, or employees, or arising from any breach or
default by Lessor under any of its obligations under this Lease, and from and
against all costs, attorney's fees, expenses, liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon.
47. MASTER LEASE
Lessor is the tenant under a certain lease (the "Master Lease") with Sorrento
West Properties Inc. ("Master Lessor") of the Industrial Center. Lessor
covenants, represents, and warrants that Lessor is not in default under the
Master Lease, has not received any notice of termination by Master Lessor, of
the Master Lease, that the execution and performance by Lessor of the terms and
conditions of this Lease will not violate any of the terms of the Master Lease,
and that Lessor will not willfully commit any act or omission which would
violate any term or condition of the Master Lease or cause the termination of
the Master Lease during the term of this Lease.
Allstate Life Insurance Company of New York holds a financial interest in the
industrial center secured by a deed of trust on the property which requires an
assignment of Borrower's interest in the Master Lease and all Subleases in the
unlikely event that the Lender obtains rights of possession through,
foreclosure, deed in lieu of foreclosure, or otherwise. By execution of this
Lease, Lessee acknowledges the Lender's position and Sublessee's obligation as
described in the "AGREEMENT OF SUBORDINATION, NONDISTURBANCE AND ATTORNMENT"
Exhibit A-3, attached to and made a part of this Lease Agreement.
48. RENT AND SECURITY DEPOSIT
Rent for space leased at different times during the term of the Lease shall all
be charged at the same base rate, be prorated to start the date of possession
and shall be due and payable on or before the first day of the month.
48.1 Base Rent. The base rent for "first-in" space shall be at a rate of
$0.72 per gross square foot per month ($0.72 x 14,000 SF + $0.72 x 9626 SF =
$17,011), net of all operating expenses covered in Paragraph 4.2. Starting base
rent for "expansion" space added to the premises shall be at the same base rate
as that being charged for the "first-in" space.
48.2 Rent Increases. On each anniversary of the Lease, the base rent for
all space under lease, "first-in" and "expansion", shall be increased as
described in Paragraph 55 "Rent Escalations".
48.3 Leasehold Improvement Recovery. Upon completion of leasehold
improvements and accumulation of pertinent cost information, the total cost of
leasehold improvements will be determined and total cost amortized at 12% per
annum over the balance of the lease term. Since leasehold improvements for
"expansion" space will be installed after the commencement date of the Lease,
the unpaid balance of the "first-in" leasehold improvements will added to the
cost of leasehold improvements for the "expansion" space and the new balance
amortized at 12% per annum over the remaining period of the five-year term.
48.4 Upon execution of this Lease, Lessee shall pay Lessor a security
deposit in the amount equivalent to one month's rent (23,626 SF @ $0.72) plus
two months' operating expenses (2 x 23,626 SF @ $0.15) or $24,100. The security
deposit shall be adjusted by lease amendment to add one months' leasehold
improvement charge and rent for added "expansion" space as covered in Paragraph
49(b).
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49. COMMENCEMENT DATE, TERM AND EXPANSION SPACE
(a) The term for the "first-in" space shall commence on October 1,
1993. For Building 6 "first-in" space, rent and operating expenses shall start
on September 1, 1993; For Building 3, "first-in" space, rent and operating
expenses shall start concurrent with date of occupancy, or November 1, 1993,
whichever occurs first.
(b) The term of the Lease shall extend for five years commencing
on the date of possession of the "first-in" space. The end of lease term for all
"first-in" and "expansion" space shall be concurrent. Parties agree to execute
at the appropriate dates, a lease amendment that establishes the five year term,
adjusts security deposit and stipulates the prorata share of operating expenses
and leasehold improvement cost recovery during the Lessee's tenancy.
(c) Assuming the Lease is in full force and effect and Lessee is
not in default of terms of the Lease, as can be verified by Lessee by written
notice from Lessor, Lessee shall have the option to expand into space designated
as "expansion" space as shown on Exhibits A-2 and A-3. Lessee shall give Lessor
a minimum of 60 days advance written notice to lease expansion space in Building
3 and a minimum of 120 days advance written notice to lease expansion space in
Building 6. The option to expand shall run for a period of one year from the
commencement date for "first-in" space. Upon expiration of the one year option,
Lessee shall lease and take possession of "expansion" space in Building 3 and
Lessor shall be allowed to lease "expansion" space in Building 6 to other
tenants.
(d) Lessee shall allow Lessor reasonable access to space retained
by the Lessor, for Lessor's beneficial use, and shall afford Lessor permission
to use toilet room facilities, utilities and other common provisions, all to be
cost shared as determined by prorata assignment, metering or agreed to audit
determinations.
(e) If Lessor decides to surrender "retained" space and offer
space for lease, Lessee shall have Right of First Offer to lease said space.
Assuming the Lease is in full force and effect and Lessee is not in default of
terms of the Lease, as can be verified by Lessee through written notice from
Lessor, Lessee shall have one month to give Lessor written notice of its
acceptance. Right of First Offer will not apply to use of the space by Lessor or
its affiliates. If Lessee does not exercise the right of First Offer, Lessee
shall cooperate in redefining common area by surrendering, if requested to do so
by Lessor, exclusive rights to use toilet rooms, access corridors, exits and
other common features required to access "retained" space and to share the
common area features on a prorata cost basis with an adjoining tenant. Space
leased under Right of First Offer shall be at the same base rental rate and
terms and conditions as "First-in" and "expansion" space.
50. LEASEHOLD IMPROVEMENTS
The Parties agree that Lessor shall install certain leasehold improvements
including: 1) minor physical changes and upgraded to the interior of Building 3
space, 2) an upgrade of Building 6 heating, ventilation and air conditioning
system in Specialty Laboratories, Inc. constructed laboratories of Building 3,
and 3) certain improvements in the expansion space of Building 6.
50.1 First-in Space Improvements. Parties shall cooperate to specify
leasehold improvements required to be installed prior to Lessee possession of
the premises. Lessor agrees to have designed, installed and put into operation,
those improvements so designated as "First-in" space improvements.
(a) Parties agree that leasehold improvements for laboratory space
in Building 3 shall be limited to that cost
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<PAGE> 13
involved to change laboratory ventilation from the existing design to a system
that provides 100 percent air exhaust. A budgetary limit of $50,000 is set aside
by Lessor to finance and install these improvements.
(b) Parties agree that leasehold improvements for administrative
space in Building 6 shall be limited to $10.00 per square foot and shall be
expanded for interior improvements that enhance utility of the space but not for
modification of life safety features such as fire corridors, exits or other
structural changes. Lessor shall set aside approximately $110,000 to finance and
install these improvements.
(c) Parties shall cooperate with the existing tenant, Specialty
Laboratories, Inc., to conduct an orderly turnover of the Building 6
laboratories. A punch-list of items requiring repair or correction by the
existing tenant prior to occupancy by the Lessee shall be prepared and agreement
made between Specialty Laboratories, Lessee and Lessor as to the party
responsible for these corrections.
50.2 Expansion Space Improvements. The following applies to new leasehold
improvements in the "expansion" space for Building 6 or improvements to any
portion of the premises requiring building permits:
(a) Design and Construction. Lessor shall cause the construction
of leasehold improvements to the premises including the working drawings,
permits, construction, and final city inspection.
Within 15 business days after formal notice from the Lessee of its
desire to lease Building 6 expansion space, Lessee and Lessor shall initiate
work on a schematic drawing to be prepared by Lessor to included programming
requirements. Promptly following receipt of comments on this schematic drawing
from Lessee (not to exceed five business days), Lessor shall start preparation
of final working drawings and specifications to be prepared by a qualified
architect and engineer(s), for submittal to the City Building Department.
Promptly after obtaining design approval from the City, Lessor shall cause the
construction of leasehold improvements based on competitive bids and selection
of qualified contractors.
(b) Allowance. Lessor agrees to provide Lessee a leasehold
improvement allowance in the amount of Five Hundred Thousand Dollars ($500,000)
for design and construction applied toward expenditures against any and all
costs incurred in the construction of the leasehold improvements, including,
without limitation, any and all fees, charges, costs, or expenses of any kind
incurred by the Lessor in connection with design, engineering, governmental
processing and approval, cost of equipment, materials, labor, construction
overhead and fees, utility hookup, equipment installation, testing, inspection,
or any costs directly related to the leasehold improvements that improve value
of the realty as reflected on the approved drawings and specifications. Excluded
from the allowance are Lessor's direct applied project management costs, cost of
design, purchase, relocation or setup of Lessee's fixtures, or excess costs
incurred by Lessee as covered below.
If the amount of the estimated costs for the leasehold improvements
exceeds the allowance ("excess costs") , then not later than ten business days
after delivery of estimated costs to Lessee, Lessee shall deliver to Lessor
funds in the amount of the excess costs, which Lessor shall apply towards the
cost of completing the leasehold improvements. In addition, if at any time
during the construction of the leasehold improvements, the costs thereof
incurred by Lessor equals the amounts of the allowance plus any excess costs
previously paid by Lessee to Lessor, Lessor shall immediately prepare an
estimate of the amounts reasonably required to complete the construction of the
leasehold improvements, and
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<PAGE> 14
Lessor shall not be obligated to incur any additional expenses or continue
construction of the leasehold improvements until Lessee has deposited with
Lessor funds in the amount of the estimate so prepared by Lessor.
(c) Lessee Delays. In no event shall the substantial completion
dates of these leasehold improvements be extended due to a delay or fault of
Lessee. Delays "due to the fault of Lessee" shall include, without limitation,
delays caused by:
(i) Lessee's failure to timely prepare the preliminary plans
or review preliminary plans, or to timely approve the working plans or the
estimated costs, or to furnish information and cooperation to Lessor for the
preparation by the Lessor and approval by governmental agencies of the final
plans;
(ii) Lessee's request for or use of special materials,
finishes or installations which are different than specified on Lessee approved
drawings and specifications;
(iii) Lessee's failure to timely deposit with Lessor any funds
required for any excess costs or costs in excess of the allowance for the
completion of the tenant improvements;
(iv) Change orders requested by Lessee which actually result
in a delay; or
(v) Interference with Lessor's construction activities
caused by Lessee or Lessee's agents, employees, servants or independent
contractors.
(vi) Lessee's failure to surrender adjoining areas for
construction so Lessor can diligently complete said improvements or connections
to occupied space without undue delays.
Lessor shall give Lessee written notice of any delays due to the
fault of Lessee hereunder promptly (within five (5) business days) after Lessor
obtains knowledge of any such delays.
(d) Change Orders. Lessee may from time to time have need to
obtain change orders during the course of construction of the leasehold
improvements, provided that:
(i) Each such request shall be in writing and signed by
Lessee;
(ii) Each such request shall not result in any major or
structural change in the building or tenant improvements as reasonably
determined by Lessor; and
(iii) All additional charges and costs, including, without
limitation, architectural and engineering costs, construction costs, material
costs, and governmental processing costs, shall be the sole and exclusive
obligation of Lessee.
Upon Lessee's written request for a change order, Lessor shall as
soon as reasonably possible submit to Lessee a written estimate of the increased
cost attributable to the requested change. Within five business days of the date
such estimated cost adjustment is delivered to the Lessee, Lessee shall advise
Lessor whether or not it wishes to proceed with the change order. Unless Lessee
includes in its initial change order request that work in progress at the time
of the request be halted pending approval and execution of a change order,
Lessor shall not stop construction of the tenant improvement, whether or not the
change order relates to work then in progress or about to be started.
(e) Completion of Premises. Within five business days after
substantial completion, Lessee shall conduct a walk-through inspection of the
Premises with Lessor and complete a punch-list of
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<PAGE> 15
items needing correction or additional work, which punch-list shall be approved
in writing by Lessor and Lessee. Lessee shall submit to the Lessor a final
punch-list within 60 days after substantial completion, which shall include all
items requiring correction or additional work and which shall be approved in
writing by Lessor and Lessee. Neither punch-list shall include any damage to the
Premises caused by Lessee or by Lessee's agents, employees, servants, or
independent contractors, which damage shall be repaired or corrected by Lessee
at its expense. If Lessee fails to submit any punch-list to Lessor within such
60 day period, it shall be deemed that there are no items needing additional
work or repair (excluding latent defects). Lessor's contractor shall complete
all Lessor-approved punch-list items within 30 days after submission of the
final punch-list or as soon as practicable thereafter. Upon completion of such
punch-list items, Lessee shall approve such corrected or completed items in
writing to Lessor. If Lessee fails to notify Lessor of its approval or
disapproval of such items within ten business days of completion, such items
shall be deemed approved by Lessee.
50.3 For the purpose of interpreting obligations and ownership under terms of
this lease, "base building improvements" are differentiated from "leasehold
improvements" as being those improvements that pre-existed the installation of
"leasehold improvements" installed in the premises on behalf of either Specialty
Laboratories, Inc or the Lessee.
(a) Under terms of this lease and termination of an existing lease
for Building 6 premises, between Specialty Laboratories, Inc. and the Lessor,
parties agree that Lessee shall purchase the Specialty Laboratories, Inc.
leasehold and perform under obligations of this lease (between Lessor and
Lessee) as if the alterations, improvements (additions and utility
installations) had been installed by the Lessee.
(b) Leasehold improvements installed and financed by the Lessor,
and to be amortized over the term of the lease, shall be the property of the
Lessor and remain upon the property of the Lessor upon expiration of the lease
term unless Lessor requires their removal pursuant to Paragraph 7.3(a).
(c) Leasehold improvements paid for upon installation by the
Lessee, shall be the property of the Lessor and remain upon the property of the
Lessor upon expiration of the lease term unless Lessor requires their removal
pursuant to Paragraph 7.3(a). The leasehold may not be assigned, transferred, or
sublet during the term of the lease without consent of the Lessor.
51. BROKER'S FEE
Lessee represents and warrants to Lessor that it has not engaged any broker,
finder, or other person who would be entitled to any commission or fees in
respect of the negotiation, execution or delivery of this Lease and shall
indemnify and hold harmless Lessor against any loss, cost, liability, or expense
incurred by Lessor as a result of any claim asserted by any broker, finder, or
other person on the basis of any arrangements made or alleged to have been made
by or on behalf of Lessee.
52. HAZARDOUS MATERIALS STORAGE AND USE
Lessee agrees that use of Hazardous Materials is incidental to its operations on
the premises and is not the primary or substantial purpose of its Tenancy.
(a) Lessee shall coordinate any permit application for use,
storage, handling, and disposal of Hazardous Materials with the Lessor and shall
submit updated copies of such permits, applications, and licenses to Lessor for
Lessor's files. At the request of the Lessor, Lessee shall submit a list and
material data sheet for all Hazardous Materials maintained in the Premises.
-15-
<PAGE> 16
(b) Lessor, the Master Lessor, and their respective agents and
Lenders shall have the right to enter the Premises at reasonable times for the
purpose of inspecting the same for "Hazardous Materials" as defined in any
Federal, State, or local law or regulation, showing the same to prospective
purchasers, lenders, or lessees, and making such alterations, repairs,
improvements, or additions to the Premises as Lessor or Master Lessor may deem
necessary or desirable.
(c) Hazardous Materials used, produced, stored, processed,
treated, refined, generated, and disposed of by Lessee shall be the
responsibility of Lessee, and Lessee shall undertake and perform all such
activities in accordance with all applicable laws and regulations and in
accordance with Lessor's standard practices and in a safe and reasonable manner,
during the term of the Lease, when required or appropriate, but in no event
later than the date that the Lease is terminated.
53. As used herein, "Lease" means "Sublease", "Lessor" means "Sublessor" and
"Lessee" means "Sublessee".
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<PAGE> 17
ADDENDUM TO
STANDARD LEASE
DATED June 1, 1993
BY AND BETWEEN General Atomics
Ixsys, Inc.
54 RENT ESCALATIONS
(a) On each anniversary of this Sublease, the monthly rent payable under
paragraph 4 of the attached Lease shall be adjusted by the increase, if any,
from the date this Lease Commenced, in the Consumer Price Index of the Bureau
of Labor Statistics of the U.S. Department of Labor for Urban Wage Earners and
Clerical Workers, Los Angeles-Long Beach-Anaheim, California (1967=100), "All
Items", herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month
of the term of this Lease, as set forth in paragraph 4 of the attached Lease,
shall be multiplied by a fraction the numerator of which shall be the C.P.I. of
the calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information.
Upon notification of the actual adjustment after publication of the required
C.P.I., any overpayment shall be credited against the next installment of rent
due, and any underpayment shall be immediately due and payable by Lessee.
Lessor's failure to request payment of an estimated or actual rent adjustment
shall not constitute a waiver of the right to any adjustment provided for in
the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said association and the decision of the arbitrators shall be binding
upon the parties. The cost of said Arbitrators shall be paid equally by Lessor
and Lessee.
(e) Annual rent adjustment determined under (a) shall be 4% minimum and
8% maximum.
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RENT ESCALATIONS Form RE-3-383
<PAGE> 18
THE IDEAL LOCATION
Sorrento West is strategically located just off U.S. Interstate 5 at 805,
the major North/South highways that provide easy access to the West's major
markets. All major delivery firms provide regular service. San Diego's port
facilities and international airport are only 15 minutes away.
[MAP]
DIRECTIONS FROM SAN DIEGO: Take the Sorrento Valley Exit off
Interstate 5 (north). Turn left on Roselle Street. Pass
under Interstate 5 and follow Roselle to Sorrento West site.
OR
Take the Sorrento Valley Exit off Interstate 805 (north).
Turn left on Sorrento Valley Road. Follow Sorrento Valley
[MAP] Road to Intersection with Sorrento Valley Blvd. Turn left
over railroad tracks and bridge spanning flood control
channel. Turn right onto Roselle Street and follow Roselle
north to Sorrento West site. Approximately 1 block.
FROM LOS ANGELES: Take Carmel Valley Road Exit off
Interstate 5 (South). Turn right onto Carmel Valley Road
and then left onto Sorrento Valley Road. Follow Sorrento
Valley Road to intersection with Sorrento Valley Boulevard.
Turn right over railroad tracks and bridge spanning flood
control channel. Turn right onto Roselle Street and follow
Roselle to Sorrento West site.
For information contact:
Exhibit A-1
<PAGE> 19
FIRST-IN SPACE LEASED BY IXSYS -9626SF
BUILDING 63
[MAP]
Exhibit A-2
<PAGE> 20
[FLOOR PLAN]
BUILDING 66
Exhibit A-3
<PAGE> 21
RECORDING REQUESTED BY AND )
)
WHEN RECORDED RETURN TO: )
)
PILLSBURY MADISON a SUTRO )
101 West Broadway, Ste. 1800 )
San Diego, CA 92101 )
Attn: Angela M. Yates, Esq. )
- --------------------------------------------------------------------------------
(SPACE ABOVE FOR RECORDER'S USE)
AGREEMENT OF SUBORDINATION,
NONDISTURBANCE AND ATTORNMENT
NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN THE LEASEHOLD ESTATE IN
THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME
OTHER OR LATER SECURITY INSTRUMENT.
THIS AGREEMENT OF SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
("Agreement") is dated the ___ day of December, 1991, between Allstate Life
Insurance Company of New York ("Lender") and Ixsys, Inc., a ______________
_______________ ("Subtenant").
RECITALS
A. Sorrento Went Properties, Inc., a Delaware corporation ("Borrower")
and General Atomics, a California corporation ("GA") are the landlord and
tenant, respectively, under that certain Net Lease dated as of December 17, 1987
by and between Genesee Properties, Inc., a Wyoming corporation and GA (formerly
known as "GA Technologies, Inc."), (the "Master Lease").
B. Subtenant has executed that certain lease dated June 1, 1993 (the
Sublease) with GA, as lessor or sublessor ("Landlord"), covering the premises
(the "Premises") in that certain building located at 3520 & 3550 Dunhill Street
San Diego, California (the "Property"); and
C. Lender has made or has agreed to make a mortgage loan to Borrower
secured by a deed of trust on the Property which includes an assignment of
Borrower's interest in the Master Lease and all subleases (the "Mortgage"); and
D. The parties hereto desire to confirm their understanding with
respect to the Sublease and the Mortgage.
NOW, THEREFORE, in consideration of the covenants, terms, conditions and
agreements contained herein, the parties hereto agree as follows:
-1-
<PAGE> 22
1. The Sublease and the Master Lease are and shall continue to be
unconditionally subject and subordinate in all respects to the Mortgage and the
lien created thereby, and to any advancements made thereunder, and to any
consolidations, extensions, modifications or renewals thereof.
2. Subtenant agrees to give Lender a copy of any notice of default
served on the Landlord by certified mail, return receipt requested, with postage
prepaid, at Allstate Plaza West J2A, 3100 Sanders Road, Northbrook, Illinois
60062, Attn: Commercial Mortgage Division. If Landlord fails to cure such
default within the time provided in the Sublease, Lender shall have the right,
but not the obligation to cure such default on behalf of Landlord within thirty
(30) calendar days after the time provided for in the Sublease or within a
reasonable period if such default cannot be cured within that time and Lender is
proceeding with due diligence to cure such default. In such event Subtenant
shall not terminate the Sublease while such remedies are being diligently
pursued by Lender. Further, Subtenant shall not, as to Lender, require cure of
any such default which is not susceptible of cure by Lender.
3. So long an Subtenant is not in default under the Sublease,
Subtenant's possession and occupancy of the Premises shall not be disturbed by
Lender during the term of the Sublease or any extension thereof, subject to the
terms of Section 4 below.
4. If Lender obtains the right to possession of the Premises or if the
Borrower's interest in the Property is transferred to Lender by foreclosure,
deed in lieu of foreclosure, or otherwise, then the Master Lease and the
Sublease shall be deemed automatically terminated, regardless of any contrary
provisions of the Master Lease or the Sublease. However, Lender and Subtenant
agree that, simultaneously with such termination, this Agreement will be deemed
to constitute a new lease on terms identical to those in the Sublease, except
for the identity of the Landlord. All terms and conditions of the Sublease are
incorporated herein by this reference as if met forth in full. The provisions of
this Paragraph 4 are intended to be self-effectuating.
5. If Lender succeeds to Landlord's interest under the Sublease, Lender
shall not be:
(a) liable for any act or omission of Landlord, Borrower or any
prior landlord; or
(b) subject to any offsets or defenses which Subtenant might have
against Landlord, Borrower or any prior landlord; or
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<PAGE> 23
(c) required or obligated to credit Subtenant with any rent or
additional rent for any rental period beyond the then current month which
Subtenant might have paid Landlord, Borrower or any prior landlord; or
(d) bound by any amendments or modifications of the Sublease made
without Lender's consent, other than exercise of rights, options or elections
contained in the Sublease, including without limitation options to extend the
term of the Sublease; or
(e) liable for the return of any security deposit unless such
security deposit shall have been actually received by Lender. In the event of
receipt of any such security deposit, Lender's obligations with respect thereto
shall be limited to the amount of such security deposit actually received by
Lender, and Lender shall be entitled to all rights, privileges and benefits of
Landlord met forth in the Sublease with respect thereto.
6. Subtenant declares, agrees and acknowledges that:
(a) Lender is not obligated to determine whether its loan proceeds
are used for the purposes provided for in its loan agreement. If the Borrower
uses or applies the loan proceeds for purposes other than those permitted in its
loan agreement, that will not affect the subordination herein; and
(b) Subtenant intentionally and unconditionally waives, subjects
and subordinates the Sublease and the leasehold estate created by the Sublease
in favor of the lien of the Mortgage. Subtenant acknowledges that Lender is
relying upon this waiver, subjection and subordination in making a loan to
Borrower and that loan would not be made without this waiver, subjection and
subordination.
7. The provisions of this Agreement shall be binding upon and inure to
the benefit of Lender and Subtenant and their respective successors and assigns.
Furthermore, the provisions of this Agreement shall be binding upon any
guarantor of Subtenant's obligations under the Sublease. The words "Lender,"
"Landlord" and "Subtenant" shall include their respective heirs, legatees,
executors, administrators, beneficiaries, successors and assigns. This Agreement
shall be governed by the laws of the State of California.
8. Any notices to Subtenant hereunder shall be effective upon mailing
notice to Subtenant by certified mail, return receipt requested, with postage
prepaid, at the address set forth in the Sublease or at such other address as
the Subtenant may designate in writing to Lender at the address set forth in
paragraph 2.
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<PAGE> 24
9. This Agreement contains the entire agreement between the parties and
no modifications shall be binding upon any party hereto unless set forth in a
document duly executed by or on behalf of such party.
10. The Agreement may be executed in multiple counterparts, all of which
shall be deemed originals and with the same effect as if all parties had signed
the same document. All of such counterparts shall be construed together and
shall constitute one instrument.
11. Subtenant will, within ten days after Lender's request, execute,
acknowledge, deliver and furnish such documents or take such further action as
Lender may deem necessary or desirable to evidence this Agreement as a direct
lease between Lender and Subtenant, upon the occurrence of the events described
in Paragraph 4 above, or to otherwise carry out the terms of this Agreement.
NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH MAY ALLOW
THE PARTIES AGAINST WHOM YOU CLAIM AN EQUITABLE INTEREST IN REAL PROPERTY TO
OBTAIN A LOAN A PORTION OF WHICH MAY BE EXPENDED FOR PURPOSES OTHER THAN
IMPROVEMENT OF THE LAND.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LENDER: SUBTENANT:
ALLSTATE LIFE INSURANCE IXSYS, INC.
COMPANY OF NEW YORK
By: By: [Signature Illegible]
---------------------------------- --------------------------------
By: Name: [Illegible]
---------------------------------- ------------------------------
Its Authorized Signatories Title: V.P. Business/[Illegible]
-----------------------------
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<PAGE> 25
We consent to the terms and conditions of the above Agreement and
acknowledge and agree that, upon the occurrence of any of the events described
in Paragraph 4 of this Agreement, we shall have no right, title or interest in
and to any rents or other payments payable to Lender by Subtenant, accruing
after the date of termination.
LANDLORD: BORROWER:
GENERAL ATOMICS, SORRENTO WEST PROPERTIES, INC.
a California corporation a Delaware corporation
By: By:
-------------------------------- ------------------------------------
Name: Name:
------------------------------ ----------------------------------
Title: Title:
----------------------------- ---------------------------------
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<PAGE> 26
State of California )
)
County of )
)
On___________________________, before me, _______________________________
_________________________________, a notary Public, personally appeared
_______________________________________________________________________________
________________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument, the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature________________________________ (Seal)
State of ___________________)
)
County of___________________)
On____________________, before me, __________________________________
________________________________, a notary public, personally appeared
_______________________________________________________________________________,
authorized signatories of Allstate Life Insurance Company of New York,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument, the person(s), or the entity upon behalf of which the person(s)
acted, executed the Instrument.
WITNESS my hand and official seal.
Signature _________________________________ (Seal)
-6-
<PAGE> 27
State of California )
)
County of )
On____________________, before me ________________________________
_____________________________________, a notary public, personally appeared
_______________________________________________________________________________
______________________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her their signature(s) on the instrument, the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature _____________________________________ (Seal)
State of California )
)
County of )
On _________________________________, before me _________________________
______________________________, a notary public, personally appeared
_______________________________________________________________________________
_________________________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument, the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature _______________________________________ (Seal)
-7-
<PAGE> 28
EXHIBIT "A-5"
GENERAL ATOMICS RULES & REGULATIONS
ATTACHED AND MADE A PART OF THE LEASE
DATED JUNE 1, 1993
BY AND BETWEEN GENERAL ATOMICS
AND IXSYS, INC.
1. Lessor agrees that Lessee is entitled to, and shall have the quiet
enjoyment of the premises described in the Lease.
2. Lessee shall not litter or allow materials such as shipping containers,
pallets, and discarded fixtures to accumulate or be stored outside
buildings, on the roof, in the landscaping, parking lots, or common areas.
3. The water closets, urinals and other plumbing shall be used for the
purpose for which they were constructed and no rubbish, newspapers or
other substances of any kind shall be thrown into them. Lessee shall not
mark, install screws or drill into, or in any way deface the exterior
walls, wood, paint, stone, metal work, or entrances of the buildings
without the express consent of the Lessor.
4. Lessee shall not install or use any equipment in the premises which might
damage the floors, roofs, or exterior walls of the buildings. All damage
to the buildings caused by installing or removing any fixtures, furniture,
equipment or other property shall be repaired at the expense of Lessee.
5. Lessee and Lessee's agent and employees shall not play any musical
instrument, including radio and television, in a loud or objectionable
manner, use exterior speakers, or make or permit any improper noises in
the buildings or the Industrial Center, or interfere in any way with other
Lessees or those having business with them.
6. Lessee shall not conduct any auction, or sell goods, wares or merchandise
on the premises.
7. Lessor shall not be responsible for loss of or damage to any furniture,
equipment, fixtures, or business products from any cause.
8. Although Lessor may have given Lessee approval to use the name of the
buildings in connection with any business on the property, Lessor shall
have the right to prohibit any advertising by any agent which in Lessor's
opinion, tends to impair the reputation of the buildings or its
desirability as buildings for approved use under terms of the Lease. Upon
written notice from Lessor, Lessee shall refrain from or discontinue such
advertising.
9. Lessee shall not install blinds, shades, awnings or other form of inside
or outside window covering, or window ventilators or similar devices
without the prior written consent of Lessor.
10. Lessee shall give Lessor prompt notice of any accidents to or defects in
the water pipes, gas pipes, electric distribution system, and building
systems.
11. No cooking shall be done or permitted by Lessee on the premises, except in
areas specifically designed for the purpose, without the consent of
Lessor, nor shall the premises be used for the storage of merchandise, for
lodging, or for any improper, objectionable or immoral purposes.
12. Lessee shall see that the doors of the premises are closed and securely
locked before leaving the premises.
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<PAGE> 29
13. Lessee shall not disturb, solicit or canvass any occupant of the
Industrial Center and shall cooperate to prevent same.
14. Lessee's identification sign(s) shall be subject to prior approval by
Lessor.
15. Lessee's employees shall be allowed to access Lessor's Torrey Pines
Industrial Center for specific reasons on condition that any Lessee
employee seeking this privilege follows Lessor's Rules and Regulations for
site access and use. Access privileges shall be limited to business visits
with Torrey Pines tenants, use of Tower Road for access between Torrey
Pines and Sorrento West Industrial Centers, use of the central cafeteria,
and use of the Fitness Center and outside recreation complex at the
Torrey Pines Industrial Center. Lessor, at its sole option, reserves the
right to change or discontinue part or all of Lessee's privileges based
on reasons such as, but not limited to, governmental regulations,
liability exposure, economics, change of ownership, or uncured defaults
related to Lessee's violation of Lessor's Rules and Regulations.
16. Lessee shall provide its own janitorial services to maintain premises in a
clean and safe condition. Trash shall be placed in appropriate disposal
containers at locations designated by Lessor for pick-up and disposal by
Lessor's service. Controlled wastes such as RAD waste and biowaste shall
remain inside the buildings or in a licensed, controlled enclosure
connected to the buildings for disposal by Lessee. Lessee shall be
responsible for disposal of the controlled waste in accordance with
applicable laws and regulations.
17. Smoking shall not be allowed inside those portions of the buildings where
Lessee and Lessor share space served by a common ventilation system.
Smoking shall be allowed outside at designated areas posted by Lessor.
18. From time to time it may become advantageous to make amendments to this
list which are in the best interests of both Lessor and Lessee and which
are not inconsistent with the Lease. Lessor reserves the right to make
such amendments by giving notice to Lessee.
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<PAGE> 30
AMENDMENT #1 TO THE SUBLEASE
BY AND BETWEEN
GENERAL ATOMICS AND IXSYS, INC.
PARTIES, RECITALS AND GENERAL AGREEMENT
This Lease Amendment dated for reference purposes only, March 1, 1994 is made by
and between General Atomics, a California Corporation (herein called "Lessor")
and IXSYS, Inc., a Delaware Corporation (herein called "Lessee".)
RECITALS
A. Parties hereto entered into a Lease Agreement dated June 1, 1993 for
space located at Lessors' Sorrento West Properties at Building 3, 3550 Dunhill
Street and Building 6, at 3520 Dunhill Street. Refer to Exhibit A-1.
B. Under a separate Asset Purchase Agreement, dated June 25, 1993,
Lessee purchased from the previous tenant, Specialty Laboratories, Inc. (SLI) a
leasehold interest owned and installed by SLI in the 14,000sf laboratory at
Building 6. The purchase value of the leasehold interest was $310,000.
C. When the Lease for Building 3 and 6 was first executed, Lessee
intended to enter into a direct purchase of SLI fixtures, an asset separate and
distinct from the leasehold interest described in Paragraph B above. After
review and investigation, Lessee opted to purchase its own fixtures for the
14,000sf space.
D. Lessor agreed to terminate its December 27, 1989 Lease with SLI and
pursuant to terms of said Lease, and a Lease Termination and Assignment of
Leasehold executed by the three parties of interest, agreed to accept the
premises, lease same to Lessee and accommodate assignment of the SLI leasehold
interest from SLI to the Lessee.
E. Lessor agreed to finance and install certain leasehold improvements
in three separate space blocks; 1) in the 14,000sf "first-in" space block in
Building 6, Exhibit A-3; 2) in the 9626sf "first-in" space block in Building 3,
Exhibit A-2, and; 3) in the 6218sf, (now corrected to 5525sf - refer to 49. (c)
of this Agreement) , "expansion" space block in Building 6. A leasehold
improvement allowance of $650,000 was provided by the Lessor for the three
combined space blocks.
F. Lessee agreed to pay rent and operating expenses for the "first-in"
space block in Building 6 starting the date of possession or November 1, 1993,
whichever occurred first, and to pay rent and operating expenses for other space
blocks upon Substantial completion of leasehold improvements or upon possession
in the respective space block whichever occurred first.
K. Lessee agreed to diligently pursue the specification of needed
leasehold improvements for the three distinct space blocks and provide Lessor
criteria for preparing leasehold improvement working drawings.
L. Lessor agreed to make best effort to make certain Specialty
Laboratories diligently pursued vacating its 14,000sf premises in Building 6 and
to successfully surrender said premises in a condition acceptable to both the
Lessor and Lessee.
M. Lessee determined after reviewing its needs that leasehold
improvements of a magnitude more substantial than originally envisioned, were
required for both "first-in" laboratory and "first-in" administrative space
blocks.
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<PAGE> 31
N. Lessee requested Lessor extend the Lease term for all space blocks,
increase the total amount of leasehold financing, and extend the amortization
period for recovery of all Lessor financed leasehold improvement costs.
O. Lessee requested that Lessor abate rent and operating expenses until
the time Lessee received beneficial possession of the respective space blocks,
and extend the term of the option to expand in Building 3 until year end 1994.
NOW THEREFORE, in consideration of the forgoing, and in consideration of mutual
covenants and agreements of the parties hereto, the parties mutually covenant
and agree as follows:
2.1 PREMISES. Change to read: Lessons hereby leases to Lessee and Lessee
leases from Lessor for the term, at the rental, and upon all of the conditions
set forth herein, real property situated in the County of San Diego, State of
California commonly known as:
Building 3 3550 Dunhill Street (approximately 9626sf)
Building 6 3520 Dunhill Street (approximately 14000sf)
Building 6 3520 Dunhill Street (approximately 5525sf)
Total: approximately 29151sf
3.1 TERM. Change the term from five (5) years to ten (10) years.
3.2 DELAY OF POSSESSION. Delete this section in its entirety.
4.1 BASE RENT. Restatement of Paragraph 48.1: The base rent for "first-in"
space shall be at a rate of $0.72 per gross square foot per month ($0.72 x
14,000 SF + $0.72 x 9626 SF = $17,011), net of all operating expenses covered in
Paragraph 4.2. Starting base rent for "expansion" space added to the premises
shall be at the same base rate as that being charged for the "first-in" space.
4.2 OPERATING EXPENSES. Change as follows:
Building 3 no change
Building 6 from: 58.06% to: 80.97%
Industrial Center from: 19.92% to: 24.57%
48.2 RENT ESCALATIONS. Change Paragraph to correct Reference Paragraph should
read: On each anniversary of the Lease, the base rent for all space under Lease,
"first-in" and "expansion" shall be increased as described in Paragraph 54.
48.3 LEASEHOLD IMPROVEMENT RECOVERY. Delete Paragraph in its entirety and
replace with the following:
Starting April 1, 1994, the Lessee shall pay monthly payments in the
amount of $11,710.23 to amortize the $670k leasehold improvement cost over the
period of seven (7) years, at an interest of 12% per annum, Exhibit A-5. The
$670k is comprised of Lessor committed funding effective the date of this
Amendment as follows:
Building 3 "first-in" space block improvements - $237k
Building 6 "first-in" space block improvements - $396k
Building 6 "expansion" space block improvements - 37k
-----
Total: $670k
once leasehold improvements are complete in the 5525sf "expansion space" in
Building 6, and all costs are determined, the actual leasehold allowance total
shall be determined and a new monthly payment schedule shall be calculated using
the actual total cost of improvements for the three separate space blocks, less
the principal reduction paid to amortize the $670k. The new schedule
-2-
<PAGE> 32
shall use this new principal amount amortized over the remaining period of the
7-year term calculated at an interest of 12% per annum.
48.4 SECURITY DEPOSIT. Delete in its entirety and replace with the following:
Lessor has on record a security deposit from the Lessee in the amount of
$24,000. Effective the commencement date for the final amortization schedule,
Paragraph 48.3, Lessee shall pay an additional deposit, or the amount equivalent
to one month's rent, one month's leasehold payment and two month's operating
expenses.
49. COMMENCEMENT DATE, TERM AND EXPANSION SPACE. Delete Paragraph (a) in its
entirety and replace with the following:
(a) The ten (10) year Lease term shall start December 17, 1993,
coincident with the date of substantial completion of "first-in" space block in
Building 6. The term for all space blocks, "first-in", "expansion" or
"Right-of-First-offer", shall terminate concurrently, on December 16, 2003.
Delete Paragraph (b) in its entirety and replace with the following:
(b) Parties agree that this Lease Amendment establishes effective Lease
commencement date as December 17, 1993; changes the lease term from five (5)
years to ten (10) years; and authorizes Lessor to assess Lessee for rent and
operating expenses for Building 6 "first-in" space block starting December 17,
1993 and Building 3 "first-in" space block starting January 19, 1994.
Delete Paragraph (c) in its entirety and replace with the following:
(c) Parties mutually agree that Lessee has executed its option to expand
into the Building 6 "expansion" space block shown on attached Exhibit A-3. This
space block as currently identified on working drawings prepared by the Lessor,
is hereby changed from 6218sf to approximately 5525sf. Further, Lessee shall
give Lessor a minimum of 60 days advance written notice to exercise its option
to lease the 1374sf "expansion" space block in Building 3. This option to expand
shall run for a period starting December 17, 1993 and ending December 31, 1994.
Upon expiration of the option period, Lessee shall lease and take possession of
the said "expansion" space block.
50. LEASEHOLD IMPROVEMENTS. Delete in its entirety and replace with the
following:
The parties mutually agree that Lessor shall install certain leasehold
improvements including: 1) Lessee specified leasehold improvements to Building 6
laboratory "first-in" laboratory space block; 2) Lessee specified leasehold
improvements in the Building 3 administrative "first-in" space block; and 3)
Lessee specified leasehold improvements to Building 6 laboratory "expansion"
space block. Total leasehold improvement costs financed by the Lessor shall not
exceed $900k for all improvements including "first-in" and "expansion" or
"Right-of-First Offer" space.
50.1 FIRST-IN SPACE IMPROVEMENTS. Delete in its entirety and replace with the
following:
Parties shall cooperate to specify leasehold improvements required to be
installed prior to Lessee possession of the premises. Lessor agrees to have
designed, installed and put into operation, those improvements so designated as
"first-in" space improvements.
-3-
<PAGE> 33
(a) Parties agree that leasehold improvements for "first-in" space block
in Building 6 shall be comprised of the combination of leasehold improvements
purchased by the Lessee from the previous tenant and those improvements to be
installed by the Lessor, on behalf of the Lessee.
(b) Parties agree that leasehold improvements for "first-in" space block
in Building 3 shall be those generally specified in a space planning study
prepared by a consultant of the Lessee and more specifically described on
working drawings prepared by the Lessor.
(c) Parties agree that the previous tenant, Specialty Laboratories, Inc.
satisfied its obligation by vacating Building 6 and returning the premises to
the Lessor and Lessee including the leasehold interest purchased by the Lessee.
A list was prepared and a final settlement was consummated pursuant to the
agreement between the three parties of interest. This list is attached as
Exhibit A-5 showing a summary with the total settlement amount of $24,843.
Lessor agrees to credit this settlement amount to cost incurred by Lessor in the
installation of Lessees' fixtures, Paragraph (d), in the Building 6 "first-in"
space block.
(d) Lessee agrees to reimburse Lessor for costs incurred in the
installation of Lessees' fixtures authorized under contract between the Lessor
and subcontractors engaged in the installation of leasehold improvements for
Building 6 "first-in" space. Reimbursement shall include the cost incurred under
these subcontracts, less the settlement amount covered in Paragraph (c), and
said reimbursement shall be made to the Lessor within (10) days after a summary
of costs is submitted to the Lessee by invoice.
50.2 EXPANSION SPACE IMPROVEMENTS.
(b) ALLOWANCE. Delete in its entirety the first paragraph and replace
with the following:
Lessor agrees to provide Lessee a leasehold improvement allowance in the amount
not to exceed the total allowance set-aside of $900,000 less the sum of the
costs incurred for leasehold improvements for "first-in" space in Buildings 3
and 6, as covered in Paragraphs 50.1 (a) and (b). The allowance shall be
applied toward expenditures against any and all costs incurred in the
construction of the leasehold improvements, including, without limitation, any
and all fees, charges, costs, or expenses of any kind incurred by the Lessor in
connection with design, engineering, governmental processing and approval, cost
of equipment, materials, labor, construction overhead and fees, utility hookups,
equipment installation, testing, inspection, or any costs directly related to
the leasehold improvements that improves value of the realty as reflected on
approved working drawings and specifications. Excluded from the allowance are
Lessors' direct applied project management costs, cost of design, purchase,
relocation or setup of Lessees' fixtures, or excess costs incurred by Lessee as
covered below.
Lessee agrees to reimburse Lessor for costs incurred in the installation of
Lessees' fixtures authorized under contract between the Lessor and
subcontractors engaged in the installation of leasehold improvements for
Building 6 "expansion" space. Reimbursement shall include the cost incurred
under these subcontracts and said reimbursement shall be made to the Lessor
within (10) days after a summary of costs is submitted to the Lessee by invoice.
54. RENT ESCALATIONS. Change to delete Rent CPI minimum and maximum limits,
Paragraph (e).
-4-
<PAGE> 34
Except as hereby amended, all other terms and conditions of said Lease shall
remain unchanged and in full force and effect.
LESSOR: LESSEE,
GENERAL ATOMICS IXSYS, INC.
By: /s/ R.H. DALRY By: /s/ JANINE TAYLOR
------------------------------ -----------------------------
R.H. Dalry Janine Taylor
Director Facilities Director of Finance and
Administration
Date: March 9, 1994 Date: March 15, 1994
---------------------------- ---------------------------
-5-
<PAGE> 35
[LOGO]
ADDENDUM TO
STANDARD LEASE
DATED March 1, 1994
-----------------------------------
BY AND BETWEEN General Atomics
--------------------------
IXSYS, Inc.
----------------------------------------
54 RENT ESCALATIONS
(a) On each anniversary of this Sublease the monthly rent payable under
paragraph 4 of the attached Lease shall be adjusted by the increase, if any,
from the date this Lease commenced, in the Consumer Price Index of the Bureau
of Labor Statistics of the U.S. Department of Labor for Urban Wage Earners and
Clerical Workers, Los Angeles-Long Beach-Anaheim, California (1967=100). "All
Items", herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month
of the term of this Lease, as set forth in paragraph 4 of the attached Lease,
shall be multiplied by a fraction the numerator of which shall be the C.P.I.
of the calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information.
Upon notification of the actual adjustment after publication of the required
C.P.I., any overpayment shall be credited against the next installment of rent
due, and any underpayment shall be immediately due and payable by Lessee.
Lessor's failure to request payment of an estimated or actual rent adjustment
shall not constitute a waiver of the right to any adjustment provided for in
the Lease or this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for
decision to the American Arbitration Association in accordance with the then
rules of said association and the decision of the arbitrators shall be binding
upon the parties. The cost of said Arbitrators shall be paid equally by Lessor
and Lessee.
<PAGE> 36
THE IDEAL LOCATION
Sorrento West is strategically located just off U.S. Interstate 5 at 805,
the major North/South highways that provide easy access to the West's major
markets. All major delivery firms provide regular service. San Diego's port
facilities and international airport are only 15 minutes away.
[MAP]
[MAP]
DIRECTIONS FROM SAN DIEGO: Take the Sorrento Valley Exit off
Interstate 5 (north). Turn left on Roselle Street. Pass
under Interstate 5 and follow Roselle to Sorrento West site.
OR
Take the Sorrento Valley Exit off Interstate 805 (north).
Turn left on Sorrento Valley Road. Follow Sorrento Valley
[MAP] Road to Intersection with Sorrento Valley Blvd. Turn left
over railroad tracks and bridge spanning flood control
channel. Turn right onto Roselle Street and follow Roselle
north to Sorrento West site. Approximately 1 block.
FROM LOS ANGELES: Take Carmel Valley Road Exit off
Interstate 5 (south). Turn right onto Carmel Valley Road
and then left onto Sorrento Valley Road. Follow Sorrento
Valley Road to intersection with Sorrento Valley Boulevard.
Turn right over railroad tracks and bridge spanning flood
control channel. Turn right onto Roselle Street and follow
Roselle to Sorrento West site.
For information contact:
Exhibit A-1
Amendment #1
<PAGE> 37
[BUILDING 63 FLOOR PLAN]
Exhibit A-2
Amendment #1
<PAGE> 38
[BUILDING 66 FLOOR PLAN]
Exhibit A-3
Amendment #1
<PAGE> 39
IXSYS LEASEHOLD IMPROVEMENTS March 1, 1994
Loan Amount $670,000.00
Interest Rate 12.0%
Term (in months) 84
Monthly payment $11,710.23
<TABLE>
<CAPTION>
PAYMENT DATE PAYMENT INTEREST BALANCE
- ------------ ------- -------- -------
<S> <C> <C> <C>
$670,000.00
April 1, 1994 $11,710.23 $0.00 658,289.77
May 1, 1994 11,710.23 6,582.90 653,162.44
June 1, 1994 11,710.23 6,531.62 647,983.83
July 1, 1994 11,710.23 6,479.84 642,753.44
August 1,1994 11,710.23 6,427.53 637,470.74
September 1, 1994 11,710.23 6,374.71 632,135.22
October 1, 1994 11,710.23 6,321.35 626,746.34
November 1, 1994 11,710.23 6,267.46 621,303.58
December 1, 1994 11,710.23 6,213.04 615,806.38
January 1, 1995 11,710.23 6,158.06 610,254.22
February 1, 1995 11,710.23 6,102.54 604,646.53
March 1, 1995 11,710.23 6,046.47 598,982.77
April 1, 1995 11,710.23 5,989.83 593,262.36
May 1, 1995 11,710.23 5,932.62 587,484.76
June 1, 1995 11,710.23 5,874.85 581,649.37
July 1, 1995 11,710.23 5,816.49 575,755.64
August 1,1995 11,710.23 5,757.56 569,802.96
September 1, 1995 11,710.23 5,698.03 563,790.76
October 1, 1995 11,710.23 5,637.91 557,718.44
November 1, 1995 11,710.23 5,577.18 551,585.40
December 1, 1995 11,710.23 5,515.85 545,391.02
January 1, 1996 11,710.23 5,453.91 539,134.70
February 1, 1996 11,710.23 5,391.35 532,815.82
March 1, 1996 11,710.23 5,328.16 526,433.74
April 1, 1996 11,710.23 5,264.34 519,987.85
May 1, 1995 11,710.23 5,199.88 513.477.50
June 1, 1996 11,710.23 5,134.78 506,902.05
July 1, 1996 11,710.23 5,069.02 500,260.84
August 1,1996 11,710.23 5,002.61 493,553.21
September 1, 1996 11,710.23 4,935.53 486,778.52
October 1, 1996 11,710.23 4,867.79 479,936.07
November 1, 1996 11,710.23 4,799.36 473,025.20
December 1, 1996 11,710.23 4,730.25 466,045.22
January 1, 1997 11,710.23 4,660.45 458,995.45
February 1, 1997 11,710.23 4,598.95 451,875.17
March 1, 1997 11,710.23 4,518.75 444,683.69
April 1, 1997 11,710.23 4,446.84 437,420.30
May 1, 1997 11,710.23 4,374.20 430,084.27
June 1, 1997 11,710.23 4,300.84 422,674.89
</TABLE>
Exhibit A-4
Amendment #1
Page 1 of 2
<PAGE> 40
IXSYS LEASEHOLD IMPROVEMENTS March 1, 1994
<TABLE>
<S> <C> <C> <C>
July 1, 1997 11,710.23 4,226.75 415,191.40
August 1, 1997 11,710.23 4,151,91 407,633.09
September 1, 1997 11,710.23 4,076.33 399,999.19
October 1, 1997 11,710.23 3,999.99 392,288.95
November 1, 1997 11,710.23 3.922.89 384,501.61
December 1, 1997 11,710.23 3,845.02 376,636.40
January 1, 1998 11,710.23 3,766.36 368,692.53
February 1, 1998 11,710.23 3,686.93 360,669.23
March 1, 1998 11,710.23 3,606.69 352,565.69
April 1, 1998 11,710.23 3.525.66 344,381.12
May 1, 1998 11,710.23 3,443.81 366,114.70
June 1, 1998 11,710.23 3,361.15 327,765.61
July 1, 1998 11,710.23 3,227.66 319,333.04
August 1, 1998 11,710.23 3,193.33 310,816.14
September 1, 1998 11,710.23 3,108.16 302,214.07
October 1, 1998 11,710.23 3,022.14 293,525.98
November 1, 1998 11,710.23 2,935.26 284,751.01
December 1, 1998 11,710.23 2,847.51 275,888.29
January 1, 1999 11,710.23 2,758.88 266,936.95
February 1, 1999 11,710.23 2,669.37 257,896.08
March 1, 1999 11,710.23 2,578.96 248,764.82
April 1, 1999 11,710.23 2,487.65 239,542.23
May 1, 1999 11,710.23 2,395.42 230,227.43
June 1, 1999 11,710.23 2,302.27 220,819.47
July 1, 1999 11,710.23 2,208.19 211,317.44
August 1, 1999 11,710.23 2,113.17 201,720.38
September 1, 1999 11,710.23 2,017.20 192,027.35
October 1, 1999 11,710.23 1,920.27 182,237.40
November 1, 1999 11,710.23 1,822.37 172,349.54
December 1, 1999 11,710.23 1,723.50 162,362.81
January 1, 2000 11,710.23 1,623.61 152,276.20
February 1, 2000 11,710.23 1,522,76 142,088.74
March 1, 2000 11,710.23 1,420.89 131,799.39
April 1, 2000 11,710.23 1,317.99 121,407.16
May 1, 2000 11,710.23 1,214.07 110,911.00
June 1, 2000 11,710.23 1,109.11 100,309.88
July 1, 2000 11,710.23 1,003.10 89,602.75
August 1, 2000 11,710.23 896.03 78,788.55
September 1, 2000 11,710.23 787.89 67,866.20
October 1, 2000 11,710.23 678.66 56,834.63
November 1, 2000 11,710.23 568.35 45,692.75
December 1, 2000 11,710.23 456.93 34,439.45
January 1, 2001 11,710.23 344.39 23,073.61
February 1, 2001 11,710.23 230.74 11,594.12
March 1, 2001 11,710.23 115.94 (0.17)
</TABLE>
EXHIBIT A-4
Amendment #1
Page 2 of 2
<PAGE> 41
BUILDING 6 SPECIALTY LABS RESTORATION REQUIREMENTS
Revised 12/16/93
<TABLE>
<S> <C> <C>
MECHANICAL
o Inspect general conditions of HVAC units;
inspect fans, motor, belts,
compressors and filters cleanliness.
o Inspect ducting for cleanliness.
o Estimate needed repairs.
Jackson & Blanc $702
FLOORING
o Replace sheet vinyl floor covering where
seams and broken edges cannot be repaired.
Harvey Interiors $19,300
CLEANING
o Professionally clean all carpet and vinyl floor
that will not be replaced. $400
o Professionally clean blinds. 50 blinds
@ $8.00/each $400
PAINTING
o Repair all holes in dry wall, fill, sand and
paint with one coat.
o Paint wall covering in Director's office after
patching holes in the wall.
McMurray Painting $2,300
REMOVED OR MISSING LEASEHOLD ITEMS
1. Manning Development, Inc. Change Order #2 851.50
Plug strips 102.18
GC & OH @ 12%
--------
953.68
2. Manning Development Change Order #21
Projection screen 408.00
GC & OH @ 12% 48.96
--------
456.96
3. Manning Development Change Order #22
2 Coats of wax VCT flooring $625.00
GC & OH @ 12% 75.00
--------
4. Manning Development Change Order #23
Provide and install 6 fire extinguishers $301.95
GC & OH @ 12% 36.23
--------
338.18
5/6 of cost (5 extinguishers missing) $281.82
--------
Total $2392.46
o Discounted value 310K x $2392 = $1,741
----
426K
TOTAL $24,843
Less Security Deposit (8,680)
Less Specialty Lab's Check #017782 dated 8/27/93 (11,320)
Less Final Payment $(4,843)
-------
Balance Due -0-
</TABLE>
Exhibit A-5
Amendment #1
<PAGE> 42
AMENDMENT #2 TO THE SUBLEASE
BY AND BETWEEN
GENERAL ATOMICS AND IXSYS, INC.
This Sublease Amendment #2 ("Amendment #2") dated for reference purposes only,
January 1, 1995, is made by and between General Atomics, a California
Corporation (herein called "Lessor") and IXSYS, Inc., a Delaware Corporation
(herein called "Lessee"):
RECITALS
WHEREAS, Parties entered into a Sublease Agreement dated June 1, 1993, and
Amendment #1 dated March 1, 1994, for certain Premises designated as "FIRST-IN"
and "EXPANSION";
WHEREAS, Lessor has completed the leasehold improvements for "EXPANSION"
space at Building 6, 3520 Dunhill Street, the last of three separate agreed to
improvements, and has given notice to the Lessee of the change in leasehold
payment schedule;
WHEREAS, Lessee Subleases from Lessor, on a month-to-month basis, part of
the designated "EXPANSION" space in Building 3, 3550 Dunhill Street and Parties
agreed by previous Amendment that the whole Building 3 "EXPANSION" space block
would be added to the Lessee's Premises effective January 1, 1995; and herein
amended to March 1, 1995;
WHEREAS, Parties herein desire to modify the Sublease in certain respects
to clarify agreements and note for the record completion of certain commitments;
NOW THEREFORE, in consideration of the forgoing, and in consideration of
mutual covenants and agreements of the Parties hereto, the Parties mutually
covenant and agree as follows:
2.1 PREMISES. Following is a summary of the Lessee's possession dates of all
space blocks under terms of the base Sublease and Amendments #1 and #2 (refer
to Exhibit A-2, Building 3 Floor Plan; Exhibit A-3, Building 6 Floor Plan:
<TABLE>
<CAPTION>
BUILDING DESIGNATION SIZE (SF) POSSESSION DATE
- -------- ----------- -------- ---------------
<S> <C> <C> <C>
6 "FIRST-IN" (Phase I) 14,000 December 17, 1993
3 "FIRST-IN" (Admin) 9,626 January 19, 1994
6 "EXPANSION" (Phase II) 3,910 July 1, 1994
3 "EXPANSION" 475 July 1, 1994
3 "EXPANSION" 899 March 1, 1995
TOTAL: 28,910
</TABLE>
3.1 TERM. The Term of the Sublease shall remain unchanged. The Sublease period
is for ten years with a commencement date of December 17, 1993 and termination
date of December 16, 2003. End of term for all space blocks, "FIRST-IN" and
"EXPANSION", shall be coterminous.
-1-
<PAGE> 43
4.1 BASE RENT. Monthly rent for space blocks designated "FIRST-IN" or
"EXPANSION", shall remain at a rate of $0.72 per gross square foot until
adjusted in accordance with Paragraph 54.
4.2 OPERATING EXPENSES. Effective the date of this Amendment, the Lessee's
prorata portion of the operating expenses shall be calculated as follows:
<TABLE>
<CAPTION>
BLDG/PARK TOTAL SIZE(SF) LESSEE OCCUPIED(SF) PERCENTAGE
- --------- -------------- ------------------- ----------
<S> <C> <C> <C>
3 20,817 11,000 52.84
6 24,113 17,910 74.28
4, 5 & 7 73,702 -0- -0-
------- ------ -----
Park 118,632 28,910 24.37
</TABLE>
48.2 RENT ESCALATIONS. The first Rent Escalation for "FIRST-IN" and
"EXPANSION" space shall be deferred until January 1, 1996 and shall be indexed
as stipulated in Paragraph 54.
48.3 LEASEHOLD IMPROVEMENT RECOVERY. Previous Sublease Agreements provided for
Lessor's leasehold improvement financing for those space blocks designated as
"FIRST-IN" and "EXPANSION". Three separate projects were completed and funded
for these designated spaces. These include: Building 6 (Phase I); Building 3
(Admin.) and Building 6 (Phase II). A leasehold payment schedule dated March 1,
1994 was established for the purpose of recovering costs of improvements on the
first two stated projects and cost of the design for the third stated project.
Further, Sublease Amendment #1 stipulated that upon substantial completion of
Building 6 (Phase II), then designated as 5,525sf and herein corrected to the
actual space block size of 3,910sf, a new amortization schedule would be
determined using actual expenditures of the three separate projects. The March
1, 1994 payment schedule is hereby replaced by a revised schedule dated January
1, 1995, with a starting balance determined as follows:
<TABLE>
<S> <C>
Building 6 (Phase I) - Portion Financed by Lessor $397,487.50
Building 6 (Phase II) - Portion Financed by Lessor $284,322.68
Building 3 (Admin.) - Portion Financed by Lessor $231,269.49
Total Financed by Lessor $913,079.67
Less Principal Reduction: 3-1-94 Payment Schedule $ 54,193.62
Starting Balance: 1-1-95 Payment Schedule $858,886.00
MONTHLY LEASEHOLD IMPROVEMENT PAYMENT: $ 16,170.94
</TABLE>
The new balance is amortized at the previously agreed rate of 12% per annum,
over the remaining term of the original seven year financing term that started
April 1, 1994 and ends March 1, 2001 (seventy-five months). Refer to Exhibit A-5
for the new payment schedule.
48.4 SECURITY DEPOSIT. The Sublease Agreement stipulates that Lessee shall pay
a security deposit in the amount equivalent to one month's rent plus two months'
-2-
<PAGE> 44
operating expenses and one month's leasehold payment. The security deposit due
upon execution of this Sublease Amendment is calculated as follows:
<TABLE>
<CAPTION>
APPLICATION SIZE RATE AMOUNT
----------- ---- ---- -------
<S> <C> <C> <C>
Building 6 "FIRST IN" 14,000 $0.72 $10,080
Building 3 "FIRST IN" 9,626 $0.72 $ 6,931
Building 6 "EXPANSION" 3,910 $0.72 $ 2,815
Building 3 "EXPANSION" 1,374 $0.72 $ 989
Operating Expenses 28,910 $0.15(x2) $ 8,673
Building 6 "Exp" Elect. Uil. 3,910 $0.50 $ 1,955
Monthly Leasehold Payment $16,171
-------
TOTAL DEPOSIT $47,614
Deposit on Record $29,317
DEPOSIT DUE: $18,297
</TABLE>
50. LEASEHOLD IMPROVEMENTS. Delete in its entirety and replace with the
following:
This Sublease Amendment notes for the record the actual costs incurred by the
Lessor to install Lessee's leasehold improvements for "FIRST-IN" and "EXPANSION"
space blocks. This Amendment also notes for record, a revised payment schedule
required for Lessee's payment of the leasehold improvements and adjusted
security deposit. Parties agree that Lessor has fulfilled its obligation to
finance and install leasehold improvements for the "FIRST-IN" and "EXPANSION"
space.
50.1 "FIRST-IN" SPACE IMPROVEMENTS. Delete in its entirety.
50.2 "EXPANSION" SPACE IMPROVEMENTS. Delete in its entirety.
EXCEPT AS HEREBY AMENDED, ALL OTHER TERMS AND CONDITIONS SAID SUBLEASE SHALL
REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.
LESSOR: LESSEE:
GENERAL ATOMICS IXSYS, INC.
By: /s/ ROBERT H. DALRY By: /s/ JANINE TAYLOR
---------------------------- ----------------------------
R.H. Dalry Janine Taylor
Director Facilities CFO and VP Finance and Admin.
Date: June 16, 1995 Date: September 22, 1997
-------------------------- --------------------------
-3-
<PAGE> 45
[AIR LOGO]
ADDENDUM TO
STANDARD LEASE
DATED January 1, 1995
BY AND BETWEEN General Atomics
IXSYS, Inc.
54 RENT ESCALATIONS
(a) On January 1, 1996 and every anniversary date thereafter, the monthly
rent payable under paragraph 4 of the attached Lease shall be adjusted by the
increase, if any, from the date this Lease commenced, in the Consumer Price
Index of the Bureau of Labor Statistics of the U.S. Department of Labor for
Urban Wage Earners and Clerical Workers. Los Angeles-Long Beach-Anaheim,
California (1967=100). "All Items", herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month
of the term of this Lease, as set forth in paragraph 4 of the attached Lease,
shall be multiplied by a fraction the numerator of which shall be the C.P.I. of
the calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the actual
adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information. Upon
notification of the actual adjustment after publication of the required C.P.I.,
any overpayment shall be credited against the next installment of rent due, and
any underpayment shall be immediately due and payable by Lessee. Lessor's
failure to request payment of an estimated or actual rent adjustment shall not
constitute a waiver of the right to any adjustment provided for in the Lease or
this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Lessor and Lessee cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
RENT ESCALATIONS
<PAGE> 46
THE IDEAL LOCATION
Sorrento West is strategically located just off U.S. Interstate 5 at 805, the
major North/South highways that provide easy access to the West's major
markets. All major delivery firms provide regular service. San Diego's port
facilities and international airport are only 15 minutes away.
DIRECTIONS
[Map]
FROM SAN DIEGO: Take the Sorrento Valley exit off Interstate 5 (north). Turn
left on Roselle Street. Pass under Interstate 5 and follow Roselle to Sorrento
West site.
OR
Take the Sorrento Valley Exit off Interstate 805 (north). Turn left on Sorrento
Valley Road. Follow Sorrento Valley Road to intersection with Sorrento Valley
Blvd. Turn left over railroad tracks and bridge spanning flood control channel.
Turn right onto Roselle Street and follow Roselle north to Sorrento West site.
Approximately 1 block.
FROM LOS ANGELES: Take Carmel Valley Road exit off Interstate 5 (south). Turn
right onto Carmel Valley Road and then left onto Sorrento Valley Road. Follow
Sorrento Valley Road to intersection with Sorrento Valley Boulevard. Turn right
over railroad tracks and bridge spanning flood control channel. Turn right onto
Roselle Street and follow Roselle to Sorrento West site.
[Map]
Exhibit A-1
Site Map
<PAGE> 47
BUILDING 3
[FLOOR PLAN]
Exhibit A-2
Building 3 Floor Plan
<PAGE> 48
[FLOOR PLAN]
Exhibit A-3
Building 6 Floor Plan
<PAGE> 49
Amortization Schedule for Recovery of Costs for Ixsys Leasehold Improvements
January 1, 1995
<TABLE>
<S> <C>
Loan Amount $858,886.00
Interest Rate 12.0%
Term (in months) 75
Monthly payment $ 16,170.94
</TABLE>
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ---------- --------- -----------
<S> <C> <C> <C>
$858,886.00
January 1, 1995 $16,170.94 $ 0.00 842,715.06
February 1, 1995 $16,170.94 $8,427.15 834,971.27
March 1, 1995 $16,170.94 $8,349.71 827,150.04
April 1, 1995 $16,170.94 $8,271.50 819,250.60
May 1, 1995 $16,170.94 $8,192.51 811,272.17
June 1, 1995 $16,170.94 $8,112.72 803,213.95
July 1, 1995 $16,170.94 $8,032.14 795,075.15
August 1, 1995 $16,170.94 $7,950.75 786,854.96
September 1, 1995 $16,170.94 $7,868.55 778,552.57
October 1, 1995 $16,170.94 $7,785.53 770,167.16
November 1, 1995 $16,170.94 $7,701.67 761,697.89
December 1, 1995 $16,170.94 $7,616.98 753,143.93
January 1, 1996 $16,170.94 $7,531.44 744,504.43
February 1, 1996 $16,170.94 $7,445.04 735,778.53
March 1, 1996 $16,170.94 $7,357.79 726,965.38
April 1, 1996 $16,170.94 $7,269.65 718,064.09
May 1, 1996 $16,170.94 $7,180.64 709,073.79
June 1, 1996 $16,170.94 $7,090.74 699,993.59
July 1, 1996 $16,170.94 $6,999.94 690,822.59
August 1, 1996 $16,170.94 $6,908.23 681,559.87
September 1, 1996 $16,170.94 $6,815.60 672,204.53
October 1, 1996 $16,170.94 $6,722.05 662,755.64
November 1, 1996 $16,170.94 $6,627.56 653,212.25
December 1, 1996 $16,170.94 $6,532.12 643,573.43
January 1, 1997 $16,170.94 $6,435.73 633,838.23
February 1, 1997 $16,170.94 $6,338.38 624,005.67
March 1, 1997 $16,170.94 $6,240.06 614,074.79
April 1, 1997 $16,170.94 $6,140.75 604,044.60
May 1, 1997 $16,170.94 $6,040.45 593,914.10
June 1, 1997 $16,170.94 $5,939.14 583,682.30
July 1, 1997 $16,170.94 $5,836.82 573,348.19
August 1, 1997 $16,170.94 $5,733.48 562,910.73
September 1, 1997 $16,170.94 $5,629.11 552,368.89
October 1, 1997 $16,170.94 $5,523.69 541,721.64
November 1, 1997 $16,170.94 $5,417.22 530,967.92
December 1, 1997 $16,170.94 $5,309.68 520,106.66
January 1, 1998 $16,170.94 $5,201.07 509,136.79
February 1, 1998 $16,170.94 $5,091.37 498,057.21
March 1, 1998 $16,170.94 $4,980.57 486,866.85
April 1, 1998 $16,170.94 $4,868.67 475,564.57
May 1, 1998 $16,170.94 $4,755.65 464,149.28
June 1, 1998 $16,170.94 $4,641.49 452,619.83
July 1, 1998 $16,170.94 $4,526.20 440,975.09
August 1, 1998 $16,170.94 $4,409.75 429,213.90
September 1, 1998 $16,170.94 $4,292.14 417,335.10
October 1, 1998 $16,170.94 $4,173.35 405,337.51
November 1, 1998 $16,170.94 $4,053.38 393,219.95
December 1, 1998 $16,170.94 $3,932.20 380,981.21
January 1, 1999 $16,170.94 $3,809.81 368,620.08
February 1, 1999 $16,170.94 $3,686.20 356,135.34
March 1, 1999 $16,170.94 $3,561.35 343,525.75
</TABLE>
Exhibit A-4
(Page 1 of 2)
<PAGE> 50
Amortization Schedule for Recovery of Costs for Ixsys Leasehold Improvements
(Continued)
<TABLE>
<S> <C> <C> <C>
April 1, 1999 $16,170.94 $3,435.26 330,790.07
May 1, 1999 $16,170.94 $3,037.90 317,927.03
June 1, 1999 $16,170.94 $3,179.27 304,935.36
July 1, 1999 $16,170.94 $3,049.35 291,813.78
August 1, 1999 $16,170.94 $2,918.14 278,560.97
September 1, 1999 $16,170.94 $2,785.61 265,175.64
October 1, 1999 $16,170.94 $2,651.76 251,656.46
November 1, 1999 $16,170.94 $2,516.56 238,002.08
December 1, 1999 $16,170.94 $2,380.02 224,211.16
January 1, 2000 $16,170.94 $2,242.11 210,282.34
February 1, 2000 $16,170.94 $2,102.82 196,214.22
March 1, 2000 $16,170.94 $1,962.14 182,005.42
April 1, 2000 $16,170.94 $1,820.05 167,654.54
May 1, 2000 $16,170.94 $1,676.55 153,160.14
June 1, 2000 $16,170.94 $1,531.60 138,520.80
July 1, 2000 $16,170.94 $1,385.21 123,735.07
August 1, 2000 $16,170.94 $1,237.35 108,801.48
September 1, 2000 $16,170.94 $1,088.01 93,718.56
October 1, 2000 $16,170.94 $ 937.19 78,484.80
November 1, 2000 $16,170.94 $ 784.85 63,098.71
December 1, 2000 $16,170.94 $ 630.99 47,558.76
January 1, 2001 $16,170.94 $ 475.59 31,863.40
February 1, 2001 $16,170.94 $ 318.63 16,011.10
March 1, 2001 $16,170.94 $ 160.11 0.27
</TABLE>
Amor_IXSYS
Exhibit A-4
(Page 2 of 2)
<PAGE> 51
AMENDMENT #3 TO THE SUBLEASE
BY AND BETWEEN
GENERAL ATOMICS AND IXSYS, INC.
This Sublease Amendment #3 ("Amendment #3"), dated October 1, 1997 for reference
purposes only, is made by and between General Atomics, ("Lessor") and Ixsys,
Inc. ("Lessee").
RECITALS
Lessee and Lessor are Parties to a certain Sublease Agreement dated June 1,
1993, Amendment #1 dated March 1, 1994, and Amendment #2 dated January 1, 1995,
for certain Premises at Buildings 3 and 6 of Lessor's Sorrento West Commercial
Park.
Ixsys, Inc. subleases a portion of Builds 3 and 6 and desires to reduce the size
of its Premises, vacate Building 3 (approximately 11,000sf of improved office
space) and consolidate its operations to Building 6.
Biosite Diagnostics, Inc., a Tenant that currently subleases 9,817sf of Building
3, has a need to expand its Premises and by a concurrent sublease amendment
agrees to sublease all Building 3 space vacated by Ixsys, Inc.
Ixsys, Inc. has a need to expand its Premises in Building 6 to accommodate the
surrender of the Building 3 Premises and agrees to sublease approximately
6,203sf of Building 6 improved space from General Atomics.
Effective the date of Amendment #3, Ixsys, Inc. remains indebted to General
Atomics for approximately $145,868 expended by General Atomics for Leasehold
Improvements installed specifically for Ixsys, Inc. at Building 3, and Ixsys
Inc. has agreed to continue monthly payments until the debt is fully paid.
General Atomics consents to the assignment of the Building 3 Premises to Biosite
Diagnostics, Inc., and the concurrent subleasing of added space in Building 6 to
Ixsys, Inc. on a short term, subject to the condition that Lessor incurs no
additional costs, loss of Rent and Loss of Operating Expenses, except that
associated with the net reduction in length of lease term for Building 3, Suite
B.
NOW THEREFORE, in consideration of the foregoing, and in consideration of
mutual covenants and agreements of the Parties hereto, the Parties mutually
covenant and agree as follows:
2.1 PREMISES. Amendment #3 reduces Lessee's Building 3 Premises by
approximately 11,000sf (Surrendered Space) more specifically shown on attached
Exhibit A-2, and increases Building 6 Premises by 6,203sf (Added Space) more
specifically shown on attached Exhibit A-3. Following is a summary of the
Lessee's space blocks, the date of Possession (or Surrender), the approximate
size, and respective leasehold improvement phase for which leasehold financing
is attributed:
<TABLE>
<CAPTION>
POSSESSION SPACE IMPROVEMENT
LOCATION SIZE(GSF) SURRENDER DATES DESIGNATION PHASE
- -------- -------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Building 6 14,000 12/17/93 First-in Phase 1
Building 3 9,626 01/19/94 First-in Admin.
Building 6 3,910 07/01/94 Expansion Phase 2
Building 3 475 07/01/94 Expansion N/A
Building 3 899 03/01/95 Expansion N/A
Building 3 11,000 12/01/97 Surrendered N/A
Building 6 6,203 12/01/97 Added N/A
Building 3 00
Building 6 24,113
------
TOTAL 24,113 REVISED
</TABLE>
3.0 TERM. Delete in its entirety and replace with the following: End of Term
for the SURRENDERED Space and start of Term for ADDED Space shall be as noted
under Paragraph 2.1. End of Term for ADDED space shall be as described in
Paragraph 39.5.
4.1 RENT. Delete in its entirety and replace with the following: Starting
Monthly Rent for the ADDED Space shall be $4,466. Monthly Rent for Building 6
CURRENT Space shall remain unchanged at $13,599. If the Lessee retains
Possession of ADDED Space, then effective January 1, 2001, rental rate for ADDED
Space shall be at the same rate for CURRENT SPACE.
4.2(a) OPERATING EXPENSES. Delete in its entirety and replace with the
following: Lessee shall pay its prorata share of Operating Expenses for all
leased space including ADDED Space. Amendment #3 changes the Lessee's prorata
share of Operating Expense for the REVISED Space to: Building 3:00%; Building
6:100%; Park: 20.33%.
<PAGE> 52
6.3 CONDITION OF THE PREMISES. Add Paragraph 6.3(c): Except for the Heating,
Ventilation and Air-conditioning Systems, for which Lessor agrees to warrant as
being in good operating condition for a period of twelve months, Lessee accepts
the Building 6 ADDED Space in "as-is" condition, cleaned, with other building
systems warranted by the Lessor for 30 days as in good working condition.
Lessee agrees to vacate Building 3 SURRENDERED Space, cleaned and acceptable to
the Lessor and Assignee (Biosite Diagnostics), and to warrant to the Assignee,
the SURRENDERED Space as being in good working condition for a thirty-day
period after date of Assignment.
39 Options. Add Paragraph 39.5
39.5 Provided Lessee is not in default of terms and conditions of the Sublease
Agreement, Lessor grants to Lessee two one-year options ("Options") to extend
the Term for the ADDED Space. Lessee shall notify Lessor three months in
advance of its intent to surrender ADDED Space.
Unless the Lessor is service formal notice of Lessee's intent to surrender
ADDED Space prior to the first or second Option Terms (successive terms
starting January 1, 1999 and January 1, 2000), Lessor shall proceed on the
basis that the Lessee will retain Possession through the forthcoming Option
Year. If the Lessee waives its right to surrender ADDED Space three months
prior to the end of the second Option Year, then Lessor shall proceed on the
basis that the Lessee elects to sublease the ADDED Space through a term
coterminous with that for CURRENT Space, or December 16, 2003.
For the first one-year Option Term, Lessee shall have the option to surrender
all ADDED Space but retain Room Number 126, in which event, Lessee shall bear
the cost to meter electrical usage for the retained ADDED Space.
46 ADDENDUM. Add Exhibit 1 by Amendment #3
48.2
&54 RENT ESCALATIONS. Delete in its entirety and replace with the following:
Effective the dates shown in the summary below, Monthly Rent shall be indexed
at a fixed three percent (3%), compounded and cumulative. This summary is
presented under the assumption that the Lessee exercises both one-year Options
for ADDED Space, and retains the ADDED Space through a term coterminous with
CURRENT Space. If the Lessee elects to surrender ADDED Space, then Rent
reduction shall be in direct relationship to that amount then in effect for the
ADDED Space as shown in the summary below:
<TABLE>
<CAPTION>
MONTHLY RENT
------------------ ADDED
EFFECTIVE CURRENT ADDED SPACE
DATE SPACE SPACE NOTES
--------- ------- ----- -----
<S> <C> <C> <C>
10/01/97 $13,599 N/A Pre-possession
11/01/97 Same $4,466 Possession Date
01/01/98 $14,007 $4,466 Base Year
01/01/99 $14,427 $4,600 Option Year 1
01/01/00 $14,860 $4,738 Option Year 2
01/01/01 $15,306 $5,301 Same as Current
01/01/02 $15,765 $5,460 Same as Current
01/01/03 $16,238 $5,624 Same as Current
</TABLE>
48.3 LEASEHOLD IMPROVEMENT RECOVERY. Lessee shall continue with monthly payment
of Leasehold Improvements in the amount established in Sublease Amendment #2.
Parties agree that the obligation for payment of debt for improvements in
Building 3 SURRENDERED Space shall be performed and observed under Amendment #3
with the same force and effect as if performed and observed prior to execution
of Amendment #3, and failure to make monthly payment of a portion or all of the
leasehold payments shall be deemed a material default as covered in Sublease
Agreement, Paragraph 13. In the event that the Lessee's controlling interest or
the majority ownership changes, the Lessor shall have the option to demand full
payment of debt remaining for Building 3 leasehold improvements with said
payment within thirty days after formal demand from the Lessor.
48.4 SECURITY DEPOSIT. Delete in its entirety and replace with the following:
Lessee shall have on Record with Lessor a Security Deposit adequate to secure
payment of Rent, Leasehold Improvement recovery and Operating Expenses in the
amount equivalent to one month's Rent, one month's Leasehold Payments and two
month's average Operating Expenses. The following summarizes the Security
Deposit required upon execution of Amendment #3:
-2-
<PAGE> 53
<TABLE>
<S> <C>
One month's Rent Building 6 - CURRENT Space $13,599
One month's Rent Building 6 - ADDED Space $ 4,466
Two Month's Operating Ex. 24,113sf x $0.15/mo x 2mo $ 7,234
Monthly Leasehold Payment - Buildings 3 and 6 $16,171
-------
Total $41,470
Less Security Deposit on Record: $47,614
-------
SURPLUS SECURITY DEPOSIT EFFECTIVE THIS AMENDMENT $ 6,144
</TABLE>
Lessor shall credit surplus Security Deposit to the Lessee's first and second
month's Added Space Rent.
55. EARLY POSSESSION. Add new Paragraph: Effective with execution of this
Amendment, Lessor grants Lessee early access to vacant ADDED Space, specifically
Room 126, for design and alteration purposes on condition that the adjoining
Tenants in occupied ADDED Space are not detrimentally affected by noise, dust,
loss of power or construction mishaps.
EXCEPT AS HEREBY AMENDED, ALL OTHER TERMS AND CONDITIONS OF SAID SUBLEASE, AND
SUBLEASE AMENDMENTS, SHALL REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.
LESSOR: LESSEE:
GENERAL ATOMICS XSYS, INCORPORATED
By: /s/ ROBERT H. DALRY By: /s/ JANINE M. TAYLOR
---------------------- --------------------------
Name: Robert H. Dalry Name: Janine M. Taylor
-------------------- ------------------------
Title: Director Facilities Title: V.P. Finance & Admin.
------------------- -----------------------
Chief Financial Officer
Date: Sept. 25, 1997 Date: September 24, 1997
-------------------- ------------------------
-3-
<PAGE> 54
EXHIBIT A-2
[DIAGRAM OF FLOOR PLAN]
BUILDING 3
SUITE A AND SUITE B
OCTOBER 1, 1997
PAGE 1 OF 2
<PAGE> 55
EXHIBIT A-3
[DIAGRAM OF FLOOR PLAN]
BUILDING 6
OCTOBER 1, 1997
PAGE 2 OF 2
<PAGE> 1
Exhibit 10.11
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
<TABLE>
<S> <C> <C>
WARRANT TO PURCHASE 26,667 ISSUE DATE: AUGUST 30, 1996
SHARES OF THE SERIES E PREFERRED EXPIRATION DATE: AUGUST 29, 2001**
STOCK OF IXSYS, INC. INITIAL EXERCISE PRICE: $5.625 PER SHARE
</TABLE>
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and non-assessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 ALTERNATIVE STOCK APPRECIATION RIGHT. At Holder's option, the Company
shall pay Holder the fair market value of the Shares issuable upon conversion of
this Warrant pursuant to Section 1.2 in cash in lieu of such Shares.
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. It the Shares are not traded in a public market, the
- --------
** Or two years after the initial public offering of the Company's stock, which
ever date shall first occur.
-1-
<PAGE> 2
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFTCATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the cast of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition" means
any sale, license or other disposition of all or substantially all of the assets
of the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise or the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly,
1.7.3. NONASSUMPTION. If upon the closing of any Acquisition the successor
entity does not assume the obligations of this Warrant and Holder has not
otherwise exercised this Warrant in full, then the unexercised portion of this
Warrant shall be deemed to have been automatically converted pursuant to Section
1.2 and thereafter Holder shall participate in the acquisition on the same terms
as other holders of the same class of securities of the Company.
1.7.4. [RESERVED]
1.7.5. CONVERSION. Upon conversion of all of the issued and outstanding
shares of the Company's Series E Preferred Stock into Common Stock, this Warrant
shall automatically be exercisable only for such number of shares of Common
Stock of the Company as the Holder hereof would have received had this Warrant
been exercised in full for Series E Preferred Stock and then converted Into
Common Stock on the date all issued and outstanding shares of Series E Preferred
converted Into Common Stock. The Warrant Price in effect immediately prior to
such conversion shall concurrently
-2-
<PAGE> 3
with the effectiveness of such conversion be proportionately adjusted. Upon such
conversion of the Series E Preferred Stock into Common Stock, all references
under this Warrant to Series E Preferred Stock shall be deemed to be references
to Common Stock.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without Cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number
or Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to he
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in
-3-
<PAGE> 4
carrying out of all the provisions of this Article 2 and in taking all such
action as may be necessary or appropriate to protect Holder's rights under this
Article against impairment. If the Company takes any action affecting the Shares
or its common stock other than as described above that adversely affects
Holder's rights under this Warrant, the Warrant Price shall be adjusted downward
and the number of Shares issuable upon exercise of this Warrant shall be
adjusted upward in such a manner that the aggregate Warrant Price of this
Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value or a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant
is not greater than (i) the price per share at which the Shares were. last
issued in an arms-length transaction in which at least $500,000 of the Shares
were sold and (ii) the fair market value of the Shares as of the date of this
Warrant.
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant. and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights,
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in
-4-
<PAGE> 5
(c) and (d) above; (2) in the case of the matters referred to in (c) and (d)
above at least 20 days prior written notice of the date when the same will take
place (and specifying the date on which the holders of common stock will be
entitled to exchange their common stock for securities or other property
deliverable upon the occurrence of such event); and (3) in the case of the
matter referred to in (e) above, the same notice as is given to the holders of
such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITH-OUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability or current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holders notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly
-5-
<PAGE> 6
or indirectly, upon conversion of the Shares, if any) by giving the Company
notice of the portion of the Warrant being transferred setting forth the name,
address and taxpayer identification number of the transferee, and surrendering
this Warrant to the Company for issuance to the transferee(s) (and Holder if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with. the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
IXSYS, INC.
By /s/
---------------------------------
Chairman of the Board, President
or Vice President
By /s/ JANINE TAYLOR
---------------------------------
Secretary or Assistant Secretary
-6-
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common/Series Preferred [strike one] Stock of ___________ pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ______________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below:
-------------------------
(NAME)
-------------------------
-------------------------
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
-------------------------------------------------
(Signature)
-------------------------------------------------
(Date)
APPENDIX 2
[reserved]
<PAGE> 8
EXHIBIT A
ANTI-DILUTION PROVISIONS
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of
*
then the number of shares of common stock issuable upon conversion of the Shares
shall be adjusted in accordance with those provisions (the "Provisions") of the
Company's Certificate of Incorporation which apply to Diluting Issuances.
**
* "Additional Shares" as defined in the Company's Certificate of
Incorporation.
** The Company agrees that the Provisions, as in effect on the Issue Date,
shall not be affected by any subsequent amendment, waiver or termination
thereof by the Company's shareholders which affects only the rights of the
Holder of the Warrant.
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion
of the Shares, shall be deemed "registrable securities" or otherwise entitled to
"piggy back" registration rights in accordance with the terms of the following
agreement (the "Agreement") between the Company and its investor(s):
N/A
- -------------------------------------------------------------------------------
[Identify Agreement by date, title and parties. If no Agreement exists,
indicate by "none".]
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall be deemed to be a party to the Agreement.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
issue Date of the Warrant.
<PAGE> 1
Exhibit 10.12
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
<TABLE>
<S> <C> <C>
WARRANT TO PURCHASE 40,000 ISSUE DATE: JUNE 23, 1997
SHARES OF THE SERIES E PREFERRED EXPIRATION DATE: JUNE 23, 2002**
STOCK OF IXSYS, INC. INITIAL EXERCISE PRICE: $5.625 PER SHARE
</TABLE>
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and non-assessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 ALTERNATIVE STOCK APPRECIATION RIGHT. At Holder's option, the Company
shall pay Holder the fair market value of the Shares issuable upon conversion of
this Warrant pursuant to Section 1.2 in cash in lieu of such Shares.
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. It the Shares are not traded in a public market, the
- --------
** Or two years after the initial public offering of the Company's stock, which
ever date shall first occur.
-1-
<PAGE> 2
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFTCATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the cast of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition" means
any sale, license or other disposition of all or substantially all of the assets
of the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise or the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly,
1.7.3. NONASSUMPTION. If upon the closing of any Acquisition the successor
entity does not assume the obligations of this Warrant and Holder has not
otherwise exercised this Warrant in full, then the unexercised portion of this
Warrant shall be deemed to have been automatically converted pursuant to Section
1.2 and thereafter Holder shall participate in the acquisition on the same terms
as other holders of the same class of securities of the Company.
1.7.4. [RESERVED]
1.7.5. CONVERSION. Upon conversion of all of the issued and outstanding
shares of the Company's Series E Preferred Stock into Common Stock, this Warrant
shall automatically be exercisable only for such number of shares of Common
Stock of the Company as the Holder hereof would have received had this Warrant
been exercised in full for Series E Preferred Stock and then converted Into
Common Stock on the date all issued and outstanding shares of Series E Preferred
converted Into Common Stock. The Warrant Price in effect immediately prior to
such conversion shall concurrently
-2-
<PAGE> 3
with the effectiveness of such conversion be proportionately adjusted. Upon such
conversion of the Series E Preferred Stock into Common Stock, all references
under this Warrant to Series E Preferred Stock shall be deemed to be references
to Common Stock.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without Cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number
or Shares issuable upon exercise of this Warrant or, if the Shares are Preferred
Stock, the number of shares of common stock issuable upon conversion of the
Shares, shall be subject to adjustment, from time to time in the manner set
forth on Exhibit A in the event of Diluting Issuances (as defined on Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to he
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in
-3-
<PAGE> 4
carrying out of all the provisions of this Article 2 and in taking all such
action as may be necessary or appropriate to protect Holder's rights under this
Article against impairment. If the Company takes any action affecting the Shares
or its common stock other than as described above that adversely affects
Holder's rights under this Warrant, the Warrant Price shall be adjusted downward
and the number of Shares issuable upon exercise of this Warrant shall be
adjusted upward in such a manner that the aggregate Warrant Price of this
Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value or a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant
is not greater than (i) the price per share at which the Shares were. last
issued in an arms-length transaction in which at least $500,000 of the Shares
were sold and (ii) the fair market value of the Shares as of the date of this
Warrant.
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant. and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights,
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in
-4-
<PAGE> 5
(c) and (d) above; (2) in the case of the matters referred to in (c) and (d)
above at least 20 days prior written notice of the date when the same will take
place (and specifying the date on which the holders of common stock will be
entitled to exchange their common stock for securities or other property
deliverable upon the occurrence of such event); and (3) in the case of the
matter referred to in (e) above, the same notice as is given to the holders of
such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or
in part, at any time and from time to time on or before the Expiration Date set
forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability or current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holders notice of
proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2, Holder
may transfer all or part of this Warrant or the Shares issuable upon exercise of
this Warrant (or the securities issuable, directly
-5-
<PAGE> 6
or indirectly, upon conversion of the Shares, if any) by giving the Company
notice of the portion of the Warrant being transferred setting forth the name,
address and taxpayer identification number of the transferee, and surrendering
this Warrant to the Company for issuance to the transferee(s) (and Holder if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
IXSYS, INC.
By /s/ COSTAS G. SEVASTOPOULOS
--------------------------------
Chairman of the Board, President
or Vice President
By /s/ JANINE TAYLOR
--------------------------------
Secretary or Assistant Secretary
-6-
<PAGE> 7
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase __________ shares of the
Common/Series Preferred [strike one] Stock of ___________ pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ______________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name as is specified below:
-------------------------
(NAME)
-------------------------
-------------------------
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its own
account and not as a nominee for any other party and not with a view toward the
resale or distribution thereof except in compliance with applicable securities
laws.
- ----------------------------------------
(Signature)
- ----------------------------------------
(Date)
APPENDIX 2
[reserved]
<PAGE> 8
EXHIBIT A
ANTI-DILUTION PROVISIONS
In the event of the issuance (a "Diluting Issuance") by the Company, after
the Issue Date of the Warrant, of securities at a price per share less than the
Warrant Price, then the number of shares of common stock issuable upon
conversion of the Shares shall be adjusted in accordance with those provisions
(the "Provisions") of the Company's Certificate of Incorporation which apply to
Diluting Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date, shall
be deemed to remain in full force and effect during the term of the Warrant
notwithstanding any subsequent amendment, waiver or termination thereof by the
Company's shareholders.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon conversion of
the Shares, shall be deemed "registrable securities" or otherwise entitled to
"piggy back" registration rights in accordance with the terms of the following
agreement (the "Agreement") between the Company and its investor(s):
N/A
- -------------------------------------------------------------------------------
[Identify Agreement by date, title and parties. If no Agreement exists,
indicate by "none".]
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder without
the consent of Holder. By acceptance of the Warrant to which this Exhibit B is
attached, Holder shall be deemed to be a party to the Agreement.
If no Agreement exists, then the Company and the Holder shall enter into
Holder's standard form of Registration Rights Agreement as in effect on the
issue Date of the Warrant.
<PAGE> 1
EXHIBIT 22.1
LIST OF SUBSIDIARIES
1. Novasite Pharmaceuticals, Inc., a Delaware Corporation
2. Phase IV Pharmaceuticals, Inc., a Delaware Corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
January 27, 2000, except for Note 8, as to which the date is May 3, 2000, in
the Registration Statement (Form S-1) and related Prospectus of Applied
Molecular Evolution, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
San Diego, California
May 11, 2000
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